Interactive Investor

Shares round-up: Pets at Home, Tate & Lyle

27th May 2021 15:41

Graeme Evans from interactive investor

Pet care stock’s shareholders stay loyal, while sugar firm struggles.

Pets at Home (LSE:PETS) shareholders stayed loyal to the retail chain today after better-than-expected results fuelled hopes that its upward momentum can last beyond the pandemic.

Tailwinds from a surge in pet ownership during Covid-19 lockdowns helped retail revenues to top £1 billion for the first time as profits came in ahead of City forecasts at £87.5 million for the year to 25 March. The dividend for the year was 7% higher at 8p a share.

The question for shareholders after reaping the benefits of the FTSE 250 stock doubling in value over the past year is whether it is able to capitalise on opportunities longer term.

Chief executive Peter Pritchard believes the pandemic has structurally changed the dynamics of the pet care market, with much higher levels of ownership and other drivers such as premiumisation and humanisation. He highlights a £600 million customer revenue opportunity across the business over the medium term.

His optimism is supported by analysts at HSBC after they raised their price target by 60p to 550p. The shares were today 6.2p higher at 469.6p, compared with 228p a year ago.

HSBC said: “The lifestyle changes over the last year have been a tailwind for Pets at Home, but in contrast to many other companies, where benefits may prove transitory, the pet industry should see a sustained improvement in revenue and growth.”

They said that an 8% increase in pet ownership supported a faster revenues growth outlook through demand for products and vet services. There are also opportunities around leveraging data and the digitisation of the customer offer on to one platform.

Using Pritchard's £600 million forecast over the next five to seven years, HSBC said revenues growing at a compound rate of 6-9% offered the potential for profits to more than double.

The bank increased its earnings forecasts by 8-11% following today's results, with the company itself predicting a profits figure of between £120 million and £130 million in the current year. Broker Numis Securities also moved its target price up from 530p to 560p after raising its outer year profit forecasts by as much as 12%.

The robust performance of Pets at Home came during a lacklustre session for markets, with FTSE 250-listed Tate & Lyle (LSE:TATE) among those struggling after posting results.

The food ingredients and sweeteners business weathered challenging conditions to grow adjusted earnings per share by 12% to 61.2p, but this better-than-expected performance was flattered by factors that will reverse next year, such as a strong result in commodities.

The current year guidance is slightly lower than City forecasts, prompting shares to fall back 5% to 774p after they had made some progress in recent weeks.

Chief executive Nick Hampton said the company had built a strong platform in the three years since it moved from being just an ingredients supplier to engaging more closely with customers at CEO, R&D and marketing levels.

This was reflected in the food and beverage solutions division delivering another year of strong top-line growth and double-digit profit growth. The pandemic has accelerated consumer demand for healthier food and drink, with the division well placed to capitalise on these trends.

The sweeteners and starches Primary Products division was hit by a significant reduction in out-of-home consumption in North America, but this was more than offset by a strong performance in commodities. The company, which increased its full-year dividend by 5.8% to 22p a share, continues to look into selling a controlling stake in the business to a long-term partner.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Related Categories

    UK shares
    Consumer goods and services