Pets: their health a good investment
VACCINATIONS: SOLID INDUSTRY FOR ORGANIC GROWTH
Global trend towards humanisation of furry friends.
About two years ago, there was a picnic at Emmarentia Dam in Johannesburg.
A couple – let’s call them Nick and Jen – came walking towards the party with a stroller. The group fell silent.
“When did Nick and Jen have a baby?!” someone asked the host.
It turned out the “baby” was the couple’s elderly dog, who had trouble walking, but who was perfectly fine otherwise.
This is not an isolated incident. The “humanisation” of pets – a global trend where people’s furry friends are increasingly being treated as if they were humans – has gone hand in hand with improvements in buying power.
While cats and dogs used to sleep outside, many pets are now living inside the house, become part of the family and may even share a bed with their owners. Owners are now also spending more money on pet healthcare.
Pet ownership is also on the rise locally. According to Insight Survey, South African households had roughly 9.2 million dogs in total in 2016, placing the country in the ninth position globally.
Could there be an investment case hidden here?
Gerrit Smit, fund manager of Stonehage Fleming’s Global Best Ideas Equity Fund, invested in Zoetis, a global manufacturer of drugs and vaccinations for pets and farm animals about a year ago. Zoetis, which was previously spun off from Pfizer, is the fund’s third-largest holding, at 5.5%.
While Smit is a bottom-up investor, which means he doesn’t invest based on macro trends, but picks companies based on fundamentals, he says healthcare is a solid industry from a sustainable organic growth perspective – one of the four pillars of his investment strategy.
Yet, he is fairly sceptical about the prospects for traditional human medicine as an investment. The first is patent issues – as global patents expire, generic drugs come to market, competition intensifies and margins drop. Moreover, governments tend to be the largest clients worldwide and their concentrated buying power puts even more pressure on prices.
At the same time, population growth and increases in wealth fuel organic growth with regard to human, as well as animal, drugs. But as wealth grows, people in the emerging world consume more dairy and meat leading to largescale livestock farming, which in turn fuels improved growth for animal drugs, he adds.
He also points to the humanisation of pets, an “absolutely phenomenal” development.
While people are living longer and have “companion animals” for a lengthier period, younger individuals are also taking longer to settle and start a family and opt for a pet instead.
Apart from the basic pillars used to inform investment decisions, there needs to be a conviction that there will be a sustainable demand for a firm’s products and services and the valuation needs to be attractive, as was the case with Zoetis.