Source: Sharecast
The broker said Pets’ retail division has been the problem child in recent years, with demand normalising after the pandemic pet ownership boom, accessories weak, and execution issues around range, pricing and availability compounding a softer market backdrop.
"However, the turnaround programme now appears to be gaining traction with lower prices and improved availability supporting a return to volume growth and rising customer satisfaction," it said. "We do not assume a heroic margin recovery at the firm, but even modest revenue outperformance and limited margin rebuilding should support profit growth from a depressed base."
It also noted that the Vet Group division now contributes the majority of group profits and cash generation, benefits from structurally attractive demand and operates with materially higher margins than Retail.
"Growth is supported by practice maturity, increasing care plan penetration and a sizeable rollout runway, with management seeing scope for around 100 additional practices and a similar number of extensions," Shore said. "While near-term investment may temper margin progression, the JV model provides operating leverage while remaining capital light, giving us confidence in the medium-term growth opportunity; a CMA cloud has also blown over."
Shore said the market remains too focused on recent retail weakness and is underappreciating both the quality of the Vet Group profit stream and the medium-term recovery potential across the group.
"With FY26A likely representing trough earnings, a strong balance sheet, continued free cash flow generation and meaningful shareholder returns, we see the current valuation as an attractive entry point," it said.