28th April, 2023
The Insider: Meet the Fund Manager sessions are a great way to hear directly from leading fund managers. They share their approach to investing, favourite companies and their market view for the year ahead.
Australia’s pets are largely a pampered lot and multiple businesses have picked up on the scent of success within the pet services sector including Bunnings who forayed into the ~$30 billion market earlier this year. However, fundie Martin Pretty chooses to back an older dog with demonstrated ability to learn new tricks.
Speaking on Reach Markets’ The Insider: Meet the Fund Manager in April 2023, Mr Pretty chose tech platform Mad Paws Ltd (ASX: MPA) as one of his favourite stocks. The former Thorney Investment Manager highlighted the company’s resilience through a turbulent 2022 when a considerable number of investors dumped their tech positions and fled to safer assets. Watch the full The Insider: Meet the Fund Manager session.
“I was a sceptic when [Mad Paws] listed, we didn’t participate in the IPO…the valuation metrics didn’t necessarily work for us at that point in time,” Mr Pretty said.
Mad Paws listed on the ASX in March 2021 as ‘Australia’s #1 pet services marketplace’ providing pet sitting, dog walking, day care, grooming and pet food subscription services. Today, the tech platform has expanded its offering to include pet health, toys and treats, pet beds and accessories and pet insurance.
“The company did find itself on the wrong side of the shifting market sentiment towards cash burning tech companies which it was lumped in with,” Mr Pretty said. Lumped and indeed dumped. In 2022, the company’s stock plummeted nearly 50% from its $0.22 high in January to $0.12 in November with the steepest decline noticed between April and July.
However, Mad Paws fulfilled four key criteria (read ‘tricks’) which Mr Pretty thought enabled the company to shake off its setback and get through to the other side: early cost restructuring, financial discipline, aggressive commercial plays and proactive M&A. “Their board and management have shown resilience and agility and determination,” he added.
“Mad Paws have sat back and recognised the circumstances, recognised what’s happened with capital, recognised that you can’t raise money on the prices that you did previously and potentially in the amounts that you did previously,” Mr Pretty said. According to the fundie, the company’s ‘strong’ organic growth was complemented by its acquisitions, particularly that of Pet Chemist Online for $25 million.
Earlier this year, Pet Circle – an undeniable ‘top dog’ of the Australian online pet care market – treated itself to a multi-million-dollar investment towards last mile logistics, fulfilment centres and range to keep up with consumer demand. It is worth noting that Australians spent $33.2 billion on pet care in 2022.
“The Australian pet market is a great market to participate in…And if you can do that with a platform like Mad Paws, I’m really enthusiastic about that option,” Mr Pretty said, recounting his time spent as an analyst involved in the 2007 IPO of Greencross Vets – now privatised and backed by TPG.
“[Mad Paws] have readjusted their plans and their cash flow budgeting and now they have recommitted to saying that they’re on track to be operating EBITDA breakeven by the middle of the [calendar] year with $4.4 million cash in the bank that they have at 31st March [2023].”
The company’s Q3 finances showed significant improvement on the previous corresponding period (PCP): $6.1 million operating revenue (189% on PCP, 53% on a pro-forma basis), $4.7 million e-commerce revenue (316% on PCP), $1.4 million marketplace revenue (44% on PCP) and 30,000 new customers (90% on PCP).
Click here to view more videos from Martin Pretty’s The Insider: Meet the Fund Manager session.
Reach does not assume responsibility for the accuracy or completeness of any information provided, and the views expressed are not reflective of Reach Markets’ position. Any advice contained within this presentation is general advice and does not consider your personal circumstances, you should consider whether it is appropriate for you.
The information we are giving you is for educational purposes only. “Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss.
Past performance is not a reliable indicator of future performance.
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Past performance is not a reliable indicator of future performance.
The CEOs of all the companies chosen as Fund Manager favourite stocks are invited to present at our Meet the CEO series. Reach does not assume responsibility for the accuracy or completeness of any information provided, and the views expressed are not reflective of Reach Markets position.
Any advice contained within this presentation is general advice and does not consider your personal circumstance, you should consider whether it’s appropriate for you.
The information we are giving you is for educational purposes only. “Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss.