Pets at Home (LON: PETS) share price has been under pressure in the past few months as the CMA reviews the sector. The stock was trading at 303.60p on Monday, where it has been stuck at in the past few days. This price is about 23% below the highest point in 2023 and over 36% below its 2022 high.
A silver lining for PETS?Pets at Home is one of the biggest players in the pet veterinary industry with a 24% market share in the country. In its most recent results, the company said that its total revenue rose by 6.5% to £774 million. Its active VIP members rose to 7.8 million
Pets at Home’s underlying profit before tax (PBT) retreated by 19.3% to £47.8 million because of its logistics challenges and its platform relaunch. As a result, its free cash flow (FCF) retreated by 44.3% to £23.1 million.
Despite these challenges, and the ongoing investigation by the CMA, analysts are seeing a silver lining in the company. In an unofficial poll by Bloomberg, most analysts said that they believe it is one of the leading acquisition targets in the UK.
The analysts cite several reasons. First, Pets at Home share price has crashed by more than 36% from its highest point in 20222. This makes it a bargain based on its historical performance.
Second, there are signs that private equity companies are seeing value in British companies. Several British companies like Hotel Chocolat and Ten Entertainment were acquired. This trend could continue.
Third, there is substantial amount of dry powder in the market. A recent estimate is that PE firms hold over $6 trillion in dry powder waiting to be deployed. This means that they could be on hunt for bargains. In a note, an analyst told Bloomberg:
“But with declining interest rates and cash burning a hole in their pockets, we think private equity will become more and more active in acquiring smaller and medium-sized companies across Europe.”
Still, it is worth noting that M&A chatter in the UK does not always materialize. In its previous poll, Bloomberg identified BT as a potential acquisition target, which has not happened. There are also concerns about British regulators, who have become quite resistant to M&A in the past few months.
Pets at Home share price forecastTurning to the daily chart, we see that the PETS stock price has been under intense pressure in the past few days. It remains below the 50-day and 100-day moving averages, which is a bearish sign. The stock has also formed a rising wedge pattern, which is one of the most bearish signs in the market.
Therefore, the outlook for the stock is bearish, with the next point to watch being at 266p, its lowest point on November 1st. This price is about 12.65% from the current level.
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