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I think these outstanding British shares are too cheap to lose at current prices. Here’s why I’d buy them for my purse next month.
A pet favorite
Negotiating in Pets at home (LSE:PETS) has remained rock solid despite the current cost of living crisis. However, the actions in FTSE 250 The retailer has slumped on fears about future profits from its veterinary services unit.
This month, the Competition and Markets Authority said it would investigate whether vets offer pet owners good value for money. The regulator plans to examine issues such as price transparency and information about whether surgeries are part of a broader group.
Pets At Home’s veterinary division is the fastest growing part of the business. So it’s perhaps no surprise that investors have spooked (comparable sales here rose 16.6% over the 20 weeks to July 20).
However, the company, which made 37% of underlying pre-tax profits from its veterinary care division last year, is far less exposed than specialist veterinary care providers such as CVS Group. In fact, there’s every reason to expect earnings to continue growing strongly over the next few years.
Surfing the wave
Pet ownership in the UK is on a long-term upward trend, meaning demand for food, toys and other animal-related products should continue to rise. Pets At Home is also increasing its share of this expanding market (its total share has improved 600 basis points to 24% over the past five years).
This is partly due to the growing popularity of its VIP loyalty program, which increased another 4% in the aforementioned 20-week period. Huge investment in e-commerce is also paying off, with new versions of its app and website coming later this year to support future growth.
Today, Pets At Home stock trades on a forward price-to-earnings (P/E) ratio of 16.3 times. They also have a corresponding dividend yield of 3.8%. I think this represents solid value given the retailer’s excellent momentum.
More animal magic
pharmaceutical products manufacturer Animal Care (LSE:ANCR) is another UK stock I’m considering buying next month.
As its name suggests, it specializes in manufacturing medicines for non-humans. This also gives you the opportunity to capitalize on rising pet adoption rates.
I also like Animalcare because it is marketed at a huge discount for FTSE 100 industry pair Dehra Pharmaceuticals. It currently has a forward P/E ratio of 12.9 times, well below its larger rival’s corresponding multiple of 29.7 times.
The company’s revenue and operating profit fell 4.1% and 2.8% respectively in the 12 months to June 2022. However, this decline simply reflects a return to pre-pandemic growth rates in the veterinary sector. In my opinion, long-term sales prospects remain strong.
Animalcare is putting its strong balance sheet to work to take advantage of this opportunity as well. It is spending to improve its sales and marketing operations and is looking for new acquisitions that will increase its profits.
Drug development can be high risk and Animalcare is no exception. But I still believe in AIM The stock remains a good UK stock to buy this October.
