March 2, 2023
Pet Valu Holdings Ltd.
PET announces new CFO
News: PET announced a new CFO, Linda Drysdale, effective March 6, 2023. Ms. Drysdale replaces former CFO Jim Grady, who resigned effective January 20, 2023, to pursue a leadership role in a private US-based company. Ms. Drysdale has extensive experience in Canadian retail, has been a Board member at PET, and appears to be a strong choice for the company.
As a reminder, PET will report Q4/F22 results next Tuesday, March 7, (Ex. 1-2) and we reiterate our view that the outlook remains compelling.
Key points:
A solid choice: With a strong background in Canadian retail (broadly defined) and good early feedback, we view Ms. Drysdale as a solid choice as CFO. Most recently Ms. Drysdale was CFO of Interac, and previously, spent 11 years at Canadian Tire, including acting as CFO of Canadian Tire Bank from 2010-2016. Ms. Drysdale joined the PET Board on August 12, 2021 and has been acting as Chair of the Audit Committee since November 9, 2021, implying that Ms. Drysdale should be off to a running start in her new role.
No change in strategy/approach expected: Under strong leadership of CEO Richard Maltsbarger we do not expect changes in strategy/execution of Pet Valu’s growth strategy as outlined at IPO and executed strongly post-IPO.
Reminder of Q4 expectations: Forecasts consistent with updated guidance/consensus: Revenue growth estimate +13% Y/Y, EBITDA +7.5% Y/ Y. For 2022, we forecast adjusted EBITDA +17% Y/Y to $212.8 MM (guidance $212-$214 MM) and EPS +50% Y/Y to $1.58 (guidance $1.56-$1.58). Our 2022E SSS +16.3% at the high end of guidance range +15.5-16.5% drives revenue to $938 MM (guidance $938-$947 MM). SSS outlook underpinned by combination of higher transaction count and basket. GM% assumptions reflect: i) rational competitive dynamics; ii) strong positioning in proprietary brands; and iii) traction of loyalty program.
Anticipating 2023 guidance in conjunction with Q4, reinforcing good/ better/best positioning and attractive relative value of proprietary brands that positions PET well for potential mix shift in downturn. Additionally, ongoing supply chain investments including the construction of a larger distribution centre in the GTA scheduled for start-up in H2/23, related investments in Vancouver and Calgary, and further investments related to Chico integration should keep 2023/24E capex elevated (RBC CM: $35-$40 MM/year). Duplicate operating costs during transition to new DC in GTA likely to moderate reported net income in H2/23E.
Rating/PT unchanged. OP rating underpinned by sustainable growth, FCF generation, and high-return franchise model. PET is trading at 14.6x 2023E EBITDA (Ex. 3 and 4), in line with the post-IPO average. On a relative basis, trading multiple is below DOL 15.9x (Ex. 4).