Pet superstore group Pets at Home Group (LSE: PETS) surprised investors this morning with news that chief executive Nick Wood will stand down at the start of April. Mr Wood will be replaced by Ian Kellett who’s currently in charge of the group’s retail business and was previously its chief financial officer.
Pets’ share price has come under pressure since November due to slower-than-expected growth. In a trading statement on 30 October, Pets said that like-for-like revenue growth had fallen to 1.8% during the first half of the year, down from 4.2% for the previous full year. Mr Wood said that “trading in parts of the business” had been “weaker than expected”.
Like-for-like sales growth rose to 2.2% during the firm’s third quarter, but the full-year result still seems likely to be lower than last year. Pets at Home appears to be relying on expansion to boost sales.
Earnings per share growth is expected to fall to 5% in 2016/17, but the shares trade on a forecast P/E of 18. This seems high enough to me, so I’d rate the shares as a hold.
Inland Homes
Property developer Inland Homes (LSE: INL) is a relatively small player, but the firm’s shares have climbed by 223% over the last three years, thrashing the wider market. Is it too late to buy into this small-cap success story?
Inland published its interim results today. Pre-tax profits rose by 275% to £21.5m thanks to a one-off £14m boost resulting from the revaluation of its portfolio. Excluding this paper gain, I estimate that underlying pre-tax profit rose by around 30% to £7.5m, which is still pretty decent.
Of course, property developers’ earnings are heavily cyclical. I suspect we’re close to the peak of the current cycle.
A more conservative valuation measure is book value. Inland has started using the EPRA valuation technique to calculate net asset value per share. This includes a value for unrealised development gains on top of the current net asset value of its land and developments.
Inland’s net asset value is 53p per share, but its EPRA net asset value is 84.4p. This is broadly in line with the current share price. I’d argue that this more generous valuation measure suggests that Inland’s shares offer limited upside. I’m not tempted to buy at the moment.
Morrison
WM Morrison Supermarkets (LSE: MRW) has been a surprisingly strong performer this year. The shares are now up by 45% from their December low of 140p. Recent results confirmed slow but steady progress with the firm’s turnaround plan.
However, given that Morrison now trades on 19 times 2016/17 forecast earnings, is it time to take a profit? There’s some logic to this, but I’ve decided to continue holding for three reasons.
Firstly, Morrison’s cash flow has proved to be quite strong. Net debt has come down faster than expected and this should continue.
A second attraction is that the recent Amazon deal should help improve volumes for Morrison’s food manufacturing business. Profit margins will be low, but using spare capacity to produce food for Amazon should reduce unit costs. This should help maximise the group’s overall profits.
Finally, Morrison has a large freehold property portfolio and may yet become a bid target.
