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Home / Blog / blog / Trader’s Corner || Pampered Pets Boost Profits; Post-Pandemic Take-Off for Airline? || 3-4-2020

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Trader’s Corner || Pampered Pets Boost Profits; Post-Pandemic Take-Off for Airline? || 3-4-2020

Animal care provider, Pets At Home, has seen a boost as pet owners stock up on supplies in the current crisis, leading to a share price rise of 1.3 per cent.

The group which owns pet superstores, veterinary clinics and grooming shops, revealed it expects its underlying pre-tax profit to be above market expectations of £92m-£97.1m. It did warn though that it expects lower revenues for the start of next year as it has had to close grooming rooms and restrict veterinary clinics to emergency opening only, in line with government guidelines.

With shares now standing at 238.60p, at the time of writing, could the pet superstore be barking up the right tree when this pandemic is over?

For the majority of the fourth quarter, Pets at Home was trading in line with expectations but as the coronavirus situation developed it says it saw a sales boom. It says its supply chain disruption has been kept to a minimum and new customer acquisition channels coupled with an increase in average customer spend has boosted its figures. The Pet Superstore boasts total liquidity, including cash of £160m and most of its £248m credit facility currently remains undrawn. Current Chief Executive, Peter Pritchard, has done a good job of turning the once-struggling pet brand around in recent times, and with its current price at a 19 per cent discount to its previous high of this year, some analysts think it could be a bargain worth snapping up.

EasyJet’s shares have plummeted after grounding its entire fleet and agreeing to furlough its cabin crew for two months.

Like all airlines, the budget carrier has been hit hard by coronavirus travel restrictions and it also revealed this week that it has no debt re-financing due until 2022. The budget airline’s prolific founder and major shareholder, Stelios Haji-Ioannnou, has also demanded that EasyJet cancels a £4.5 bn Airbus order for planes which he describes as ‘the main risk to survival of the company.”

So, is EasyJet destined for a crash landing, or is now a good entry point for investors hoping for a post-pandemic take-off?

It’s worth noting that, before coronavirus, EasyJet was in a strong position – its passenger numbers and revenue for Q1 were up on Q1 2019 and its balance sheet looks relatively healthy with $1.6 bn in cash and an undrawn credit facility of $500m. Hargreaves Lansdowne point out however that with a net debt position of $326m, as of September 2019, this leaves it with less cash on hand than many of its peers.

Ultimately, airlines are at the mercy of the length of the current pandemic and fluctuating oil prices and even EasyJet’s CEO, Johan Lundgren has said that airlines ‘face a precarious future’. In the long-term the budget carrier may recover well but it is a tough call for investors with turbulence almost guaranteed in the short to medium term.

Over 50s provider Saga saw its share price fall by more than five per cent as it warned of the repercussions of its cruises and holidays being postponed for six months.

The insurance provider and cruise operator has its niche in the ‘silver surfer’, 50 and up market but it has been adversely affected by the suspension of its cruises in the current pandemic. It warned that if holidays were put on hold for as long as six months, which is a possibility, its full year revenue for that arm of the business could be down by as much as 65 per cent.

Saga has suspended its dividend and drawn down a £50m credit facility in a bid to ride out the crisis, as well as saying it will apply for a debt holiday till the 31 March 2021. On a positive note, Chief Executive Euan Sutherland said its insurance division remains ‘largely unaffected by Covid-19.” Its insurance division had taken a hammering in recent years with many fearing that the rise of comparison sites and influx of competitors on the market meant that Saga was failing to appeal to the younger end of its 50-plus demographic anymore. Putting coronavirus aside though, its insurance sector was showing some signs of picking up with the sale of £320,000 three-year fixed price policies.

While the company has a strong liquidity position with £92 million in cash and £15 million earmarked for a cost reduction plan, analysts are not optimistic about the impact of the current pandemic. David Madden from CMC markets said: “The Saga share price has dropped by more than 90% since the company floated on the stock market in 2014. Given the almighty demand shock due to the health emergency, the group is likely to struggle in the medium-term.”

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance.

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