People have always been willing to spend on pets at Christmas, even fake ones. Advertising director Gary Dahl once sold over a million Pet Rocks, marketed like live pets, in custom cardboard boxes with “breathing holes.” Remember the virtual pet Tamagotchi? Twenty-five years ago, it was one of gaming’s biggest fads.
But I am now one of the 59 per cent of adults in the UK who have a real pet. And after six months of puppy ownership, I quickly learn that a dog spends a lifetime, not just at Christmas.
With insurance purchased and vet bills already paid, we experimented with expensive foods and treats (she ate hard food), and bought special toys and bedding.
With Christmas approaching, the teen and youngster in my family will want to buy more puppy toys and treats. Money Expert, a price comparison site, found that UK dog owners spend an average of more than £236 a month on necessities, plus £91.70 a year on gifts and toys, which adds up to almost £3,000 per month. the year.
This makes me feel sick as a dog, so instead I will be looking at prospects for pet related companies with a view to buying stock. Maybe to get some of my money back, so to speak.
The management of Junior Issa is coming fast for my child who will soon turn 16 and this could be a valuable lesson.
Consistent spending on pet essentials makes the sector resilient. More than a decade ago, fund manager Terry Smith memorably explained why he would love to invest in pet food: “Research shows that consumers will cut back on their spending on feeding their children before they cut back on feeding their pets.”
Does our pup get better snacks than he does? It’s a topic we might discuss. But the important takeaway is brand loyalty—once we find a food our puppy eats, we’re likely to stick with it. In our case, it’s Eukanuba, which is owned by Mars, which is a private company so we can’t invest in it.
However, Smith was talking about Del Monte’s pet food business, which has become Big Heart Pet Brands and is now part of JM Smucker Co, a packaged food company listed on the New York Stock Exchange. One of today’s sub-brands is Nature’s Recipe, which hasn’t found a doggie love in our home, but is the dog dinner choice of many of our friends.
In his last book, Investing for growth Published in October 2020, Smith named pets as one of the ten Covid-19 beneficiaries. And most children will realize that during the 2020 lockdown, the UK faced a puppy shortage.
In May 2020, Robeco investment analysts reported: “The global pet grooming market offers moderate but stable growth prospects, buoyed by increased 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 that “the recent increase in ownership in some countries, driven by increased adoption and care by people confined to their homes, could soon turn into a tailwind for the industry.”
Just how powerful the pet pandemic boom is is a matter of some controversy. There is plenty of anecdotal evidence about people buying pets and vets getting caught up in new customers.
But the 2021 PDSA Animal Welfare Report (also known as the PAW Report), says there has actually been no statistically significant increase in the estimated population size of dogs, cats and rabbits in the UK since the start of the epidemic in March 2020.
The Pet Food Manufacturers Association, which compiles its historical figures for pet populations, changed its data collection methodology from 2020 to 2021, so it’s hard to make a comparison.
Investing in this topic is still not just about ownership numbers but about how much we are willing to spend on our animals.
The US Pet Care ETF, called PAWZ, which was launched in 2018 posted 39 percent growth for the year through Oct. 31. While UK-based savers cannot invest in this fund, its investment case applies across the developed world – it focuses on how people, especially millennials, are increasingly spending on pets as family members. British investors can invest in the underlying stocks in other ways.
PAWZ cites the growth in pet ownership — 67 percent of American households have pets today compared to 56 percent in 1988 — but says the big difference is how we “humanize” our pets and “excellence” in pet care. .
Its largest company is Zoetis, the world’s largest producer of medicines and vaccines for pets and livestock, and is listed on the New York Stock Exchange. CEO Kristen Beck says the company is on track to achieve a “record year” and sees positive market trends continuing into 2022.
IDEXX, Dechra, and Chewy’s top holdings are among the PAWZ’s top collectibles.
NASDAQ-listed IDEXX Laboratories develops, manufactures and distributes products and services for companion veterinary animals. It recorded 12 percent revenue growth in the third quarter of 2021 as the group enjoyed an increase in sales at the Companion Animal Group unit. But with a P/E ratio of 73, it looks expensive.
Dechra Pharmaceuticals is a major UK based pharmaceutical manufacturer, focusing on veterinary pharmaceutical products. It barely missed the opportunity to upgrade to the FTSE 250 in September and has a current market value of £5.2 billion. The P/E ratio makes a lot more sense than IDEXX’s at 47.9.
Chewy, an online seller of pet food and personal care supplies, did not live up to Wall Street expectations, but CEO Sumit Singh said he remains “really optimistic” about the business even as some of the Covid tailwinds fade. But trading on a stratospheric PE of 3,738, you might feel like that’s chomping on more than you’d like.
If you prefer a diversified professionally managed fund, Fundsmith Sustainable Equity managed by Terry Smith has Zoetis in its 10 largest holdings, while Fundsmith Equity Fund IDEXX as its third largest. Or the Robeco Global Consumer Trends Equities Fund has pet welfare among the main topics in the portfolio, investing in Zoetis and Chewy.
After 66 per cent in the US, the PAWZ ETF has the largest exposure in the UK at 16 per cent. Pets at Home, a store we occasionally visit at our local retail park on a wet Saturday, ranks 11th in its top collectibles.
Shares in the pet supplies retailer, a component of the FTSE 250 Index, have done well since pandemic lows in the first quarter of 2020. In the latest batch of numbers for the half-year released Tuesday, the company noted “strength,” the animal care market said. Pets UK The ‘sustainable growth in pet ownership’ has dramatically increased its market opportunity.
With Pets at Home revenue growing 18 per cent to £677.6m in the first six months of 2021, there is little sign that this sense of momentum is slowing. There’s been a bit of uncertainty weighing on the stock with the recently announced departure of its CEO next year, but if the company can name a good successor, it looks like one stashed in our bag.
This opens up a few things to discuss with the children. If they can’t decide, we’ll find a method of choice for the pup, inspired by the five cows that beat the Norwegian stock market by comforting themselves on a grass web.
Moira O’Neill is Head of Personal Finance at Interactive Investor