HSBC says to expect resilience against a difficult retail backdrop when Pets at Home Group PLC (LON:PETS) publishes fiscal second quarter results on Thursday.
The bank says the company is the clear leader in the specialist pet retail market and should therefore be well-placed to take advantage of “structural industry trends”, but the last few months have been tough for this retail niche.
Taking a longer term view, however, points to considerable share price upside, according to HSBC, which has a target price of 320p, versus the current share price of 230p.
“Consistently positive LFL [like-for-like sales] growth and strong customer satisfaction suggest Pets at Home is sharing its scale benefits with consumers meaning that the long term looks attractive, despite near term margin head-winds. In Services, Pets at Home has a unique business model and considerable growth opportunity. It is the leader in numerous, fragmented niches including vets, groomer and referral hospitals,” HSBC noted.
HSBC thinks it should enjoy a premium valuation of the kind enjoyed by peers CVS Group.
As for Thursday’s results, HSBC is tipping half-year sales of £438mln, up 8% year-on-year, with merchandise sales up 5% at £380mln and services revenue up 38% at £58mln.
Underlying earnings (EBITDA) are expected to edge up 3% to £62.6mln while profit before tax is tipped to rise 2% to £46mln.
“We expect 2Q to have been tougher given weak footfall trends across the retail sector, however against relatively soft comparatives we still expect LFL growth to have remained positive at +1.5%. On the Services side we would look for a step up in vet openings in Q2 after a muted start to the year,” HSBC ventured.