TSX:PET - Post Discussion
Post by
retiredcf on Aug 09, 2023 8:19am
RBC Report
Their upside scenario target is now $53.00. GLTA
Outperform
TSX: PET; CAD 27.28
Price Target CAD 43.00 ↓ 50.00
Pet Valu Holdings Ltd.
Bow-wow: The right ingredients to navigate turbulence, moderating PT to $43 on NT visibility
Our view: Today’s share price decline despite solid H1/F23 and guidance that implies accelerating financial performance in H2 is likely overreaction to more cautious consumer demand and GM% visibility. Current valuation also appears to reflect accelerated capital projects to strengthen and scale up distribution infrastructure and appears to imply market skepticism with respect to 2023 guidance. Achievement of implied earnings cadence in H2 likely a catalyst for the stock. Moderating target multiple from 15x to 13.5x to reflect higher rates, diminished NT visibility, PT to $43 (-$7).
Key points:
PET's business remains fundamentally strong notwithstanding evidence of more cautious consumer spending. With a strong mix of value advantaged private brands, offering that skews to essentials, early benefits of ongoing distribution infrastructure investments, and a capital light operating model, in our view, PET is well-equipped to navigate transient headwinds.
Reflecting Q2A results and 2023 trends/outlook into our model leaves our forecasts largely unchanged and toward to the lower-end of 2023E EBITDA/EPS guidance ranges $230-$237 MM and $1.60-$1.66/share respectively. Our 2024E EBITDA/EPS essentially unchanged at $267.9 MM (+15% Y/Y) and $1.98 (+23% Y/Y). Moderating F23E GM% by 50 bps to 35.6% to reflect higher promotional mix, demand headwinds in more discretionary categories that began in May and continues early Q3, and shift to larger pack sizes, partly offset by sustained demand for premium nutrition, PL penetration, DC efficiencies, store occupancy leverage, rising franchise fees, and easing FX headwinds. 2023E GM% excludes approximately 100 bps ($17 MM) of transient network transformation costs. Reiterating our view that PET well positioned for mix shift with good/ better/best positioning and growing mix of proprietary brands at attractive relative value.
Favouring debt repayment over NCIB in 2023. In light of the exit rate on financing costs 7.02% (fully variable), focus for the rest of the year likely favours repayment of credit facility over the NCIB. Accordingly, our revised model defers share repurchases into 2024. Sensitivity to a 1% change in interest rates on closing balance of credit facility equates to $1.5 MM YTD (2.2% of H1 EBT).
Trimming valuation multiple from 15x to 13.5x EBITDA, PT to $43 (-$7) to reflect higher rates, more challenging consumer spending environment. In our view, current valuation 9.3x 2024E EBITDA appears overdone, in our view, with PET operating from a position of strength, holding share gains garnered during the pandemic generating sector-leading ROIC close to 30% amplified by capital-light business model.
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