FTSE 250 shares round-up: Pets at Home, Auction Technology
There were mixed fortunes for this pair of mid-caps; one rallying nicely while the other slumped to a multi-year low. City writer Graeme Evans describes today’s events.
27th November 2024 15:50
by Graeme Evans from interactive investor
The potential upside offered by an ageing cohort of cats and dogs from the Covid-era ownership boom failed to prevent Pets at Home Group (LSE:PETS) shares sinking to a four-year low today.
The FTSE 250-listed stock dived 41.6p to 235.4p after the group told investors in half-year results that it has been operating in an “unusually subdued” pet retail market.
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It expects this trend to continue during the second half of the financial year, fuelling a downgrade to expectations for annual underlying profits.
The company said periods of slower pet market growth are not unprecedented but tend to be short-lived: “We are confident this will be temporary, and growth will return to historical norms with the longer-term attractive outlook for the UK pet care market unchanged.”
Revenues for the six months to 10 October rose by 1.9% to £789.1 million, or by 1.6% on a like-for-like basis. Vet Group revenues remained strong at 18.6%, supported by growth in subscriptions, visits and average transaction values.
In contrast, the figure for the retail estate rose by just 0.1%. The company called this a resilient performance against a declining retail market and in light of the previously flagged impact of its transition to a new digital platform.
Underlying profits of £54.5 million were 14.1% higher but the company expects the full-year performance to only grow modestly from last year. Labour costs are also an issue after forecasting an £18 million increase in the next financial year prior to any mitigating actions.
Peel Hunt cut its profit estimate for this year by £10 million and made similar changes to the following years. It also lowered its price target to 325p but said the business is well-run and should do well when the consumer re-emerges.
The broker said: “It is the market leader in a sector that is growing structurally, with a cohort of pets from the Covid-19 pet ownership boom that should become increasingly lucrative over the next few years.
“Even beyond that the picture is very rosy and the rejig of the distribution network and the online platform have Pets at Home well positioned to make hay.
“However, short term, the forecast momentum looks unlikely to shift and therefore the shares are probably relatively range bound.”
Another factor holding back the shares has been the ongoing Competition and Markets Authority (CMA) investigation into the veterinary services sector. The company said in May that it did not believe its vets growth strategy was threatened by the CMA's review.
In contrast to the retailer, the annual results of Auction Technology Group (LSE:ATG) today helped to extend the recovery for shares seen since September.
The company behind brands including The Saleroom and Bidspotter is back where it started the year at 500p, having risen by 59.5p in today’s session. The shares were 369.5p two months ago.
ATG powers eight online marketplaces and listing sites, hosting in excess of 85,000 live and timed auctions each year in the industrial and commercial and art and antiques sectors.
Alongside an improved second half performance as annual earnings rose by a forecast-beating 17% to $32.4 million,, the group said trading in the first eight weeks of the new financial year had continued that recent momentum.
Revenues growth for this year is expected to be between 4-6%, supported by value-added services and positive gross merchandise value, but with the outlook clouded by uncertain end markets.
The adjusted margin should be just below or in line with the 46% recorded in today’s results, reflecting the impact of ongoing investment in the business.
Deutsche Numis retained its 870p target price following the results, describing the shares as “very good value” at current levels.
JPMorgan Cazenove recently upgraded ATG to Overweight, believing that shares were overly discounting earnings risk into 2025. It said: “We believe this set of results serves as another check-point to rebuild investor confidence in business momentum and strategic execution.”
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