The Woolworths Group Ltd (ASX: WOW) share price is in focus on talk that the business is thinking about investing in PETstock.
PETstock is one of the largest pet businesses in Australia. It has retail stores and vets. The business reportedly bought Best Friends Retailer, another pet store business, for $180 million only five months ago.
Woolworths on the prowl for PETstock
The Australian Financial Review says that Woolworths is reportedly in “late stage talks” to take a “major stake” in PETstock.
PETstock, according to AFR sources, had “sounded out” a number of potential investors.
Woolworths is increasingly focused on pets as a “growth engine” for the business. Over the long-term, there is more pet ownership and people are spending more on their pets. This is sometimes called ‘humanisation’ as people treat their pet like a little person.
While Woolworths has been selling pet food and other pet products in supermarkets, so it already has a sizeable presence in the pet market. But, it also reportedly has a controlling stake in specalist online retailer PetCulture, as well as a joint venture with insurer Hollard Group.
How big is PETstock?
The business achieved almost $700 million of sales and $54 million of profit before tax in FY22. This was a big jump from $524.7 million of revenue in FY21, while profit in FY21 was $29 million, as reported by the AFR.
It had $161.4 million of net assets at the end of FY22, including $12 million of cash.
Final thoughts
Woolworths is seemingly interested in making a number of acquisitions to diversify earnings and improve its scale.
Pets seem like an obvious extension for the company. It already sells vast amount of food and products for people, why not extend into the area of another household member?
We’ll see if Woolworths ends up buying the whole business, or at least a controlling stake. I’m not sure if the Woolworths share price makes sense, but it could issue shares to fund this deal, which could add to earnings per share (EPS). It depends how strongly Woolworths can grow earnings in the future.
But for me, there are other ASX dividend shares that I would rather invest in.
