‘Pet mania’ brings out animal instincts in eager investors
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The pandemic-era surge in pet ownership has sparked a huge rally in the sector’s stocks, and some fund managers believe it could prove to be an enduring investment theme once life returns to normal.
Online fitness, video conferencing and television streaming are among the stay-at-home industries that investors have rushed in to during more than a year of coronavirus lockdowns and restrictions on movement. But some pet-related stocks have beaten the performance of the US technology-focused Nasdaq Composite index over the past year. One pets-focused exchange-traded fund with the ticker ‘PAWZ’ has gained 76 per cent.
The question is whether, as vaccines facilitate reopenings, consumers will continue to lavish spending on their animal companions.
“One of the trends that I think will stay in place for long after the pandemic is pet mania,” said Tancredi Cordero, chief executive of investment advisory boutique Kuros Associates. “After all, the dogs purchased now will live at least a decade.”
More than 3m UK households have bought a pet during the pandemic, according to extrapolations from a survey of 5,093 consumers by Kantar and Soular Consulting for the Pet Food Manufacturers Association. Reflecting growing spending on pets in the UK, the Office for National Statistics added dog treats to its inflation basket last month.
Shares in the UK’s Pets at Home, which sells animal care products and veterinary services and caters to what analysts call the “humanisation” of animals with canine facials and blow-dries, are up 75 per cent in the past year.
The enthusiasm for furry friends is global. US households spent $104bn on pet products in 2020, according to the American Pet Products Association, which projects the market will grow to almost $110bn this year.
In the US, shares in Chewy have gained 77 per cent in the past year, trouncing Amazon’s performance and taking the market valuation of the business that went public in 2019 to around $33bn, more than 10 times the amount its previous owner Petsmart bought it for in 2017. Zooplus, the German pet food and supplies group, is up 125 per cent in the same period.
A pet and animal wellbeing fund run by German fund manager Allianz Global Investors returned 50 per cent in the year to March 31, according to the fund’s fact sheet.
But just as investors and analysts are divided over whether pandemic trends such as Peloton classes and rapid grocery delivery can survive the end of lockdowns, some suspect the pet-spending boom will tail off as people return to pubs, shopping malls and foreign travel.
“This current boom in pet ownership may not last,” said Richard Buxton, a fund manager at Jupiter Asset Management, which owns a stake in Pets at Home. In years ahead, pet-related businesses will have “some tough hurdles to beat and the year-on-year comparisons are going to get a lot tougher,” he said.
At Pets at Home, same-store sales rose 18 per cent in the three months to last December, compared with the same period in the previous year. That was despite a 7 per cent decline in the number of customer transactions, indicating that households were shelling out more than usual on their animals. Chewy’s sales rose by half in the three months to January, year on year, as the group increased its customer base by 43 per cent.
More than half of Britain’s new pet owners are aged under 34, according to the PFMA/Kantar survey. This, said Panmure Gordon retail sector analyst Tony Shiret, raised questions about whether young people would spend less on their animals as they return to leisure activities. “They are going to have alternative places to spend their money,” he said.
But Sue Noffke, head of UK equities at Pets at Home’s largest institutional shareholder Schroders, argued the pet industry was undergoing a “premiumisation trend” that should endure beyond Covid-19.
Much of this was down to the increasing tendency for pet owners to treat their dogs and cats like humans, Noffke said.
“Humanisation is already quite mainstream. A client just sent me Easter eggs for the dog.” She added: “This is also quite a millennial theme. Younger people love dressing their pets up and posing for pictures [with them].”
Another trend that should outlast the pandemic is homeworking, said Jupiter’s Buxton, which may inspire even more households to buy pets.
“This all endures as long as large numbers [of new pet owners] don’t give their animals to charity,” he added. “But I think once people get used to pet ownership it tends to continue through their lives. It is very hard to part company with a pet.”
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