Pets at Home(LSE: PETS) the UK's leading specialist retailer of pet food, accessories and veterinary and grooming services, reported a 7.2% increase in revenue and a 3.2% increase in profit before tax for FY17.
The company is rolling out various vet-related formats including Pets at Home, Vets4Pets, The Groom Room and Barkers. This year, Pets is planning to roll out a further 10 superstores, 40-50 vet practices and the same number of grooming salons, for predicted totals of 444, of 478-488 and of 340-350 respectively. This portfolio is the largest in the country and bigger than the next five companies combined. Therefore, Pets commands a competitive monopoly.
The company aims to put "pets before profits," a principle that should protect quality of service. A good reputation pays dividends itself and with a 9% net income margin, the company is soundly profitable.
The future looks interesting for this mid-cap group, with the £47.1m profit generated at joint ventures in 2017 projected to near-double to £80m in the coming years.
Merchandise like-for-like sales were weak last year at 0.8%, but revenues from services increased 7.8% indicating the more profitable grooming and veterinary businesses could generate the best return on investment over the next few years.
Cash generated from operations was nearly identical to last year at £110.9m, while a higher level of free cash flow facilitated more acquisitions, despite an 11% increase in capital expenditure. Net debt fell from £161m to £151m, so the company looks financially secure enough to maintain expansion.
The company has increased EPS at a compound annual growth rate of 6.04% over the last four years. Valued at a PE of 10.7, the shares seem to represent growth at a reasonable price. A 4.6% yield comfortably covered by free-cash-flow gives Pets at Home a shot at beating the market, in my opinion. The pet market is expected to expand 4.5% over the next five years, so the macro situation seems to favour Pets.
Ingredients solution specialist Treatt(LSE: TET) has been making the world taste better since 1886. Today, this flavour and fragrance expert helps manufacturers around the globe perfect the smells or tastes of air fresheners, cosmetics, shampoos, soft drinks and pharmaceuticals.
Like Pets at Home, Treatt seems to represent steady growth at a reasonable price. The company may be a small-cap, but it's sales are favourably diversified across a number of industries, which will hopefully protect profits from any sector-specific downturns. Combining this defensive factor with in-house expertise resulting from over a century of research, could help Treatt to beat the market in the long term.
Last year, revenues jumped 27% to £51.8m. The operational gearing created by numerous factories and labs meant the majority of profits fed through to the bottom line. Operating profit increased 57%, while earnings per share jumped 25%.
Trading at 31 times earnings, the market clearly expects Treatt to continue growing. I reckon it has a good chance of doing just that. It might look a little expensive now, but this share is a worthy candidate for a buy-and-hold share.
If these growth stories aren't explosive enough for you, I recommend you download a free report from our top analysts. It explains why our top growth stock has grown sales from £14m to £531m since 1997, including a further 16% last year that indicates this British giant is still expanding.
Click here to download this timely report now, completely free of obligation.
Zach Coffell has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.