Where to find pet care stocks amid a paw-city of choice

Australians spend an estimated $ 13 billion on their pets each year, making pet care a promising growth sector, but the engagement listed on the ASX is rare.

Even before the pandemic started the panic puppy buying phenomenon, Australian pet ownership was on the rise due to the strong demographic trend towards single-person households.

With puppies and moguls and other random beasts supplanting children in the family hierarchy, spending on animal care has increased even more.

According to a survey by Animal Medicines Australia in 2019, two-thirds of Australian housekeepers owned a pet and 29 million animals were registered (more than the biped of 25 million).

Unsurprisingly, dogs made up 5.1 million of this national menagerie, followed by cats (with 3.8 million). Canberra-based housekeepers are more likely to own dogs – so much for officers with fat cats – while South Australians are more likely to own (crow-eating) cats.

Fish may be little reward pets – albeit low maintenance – but we still own 11.3 million of them. And 2% of households owned pets “like horses, goats, cows, alpacas and hermit crabs”.

Pet care is a promising growth sector

According to the recently listed Mad Paws (ASX: MPA), Australians spend $ 13 billion on their pets every year. That includes $ 3.9 billion for groceries, $ 2.6 billion for veterinarians, and $ 1.4 billion for products.

While supermarket shelves are filled with gourmet pet treats, investors are not exactly spoiled for choice when it comes to publicly traded exposures in one of the most promising growth sectors.

Founded by Glen Richards of Shark Tank, Greencross Vets went public in 2007 and merged with retail chain Petbarn in 2013. The union was less than mind-blowing, and the company was acquired by private equity giant TPG for $ 675 million.

With just over 100 clinics, National Veterinary Care was snapped up by another private equiteer at the end of 2019 with a handy 56% premium, equivalent to a market valuation of $ 251 million.

Mad Paws was listed in late March this year after raising $ 12 million in an oversubscribed initial public offering (IPO).

Mad Paws, the airtasker of the pet world, enables third-party services such as dog walks, pet care and grooming. The company generates its income from the ticket reduction of 20% with the service provider and 7% with the pet owner.

The company is also moving into the online subscription to pet food delivery. with a start-up called Dinner Bowl. We suspect that makes them more of the Uber Eats of the pet world.

Veterinary clinics benefit from the pet boom and the lively agricultural sector

But if your columnist has an animal husbandry, it’s Apiam Animal Health (ASX: AHX) who run a chain of rural and urban veterinarians.

With this in mind, Apiam is facing both the pet boom and the (currently buoyant) agricultural sector.

Apiam was listed in December 2015 and raised $ 40 million at $ 1 apiece. The initial funds were used to fund the sale of a seller and buy 12 veterinary practices (the company already had interests in five of them).

Headquartered in Bendigo, Victoria, Apiam is now the only publicly traded ASX-listed veterinary company, providing services in 46 clinics in all states except South Australia, as well as on-farm advice to pig, dairy and beef farmers.

With 150 veterinarians, Apiam serves 35% of the country’s pig and dairy industries and more than half of the beef cattle sector.

It’s not all James Herriot does with guns to the rear. In addition, the company generates income from products such as medicines, vaccines, nutritional supplements, and high-quality pig semen from its gene laboratories.

Meanwhile, Apiam’s pet bills were about 14% of sales at the time of listing, now about 25%.

Apiam reports a “bumper” six months on the pets side, aided by the opening of two clinics with its joint venture partner Petstock. The Torquay North and Shepparton clinics benefit from the pandemic Seachange / Treechange trend.

The Shepparton Clinic includes an isolation ward for infectious diseases such as parvovirus (no, not Covid), a dentist’s room and a path room with the ability to flip a test in 14 minutes.

Try to find this quality of service in a public hospital!

Apiam posted sales of $ 30.3 million in March, down 2.8% from last year, largely due to Covid reasons. However, gross profit rose 1.5% to $ 17.5 million, which wasn’t bad given the “unusually high” purchases from farmers in the previous quarter at the start of the pandemic.

Perhaps a better guide: year-to-date annual revenue was $ 91.6 million, up 4.7%, with unaudited gross profit increasing 9.7% to $ 52 million.

Apiam still faces Covid-related challenges in the beef and pig segments, but the overall message is that everything is calm on the farm.

In mid-April, Apiam raised $ 6 million in a placement priced at $ 0.80 each. Interestingly, Petstock has taken on a 16% stake, which will lead to tongue wagging at the muster yards.

Financial performance in a home industry

Back to Mad Paws, the company’s prospectus shows a loss of $ 3.17 million in 2019-20 on sales of just under $ 2 million. Last year, Mad Paws lost $ 3.77 million on sales of $ 1.57 million.

The gross merchandise value increased to $ 10.2 million from $ 8.6 million previously.

After closing at $ 0.24 – a 20% premium – on debut, Mad Paws shares are sneaking just below the issue price of $ 0.20 on a market cap of $ 33 million.

Mad Paws has the bones of growth: in 2019-20, the company completed 180,000 transactions, with 400,000 owners and 19,000 vendors signing up on the platform.

But the company has to show its size in a homework sector. As with the recently listed Airtasker (ASX: ART), Mad Paws must ensure that providers and end customers do not migrate offline and leave out the middleman after getting to know each other.

Pet insurance offers

On the positive side, Mad Paws recognized the potential of the pet insurance sector. Pet cover was not popular compared to the United States, but Mad Paws estimates the local market is worth $ 745 million (based on premiums) and growing strongly.

Mad Paws plans to partner with Pacific Insurance and AI Insurance to offer its own insurance product. In fact, the white label deal means Mad Paws collects a commission and leaves the underwriting risks (and rewards) to the experts.

In your columnist’s own experience with a sickly dog, the insurance avoids awkward family conversations when it requires $ 5,000 worth of bladder stone surgery (even happened twice, and when asked, the patient is fine).

But it’s expensive, especially when it goes beyond the premiums of humanoid health insurance.

Listed private health insurance companies Medibank Private (ASX: MPL) and NIB Holdings (ASX: NHF) offer pet insurance, but the business isn’t even an item in their accounts.

Given the pressures on the fund to keep healthy human customers, this is likely to change as the fond owners go to extremes to ensure the health of their furry friends – and hermit crabs.

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