Shares in Pets at Home tumbled on Monday after a broker downgrade came amid concern that tighter household budgets would replace the lockdown-era spending boom on animals and their accessories.
A drop of over 10% took the stock to 278p in afternoon trade, making it the biggest single faller on London’s FTSE 250 index . The move came after analysts at RBC Capital Markets cut their rating on the retailer’s stock to “underperform” from “sector perform,” meaning it thought the stock would start to lag behind some of its high street peers. RBC also lowered its price target to 280p per share from 330p.
In a note to clients entitled “Time for a pawse” (sic) RBC said the valuation of the shares “looks full”. It described consensus earnings forecasts as “demanding”, at a time when consumers face “mounting pressures” amid “a wider spend rotation away from ‘pandemic-winning categories’.”
The popularity of pets surged under Covid-19 restrictions, but as lockdowns and travel bans are replaced by rising inflation and the cost-of-living crisis, consumer spending is expected to be put on a significantly tighter leash.
RBC’s analysis pointed out that areas of pet care revenue would hold up better than others, with some spending sources featuring “defensive” characteristics. Nonetheless, it predicted that further overall revenue growth for Pets at Home would be “more difficult to achieve”.
Manjari Dhar, analyst, said: “Although home-related spending including pet care still remains elevated compared to pre-Covid levels … we have begun to see softening trends recent months. We see potential for this to continue as consumers prioritise spending in sectors like travel and fashion, which they have missed out on during the pandemic.”
The note also said other famous stocks from the UK high street looked to have more potential upside at the moment, including WH Smith and JD Sports. Overall, London’s mid-cap FTSE 250 index was steady for the session, with gains for resource stocks offsetting the falls for retailers and airlines.
