Pets At Home Share Discussion Threads

[spotdog40] 24/5/2017 17:20

Couldn't just copy the link, so I'm afraid you've got the whole article. From www.proactiveinvestors.co.uk

Does bid from Mars set benchmark for vet chains such as CVS Group?
11:56 13 Feb 2017
At the last count CVS owned 378 vets’ surgeries around the UK after splashing out £63mln last year buying 67.

Last month the chocolate giant Mars made what looked like a rather leftfield acquisition when it agreed to pay US$9.1mln for VCA, America’s largest veterinary chain.

It’s not such an unusual deal when you realise the Snickers and Milky Way maker also owns some of the world’s best known pet food brands.

Even so, there would have to be quite a few cost savings and synergies to make the transaction work – given the take-out multiples involved.

For the confectioner, which also owns Whiskas, Pedigree and IAMS, paid a whopping 19-times last year’s underlying earnings (EBITDA), or 3.8 times revenues.

That’s big bucks but not unusual for the sector, with private equity selling vet chains for anywhere upwards of 15-19 times.

Now, it may be worth just retaining that nugget on valuations (while recognising the fact that private equity is active in the sector) when assessing the investment merits of CVS Group (LON:CVSG).

It is the UK’s only listed pure-play and integrated veterinarian business and second only to Pets at Home in terms of the numbers of outlets (remember PAH is ostensibly a retailer).

At the last count CVS owned 378 vets’ surgeries around the UK after splashing out £63mln last year buying 67.

“People sometimes think we acquire a business and we save lots on the administration. We don’t. The benefits we get are the buying benefits,” says the company’s finance director Nick Perrin.

New additions to the portfolio are also plugged into the company’s crematoria and labs, conferring further savings.

In it last full year, the CVS turned over £218mln, generating adjusted EBITDA £33mln, up 30% and 43% respectively. Like-for-like growth was a more pedestrian but still a respectable 5%.

As well as crematoria and labs, the company also has an online business and last autumn announced plans to provide its own pet insurance. It also runs a Healthy Pet Club preventative medicine scheme with 280,000 members paying £11 a month.

After last year’s flurry of acquisitions, which also included the purchase of three crematoria, the Vetshare buying and the VETisco instrumentation business, the company’s net debt was £93mln at the financial year end.

Last December it raised £30mln from investors, which along with the cash generated by the business will help bring gearing below two-times EBITDA – a level of indebtedness investors are comfortable with.

“It wasn’t that we couldn’t service that debt. The worry was it might limit our opportunities when acquisitions came along,” said Perrin.

With around 5,000 veterinary surgeries around the UK, there’s still plenty of room for growth.

And unlike some of the competition it isn’t limited in what it can acquire.

“We do much more than other people. Pets at Home, for instance, only do small animals. We do farm work and equine; we have labs and referral services and our own out of hours service,” said Perrin.

“The other industry players might do one or two of those, but not everything.”

The CVS finance director admits there is competition out there for deals, which has driven up prices.

However, the company doesn’t tend to pay more than seven-times EBITDA. And on that basis you see why the sector is attractive to private equity: the buyout companies are able to sell businesses for roughly double the amount they are paying (if not more).

Broker Investec reckons the ‘companion animal services market’ (pet care to you and me) is primed to grow around 5% a year for the foreseeable future as owners spend more on their charges with human-style services. And crucially it is “relatively immune to economic pressure”.

So, the fundamentals of the industry are decent. Of course, there are opportunities to export the model and in fact CVS is looking to push into the Netherlands.

City firm N+1 Singer thinks there is the potential to create a £1bn champion of the sector – although it is two-thirds of the way there already.

The shares aren’t exactly cheap on forward 23-times earnings per share, or just under 15-times forecast EBITDA; however, as we have seen with the Mars deal there are those out there willing to fork out those sums.

[spotdog40] 24/5/2017 14:39

"9 JANUARY 2017 • 3:46PM
Pet food and sweet maker Mars is buying animal healthcare company VCA in a deal valued at $9.1bn (£7.48bn), cementing the company's position as the largest provider of veterinary hospitals in the United States.

Mars, which owns the Whiskas and Pedigree pet food brands, has been expanding into the veterinary sector in recent years."

"For the confectioner, which also owns Whiskas, Pedigree and IAMS, paid a whopping 19-times last year’s underlying earnings (EBITDA), or 3.8 times revenues."

That's old news, and maybe Mars wouldn't be interested in a trifling £1bn takeover, but this business is significantly undervalued in what's generally an overvalued sector.

At current exchange rates, it would be an even greater bargain for an American pet food manufacturer who's started collecting veterinary businesses. I wonder if there might be any synergies?!!

[spoole5] 23/5/2017 19:30

Every time this shows any sign of recovery the shorters hammer it again. All will be revealed on the 25th. Expecting solid numbers and a special dividend or buyback.

[gswredland] 23/5/2017 18:59

Interesting. Still looking from the sidelines

[spotdog40] 23/5/2017 18:18

CVSG own approx ~400 vet practices (and some other businesses which contribute slightly)to make a total ~£20m profit. It currently has a market cap of £850m.
PETS own/part own ~400 vet practices (and a very profitable pet shop business) to make~ £90m total profit. Todays market cap <£800m.

In a "disappointing" Q3 trading update (Jan), Ian Kellett, Chief Executive Officer, commented:

"Vet services yet again performed strongly this quarter, where our strategy of providing a quality service to clients across both primary opinion and specialist referral centres is delivering results, and is a platform for continuing strong growth.

Services revenues were up 47.8% to £26.3m, reflecting Joint Venture vet practice fee income up 26.2% to £9.5m and the contribution from newly acquired specialist referral centres.

Profit outlook for FY17 remains in line with market expectations."

KKR paid £995m for what was mostly a pet shop business in 2010. They sold it at a profit in 2014, and now the veterinary business is maturing.

Can't see too much downside from here, and it even pays a decent divi.

Stagnating pet shop sales are already factored into the price, but as a veterinary business it's a bargain.

Shorters have 7% of the shares to buy back if the results aren't disastrous.

DYOR

[crystball] 22/5/2017 11:10

Are Morgan Stanley right in their view on PETS? We will find out on 25th. Or, does the CFO of Pets have the right view in buying shares a while back?

[fizzypop] 22/5/2017 10:39

Waking up in time for the results on 25 May

[bigdazzler] 19/5/2017 10:48

Every dog has its day. Woof woof.

[al h] 19/5/2017 10:46

Shorts capitulating perhaps

[spoole5] 19/5/2017 10:38

This dog shaking off some fleas today.

[staylow2] 18/5/2017 08:27

Price is being pinned. Still looks to be weighted to the offer even at this level

[maurillac] 17/5/2017 12:16

All depends on your timescale I suppose ...
M

[spoole5] 17/5/2017 08:08

Well this is turning into a classic example of the dangers of trying to catch a falling knife and attempting to call the bottom on a stock.

[bigdazzler] 16/5/2017 12:33

Well I have gone long based on changing short term momentum over last few days and the price being oversold on a -3atr system that I use based on 21ma. All about mean reversion.

Still tight stop loss as long term downward momentum could pull this down further so I am swimming against the main tide you see.

Anyway woof woof.

[staylow2] 15/5/2017 19:47

Would I be right in saying the RNS indicates who the seller was then? 63mill to 60mill?

[spoole5] 15/5/2017 17:42

Will the shorters close before the results, pets have already stated they will be considering cash returns in the form of specials or buybacks making the price of shorting even more expensive. Of course if long term you think the company's business model is flawed you will keep the position open and pay the price.

[anthonyspencer1] 15/5/2017 17:25

Also put a few quid on the above. You never know ?

[anthonyspencer1] 15/5/2017 17:24

A couple attempts at this now. Hard to tell where the bottom is. Must be close right?

[berkhath] 15/5/2017 13:59

3 10 17 35 43 48

[alibx11] 15/5/2017 13:37

Don't happen to know tomorrow's lotto numbers too BerkHath?

[berkhath] 15/5/2017 12:55

Massive buy about to happen. I expect a sharp bounce back to 180.I reckon best to top up.

[gswredland] 15/5/2017 12:02

Yep agreed but the chart is looking so ugly

[maurillac] 15/5/2017 09:50

pugugly - shorters been heavily into mks for months and the share price when i bought in october was 318 - its 372 now ! sometimes you go with your beliefs and not with the mob ........
gla
m

[spoole5] 15/5/2017 08:14

Hopefully they will announce a share buyback in the results with the shares at this level.

[yump] 14/5/2017 16:24

Shorting is, as far as I know, more to do with the opportunity to mess with the market's confidence and therefore exaggerate share price drops, than anything much to do with fundamentals of a business.

Its the big players' opposite of ramping, which I'd assume they can't really do successfully with very large businesses.

So I don't think 'the City' actually thinks anything in particular about PETS, other than they would look daft for recommending it at the moment. But the darling lemmings will all about-face at some point and say its pricing in too much gloom.