Bullboard - Stock Discussion Forum Pet Valu Holdings Ltd T.PET

Alternate Symbol(s): PTVLF

Pet Valu Holdings Ltd. is a Canadian specialty retailer of pet food and pet-related supplies. The Company has over 800 corporate-owned or franchised locations across the country. Through its neighborhood stores and digital platform, the Company offers more than 9,000 competitively priced products, including an assortment of premium, super premium and holistic brands. Its family of stores... see more

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TSX:PET - Post Discussion

Pet Valu Holdings Ltd > TD

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Post by retiredcf on May 03, 2023 8:52am

TD

Have a $45.00 target. GLTA

Pet Valu Holdings Ltd.

(PET-T) C$36.04

Currency and Rates Expected to Stall EPS Growth Temporarily Event

Pet Valu is expected to report Q1/23 results on May 9. We expect adjusted EPS of $0.33 vs. $0.35 LY. Consensus is $0.35 (range: $0.33-$0.36).

Impact: NEUTRAL

SSSG is expected to remain high at +12.4%, despite lapping a tough +22.8% comp LY, driven by inflation passthrough and continuing growth in SS transactions (aided by the company's recently digitized loyalty program). As inflation slows and economic growth wanes, we see SSS moderating sequentially throughout the year to settle closer to a more sustainable ~6% by Q4/23. This strong SSS, coupled with the acquisition of Chico (closed February 25, 2022) and an ~5% increase in the legacy store count y/y, leads to our 20% system sales growth forecast. Our 14.7% forecast growth for PET's revenue is lower than system sales growth considering Chico's minimal self-distribution, lower royalty rates and lack of control over the store real estate at present.
Adjusted EBITDA is expected to increase only 6% as we see gross margin contracting 160bps, mostly tied to PET giving back the gains from a stronger CAD evident throughout most of the previous two years, with a little pressure also from stores absorbing some of the COGS inflation.
We have adjusted EPS falling 6% in Q1 on the normalization of GM%, much higher interest rates (100% of debt is variable rate), and higher D&A (on investments to support growth).

TD Investment Conclusion

We believe PET is poised to deliver strong long-term organic revenue growth, though short-term GM% (currency, duty recoveries) and interest rate headwinds are seen pushing EPS lower through Q2 or Q3. For this reason, P/E valuation — currently below its ~24x average since the IPO and Dollarama's ~26x — probably deserves to remain below-average for now. Considering the liquidity, we recommend using the shares' YTD weakness to build positions before adjusted EPS returns to high-teens growth by Q4/23E and valuation recovers (as investors price in 18%/17% growth in 2024E/2025E).