A defensive (and not so defensive) stock

Pets at home could be a decent buy. I have only just started looking into it but the business seems pretty decent.

They own the chain of pet shops with the same name and a chain of vets practices called Vets 4 Pets. The ownership structure of the vets practices isn’t entirely clear to me, it seems as if they own some and have agreements on others. I do have some experience with the vet practice just as a customer and the service was very good.

One interesting thing to note is that they do have a decent digital offering as well and some valuable data shared between the retail and vets businesses. You can sign up for a loyalty card etc.

At the time of writing the price is 142p with a dividend yield of 5.27%. The share price has been battered by the broad association with UK retail but in my opinion sentiment is at a low ebb at the moment and reality is more optimistic.

I would also argue that this is a defensive stock as in tough economic times the family pet still gets fed and treated (you even have to pay to get them put down). One risk though is that supermarkets carry cheap pet food but there are a lot of people in the UK with decent disposable income that like to treat their animals. They even sell these… #r/LateStageCapitalism

Tough times could also lead to consolidation in the sector with the opportunity to buy more vets practices which could be negative in the short term but positive in the long term.

One major short term risk I can see is if the generous dividend gets cut. If I were management I would cut and reinvest it in the business. It’s maybe worth checking out their executive pay structure and see if there are share options. Greed, sometimes seems to motivate people in my experience….

Greed

It is always a good idea to keep an eye on the (maybe not so) smart money and their short positions.

A speculative one: Debenhams? I lack the intestinal fortitude for this one so I’ll leave it to you.

And another speculative one Lonmin. If you were tired of all the low volatility in the markets then this one is definitely for you!

Written on February 21, 2019