I think that what we’ve seen from Academia is that increasingly studies have demonstrated that pet ownership can have a very positive influence on human well-being, both physical as well as emotional. And as these insights increasingly enter the mainstream I think that pet ownership can actually rise going forward, and that the 5 percent growth rates for the industry on average on a global level may actually turn out to be too conservative.
Buy only what you understand – in addition to his fairy-tale fortune, Warren Buffett is also known for these clear investor tips. The current zeitgeist could therefore please him.
The market for pets is an easy-to-understand growth market. Fido & co are loved, pampered, and cared for – and quite a few companies earn a lot of money from it. It’s about the right diet, the right care. Since health consciousness is not only valid for two-legged friends, but also for four-legged ones. They also suffer from skin diseases, obesity, or arthritis. It is no wonder, for example, that more and more animal feeds are applied in the same way as for humans – not artificial colouring or flavours; additional vitamins, minerals, and antioxidants instead. Because this trend affects those with a higher disposable income, the sales of foodstuffs are increasing. But that’s not all. If the basic condition of their animals is concerned, money is no object to the owners. Be it luxury baskets, insurance, or medical care — between 2016 and 2020, the industry is expected to grow by 4.75 per cent annually.
The margins of the business can be seen here. Animal businesses, for example, bring it to estimated gross margins of 35 to 45 per cent. A good portion of which America can skim off. More than 40 per cent of the market is supposed to be owned by Americans. Among other things, this is because the developments outlined here are obviously particularly pronounced there. And an increasing number of pet owners are willing to open their wallets wider. About 60 per cent of households own an animal.
This attracts suppliers and intensifies their competition. It is about product portfolios, quality, prices. Many therefore try to gain a foothold in other markets, for example in South America. This competition is likely to lead to market consolidation in the coming years.
"Ahh, how pleasant a dog’s life can be when master or mistress is willing to spend a small fortune on my well-being. Nowadays, instead of a bone I get enriched, allergen-free pet food. And as regards quality, a lot of it’s better than some of my owner’s food..."
Mintel, a market research company, expects UK pet insurance premiums to grow from £976m in 2015 to £1.6bn by 2021. That makes it an attractive prospect for insurers facing cut-throat competition in more traditional markets such as home and care but also for specialized pet insurance companies.
The stocks in "Cats and Dogs" have outperformed the general market. But even having outperformed, the level they’ve got to means that their valuation is about 21 times on price/earnings, which is certainly not outrageously high given those growth prospects.
"...and once a week I get a massage… hmmmm!… and can really relax. By the way, the days when I had to sleep in mistress’s bed are long past. Now I’ve got my own, luxurious nest. Aahh, a dog’s life is great … and expensive."
On the whole, it is expected that the animal feed market will grow by 3.6 per cent annually between 2017 and 2022. In 2016 this market already yielded 24.6 billion dollars, in 2022 it should already be 30 billion dollars. However, it is not just about dry or wet food or about snacks and similar foods.
The insurance industry has also made home pet owners into a target group. RSA, for example, has installed a network of 28 veterinarian practices, creating a pet port of call – for non-essential treatments. And if it happens in another practice, it costs 200 pounds extra. According to the research company Mintel, premiums for animal insurance in the UK are expected to rise from £976 million in 2015 to £1.6 billion in 2021. This makes the market attractive for insurance companies that are competing with classic products such as homeowner’s and nursing care insurance. Today, more providers are already active in the field of animal insurance, 15 per cent more than four or five years ago.
The only downside is the number of claims against insurance companies in the UK. Last year, a record of 675 million pounds was recorded. This represents an increase of nine per cent. The cost of medical treatment is usually 730 pounds per dog.
About three-fifths of dog owners and two-fifths of cat owners already have appropriate insurance. And there will be more. Because medical progress, as it is now accessible to humans, will also arrive at the veterinarian’s step by step. It’s bound to be expensive. The costs of a cruciate ligament surgery in dogs, for example, can amount to 2,500 pounds. Good luck to the insured. By the way, another element of human medicine has been introduced to dogs. An insurance company has introduced a kind of fitness tracker for dogs: PitPat. When mounted in the collar, it measures how much the animal moves.
Dogs with movement trackers; this shows how much the market is moving itself. In the truest sense of the word. Since this powerful development progresses rather quietly, it fits exactly into the Zeitgeist investment scheme.
Well, it is only 5 percent but I see it as being fairly slow but steady, and as much as anything can be, reasonably reliable. And I like that, to balance out what’s going on elsewhere. And by the way, the valuations, although they’re high, they’re not anywhere near as high as in some of those other Zeitgeists.
Published on 20.07.2017
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