People have always been willing to spend Christmas with pets, even fake pets. Gary Dahl, advertising manager, once sold more than 1 million Pet Rocks, marketed as live pets, in custom cardboard boxes with “breathing holes”. And remember the Tamagotchi virtual pet? Twenty-five years ago, it was one of the biggest toy fads.
But now I’m one of an estimated 59 per cent of British adults with a real pet. And six months into puppy ownership, I quickly learn that a dog is for a lifetime of spending, and not just at Christmas.
Bought with insurance and vet bills already paid, we tested expensive foods and treats (she was a picky eater), and we bought special toys and bedding.
As Christmas approaches, the teenager and tween in my family will want to buy even more puppy toys and treats. Money Expert, a price comparison site, has found that British dog owners spend on average more than £ 236 a month on necessities, plus £ 91.70 a year on gifts and toys, which add up to almost £ 3,000 a year.
It makes me sick like a dog, so I’m going to explore the prospects of pet related companies with a view to buying the shares. To get my money back, as it were.
Junior Isa management is coming up fast for my soon to be 16 year old and it can be a valuable lesson.
Consistent spending on pet supplies ensures a resilient sector. More than a decade ago, fund manager Terry Smith unforgettably explained why he likes to invest in pet food: “Research shows that consumers will reduce their spending on feeding their children before cutting back on their pets.”
Does our puppy get better snacks than them? This is a topic we can discuss. But the important takeaway is brand loyalty – once we’ve got a food that our puppy will eat, we’ll probably stick to it. In our case, it’s Eukanuba, which is owned by Mars, which is a private company, so we can not invest in it.
However, Smith talked about Del Monte’s pet food business, which became Big Heart Pet Brands and is now part of the JM Smucker Co., a packaged food company listed on the New York Stock Exchange. One of the subsidiary brands today is Nature’s Recipe, which has not found puppy love in our home, but the dog’s dinner of choice is for many of our friends.
In his latest book, Investment for Growth published in October 2020, Smith named pets one of his 10 Covid-19 beneficiaries. And most children will be aware that during the 2020 restriction, the UK has faced a shortage of puppies.
In May 2020, investment analysts at Robeco reported: “The global pet care market offers moderate but stable growth prospects, aided by an increase in pet ownership around the world and a steady increase in spending per pet.”
They highlighted the sector’s resilience even in the 2008 financial crisis and the recession that followed. They concluded “the recent surge in ownership in some countries, driven by an increase in adoption and promotion by people confined to their homes, may even soon degenerate into a wind of industry”.
How strong the pandemic pet boom was is a matter of debate. There is a lot of anecdotal evidence about people buying pets and vets being besieged by new customers.
But the 2021 PDSA Animal Welfare Report (also known as The PAW Report) says there has not actually been a statistically significant increase in the estimated population size of the UK’s pet dogs, cats and rabbits since the start of the March 2020 pandemic.
The Pet Food Manufacturers’ Association, which compiles its own historical pet population numbers, has changed the data collection methodology from 2020 to 2021, so it’s hard to make a comparison.
Continuing to invest in this theme is not just about ownership numbers, but about how much we are willing to spend on our animals.
The Pet Care ETF in the US, delightfully named PAWZ, which was launched in 2018, delivered 39 percent growth over the year to October 31st. While savers in the UK cannot invest in this fund, its investment case applies across the developed world. – it is focused on how people, especially millennials, are increasingly spending on pets such as family members. And UK investors can invest in the underlying stocks in other ways.
PAWZ does mention growth in pet ownership – 67 percent of U.S. households today have pets compared to 56 percent in 1988 – but says the big difference is how we “humanize” our pets and “premiumize” pet care.
His top hit is Zoetis, the world’s largest producer of medicines and vaccinations for pets and livestock, listed on the New York Stock Exchange. Kristin Peck, CEO, says the company is on track for a “record year”And see positive market trends continuing in 2022.
The Nasdaq-listed IDEXX Laboratories is involved in the development, production and distribution of products and services for the company veterinarian. It reported 12 percent revenue growth in the third quarter of 2021 with the group enjoying a boost in sales in its Companion Animal Group unit. But with a price / earnings ratio of 73, it seems expensive.
Dechra Pharmaceuticals is a large UK based drug manufacturing company, focusing on veterinary pharmaceutical products. It missed the promotion to the FTSE 250 little in September and with a current market capitalization of £ 5.2 billion. Its PE ratio is much more reasonable than IDEXX’s at 47.9.
Chewy, a U.S. online retailer of pet food and grooming supplies, fell short of Wall Street forecasts, but CEO Sumit Singh said he remained “really bullish” on the business, even though some Covid tailwinds were fading. But trading at a stratospheric PE ratio of 3738, you may feel it bites off more than you want.
If you prefer a diversified professionally managed fund, the Fundsmith Sustainable Equity Fund managed by Terry Smith has Zoetis in its top 10 interests, while Fundsmith Equity Fund has IDEXX as its third largest stake. Or Robeco Global Consumer Trends Equities Fund has pet welfare one of the key themes in the portfolio, investing in Zoetis and Chewy.
After the 66 percent in the US, the PAWZ ETF has its largest exposure to the UK at 16 percent. Pets at home, a store we occasionally visit at the local retail park on a humid Saturday, ranks 11th in its top holdings.
Shares in the pet supplies retailer, a component of the FTSE 250 index, have performed well since the pandemic lows in the first quarter of 2020. In its latest set of figures for the half-year released on Tuesday, the company noted of the “robust” UK pet care market and said “sustained growth in pet ownership” significantly increased its market opportunity.
With Pets at Home’s revenue growing 18 percent to £ 677.6 million in the first six months of 2021, there is little sign that this sense of momentum is slowing. There was a bit of uncertainty weighing on the shares with the recently announced departure of its CEO next year, but if the company can appoint a good successor, it looks like one to keep in our dog bag.
So it opens up a few things to discuss with the kids. If they can not decide, we will find a way for puppy to choose, with inspiration from the five cows beating the Norwegian stock market by illuminating themselves on a lawn.
Moira O’Neill is Head of Personal Finance at Interactive Investor