As we creep towards 2017 and our eventual exit from the EU, its likely that more investors will look towardscompanies that offer services or products that wellbuy whatever the weather (or economic climate). Utilities and consumer staples will inevitably garner the most attention and, if history is anything to go by, justifiably so. Nevertheless, theres one niche market out there that I think offers a perfect blend of defensive qualities and dynamic growth, namely that which focuses on the UKs love of pets. Lets look at two examples of companies operating in this area, one of which reported to the market earlier today.
Resilient market
Despite the substantial drop in its share price this morning (down almost 8%), 1.15bn retailerPets At Homes (LSE: PETS) interim figures arent bad at all. Over the last six months, like-for-like revenue across the group was up by 2.5% with food sales rising by 3.7% and accessories by 5.9%. Even more positive wasthe 47.6% growthin its veterinarybusiness from 41.9m to 61.9m.
Elsewhere, the Wilmslow-based company reported that investment in itsonline offering was delivering resultsand that its space rolloutremains on track with eight new superstores, 17 vet practices and 18 grooming salons opening over the past year. For those who like to focus on fundamentals, Pets At Home also reported an 11.5% rise in free cashflow to 34.4m and a reduction in leverage from 1.5 times to 1.3 times. This last detail is noteworthy as it shows that the company is continuing to focus on steadily reducing its debt pile, no bad thing in an uncertain economic climate.While reflecting that the trading environment wasnt easy, CEO Ian Kellett remarked that the company was confident in the long-term outlook and the developing potential of the aforementioned Services business.
On a forecast price-to-earnings (P/E) ratio of 15, Id say that shares in Pets in Home are reasonably valued and, thanks to todays 25% dividend hike, shouldnow feature prominently on the radars of those who invest for income.
Small-cap star
For those who prefer smaller companies, an alternative to Pets At Home might be CVS Group (LSE: CVSG).The 539m cap is the largest veterinary group in the UK and, with good reason, has attracted quite a following among those who hunt for shares at the lower end of the market spectrum. Over the last five years, its share price has rocketed1,000% thanks to consistent growth in revenue andnet profits. Only today,its up 12.5%.
Can this fantastic run of formcontinue? Quite possibly. A rise of almost 170% in earnings per share has been pencilled-in for 2017. Moreover, the companys recent acquisition of a small animal practice based in the east of the Netherlandsis intended to be the first step in thedevelopment of a similar business to that operating in the UK. One things for sure, CVS isnt standing still.
Any downsides? Well, on a forecast price-to-earnings (P/E) ratio of 24 for 2017, shares in a CVS are ratherexpensive and unlikely to be of interest to those whoscour the market for value.Nevertheless, those with stronger appetites for risk and longer investing horizons may be tempted and given the companys strong pipeline of acquisitions, I wouldnt blame them.
Collectively, I think that Pets at Home and CVS offer investors an enticing alternative to utility and consumer staplestocks during times of economic uncertainty.
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Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
