Harry Fraser of Oldfield Partners presented his in-depth investment thesis on Zooplus (Germany: ZO1) at Best Ideas 2020.
Zooplus is Europe’s largest online pet food and accessory retailer with roughly 50% online market share. The company was founded by the current CEO, Cornelius Patt, in Germany in 1999 before expanding across the rest of Europe. Revenues grew to €10 million in the first two years and had grown to €80 million when it went public in 2008. Today revenues stand 19x higher, at €1.5 billion.
Zooplus’s cost position allows it to price products at a level where its offline competitors would lose money, so it has been able to take market share consistently. Online penetration is unusually low in pet food and accessory retail at just over 10% because of high customer loyalty, so there remains enormous growth opportunity.
This year the growth rate fell from 21% to 14% due to factors that Harry believes are temporary. This lower growth rate led to a large fall in the share price, resulting in the valuation falling to just 0.4x sales, a steep discount to peers. Zooplus has net cash and operates entirely within its own free cash flow. Harry expects net margins will be between 2-5% at maturity, with sales being 4x higher than today’s levels.
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About the instructor:
Harry Fraser joined Oldfield Partners in August 2011. He was previously employed by Herald Investment Management as a research analyst covering the media sector for a total of five years. He graduated from Newcastle University. He manages global smaller companies portfolios and contributes to the overall investment selection.
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