Australian pet spending is on the rise. So how can ASX investors capitalise?
Australia has one of the highest rates of household pet ownership in the world.
Home to more than 24 million domestic animals, pets occupy an estimated 62 percent of Australian households.
The most common domesticated animals in Australia are dogs and cats, with dogs present in close to two in five homes (38 percent), and cats taking residence in nearly three in ten (29 percent).
Behind this favoured pair, Australians are also partial to housing pet fish (11.8 percent), birds (11.8 percent), small mammals (3.1 percent) and reptiles (2.7 percent).
All this fluff, fur, feather and scale contributes to a booming petcare sector.
In 2016 alone, Australian households spent an estimated $12.2 billion on pet products and services, a monumental 42 percent jump from 2013.
Why is pet spending on the rise?
The biggest single factor impacting pet expenditure is the changing perception of domestic animals.
Polling data from 2016 shows that 65 percent of Australian households with dogs and 66 percent of households with cats now regard their pets as a member of the family.
With this increased humanisation comes higher spending on services and products tied to pet wellbeing, especially for those in middle and high income brackets.
Between 2014 and 2016, Australians spent 33 percent more on dogs, 35 percent more on cats and 54 percent more on fish across the majority of petcare product categories.
This growth is all the more impressive considering the flat retail sales figures in Australia over the same period.
In tandem with this spending rise has been a change in thinking in regards to the role of veterinarians.
Between 2013 and 2016, polling shows pet owners increasingly view the role of the veterinarian as keeping their pets healthy (71 percent), as opposed to just treating them when they are sick (72 percent).
Complimenting these broad perception changes is forecasted growth in total pet ownership. Newgate survey data shows that across Australia, 53 percent of people would like a new type of pet, with 15 percent of non-pet owners planning on purchasing one in the next 12 months.
In addition to this, the desire to own a pet is stronger among younger generations, with 69 percent of Generation Y Australians wanting to own a pet in the future
These factors viewed together suggest bullish prospects for the petcare market.
So what ASX pet stocks are available to investors?
Pet stocks can be broadly categorised into three groups: retail and veterinary services, therapeutics, and pet insurance and booking logistics.
Petcare retail and veterinary services
The retail and veterinary services category is home to the largest ASX petcare player, National Veterinary Care Ltd (ASX: NVL).
A provider of veterinary services, NVL is now the largest pure-play pet stock on the ASX following the acquisition of Greencross Limited (ASX: GXL) in February 2019 by US private equity firm TPG.
In the second half of 2018, NVL recorded $2.62 million net profit after tax and a $3.76 million underlying net profit after tax.
NVL rounded out 2018 with the acquisition of the Pet Doctors Group, adding 25 clinics and businesses to their books.
Another established veterinary and petcare retail player is Apiam Animal Health Limited (ASX:AHX).
AHX is the largest rural veterinary service provider, incorporating over 140 veterinary practices and offering veterinary wholesale, warehousing, logistics, and other ancillary services.
The company’s vet services extend beyond household pets to livestock – a market which it dominates.
In 2018 AHX recorded strong growth, with the company generating $56.1 million in revenues, an impressive 10.4 percent rise from its 2017 figures.
The pet therapeutics market is a more of a wild west than the vet sector, home to several newer players and companies with half a paw in the door.
Cannpal Animal Therapeutics (ASX: CP1) is one small cap focused on developing plant based therapeutic products for pets targeting the endocannabinoid system.
Effectively pot for pet pain relief, this therapeutic offering was piggybacked off research front run by Zelda Therapeutics (ASX:ZLD).
In February, CP1 received ethics approval for phase 2A study of its CPAT-01 product, targeting pain and inflammation control in dogs suffering from osteoarthritis.
A fresh entrant to the ASX, Ecofibre Limited (ASX: EOF), also has ambitions of expanding into the pet nutraceutical product market.
In a similar vein, prior to its relisting as Cann Global (ASX:QBL), then named Queensland Bauxite (ASX:QBL) also had a brief foray into the pet therapeutics market.
Pet insurance and booking logistics
The increased focus on pet wellbeing has also birthed a booming pet insurance and booking logistic market.
Clinical software platform 1st Group (ASX:1ST) recently expanded its offering to include a pet services platform called PetYeti.
Last year the company signed an agreement to deploy its digital online booking platform into 120 PETstock grooming sites across Australia, adding a further 85 veterinary practices in 2019 following the signing of two year agreement with Vetcentric.
In 2019, 1ST also signed an agreement with health (and pet) insurance giant Medibank to pilot its online booking software.
Kogan.com ltd (ASX:KGN), a pure-play online retailer, struck a partnership in 2016 with PetSure to offer pet insurance.
This adds to KGN’s already expansive portfolio, comprised of Kogan Retail, Kogan Marketplace, Kogan Mobile, Kogan Internet, Kogan Insurance, Kogan Health and Kogan Travel.
All in all, the petcare industry provides a varied and fertile ground for investment. With the market seeing positive signs amongst established and new players, underpinned by strong consumer indicators, pet stocks look to be the right tree for investors to bark up.