Robert Stephens, CFA, discusses the outlook for two FTSE 350 shares that have solid market positions
Dominant businesses may be in pole position to survive what could be a challenging economic period. Companies with a significant market share, strong customer loyalty and a competitive advantage may be more able than their peers to extend their dominance and post rising profitability in the long run.
Two FTSE 350 businesses that fall into that bracket, in my view, are Pets at Home (LON:PETS) and Rightmove (LON:RMV). Both companies face uncertain trading conditions, but have solid market positions that could lead to an outperformance of their sector peers.
Dominant market positions
Pets at Home has expanded its presence over the past few years so that it now has a 19% share of the UK’s £6.5 billion pet care market. It is set to further extend its market position through the cross-selling opportunities provided by its retail division and joint venture veterinary segment. Together, they have the potential to provide a holistic pet care service to a growing number of customers across the UK.
Likewise, Rightmove has a dominant market position within the online property listings segment. In the first half of its current financial year, it recorded a market share of time on site of 88%. It has also widened its listings lead over other UK property websites, in terms of the breadth of properties featured on its site, to over 50%.
Pets at Home continues to invest in data to increase the lifetime value of its ‘VIP’ loyalty club members. They now account for 75% of its store revenues, with the company introducing them to new products and services based on up to seven years of data on their spending habits.
The company is also expanding its subscription revenues. Around 865,000 customers are now on a subscription package that is tailored to their needs, which represents a 23% year-on-year rise. Subscription revenues provide greater certainty for the business, as well as a higher degree of loyalty among its customer base that may further strengthen its market position.
Meanwhile, Rightmove continues to invest in its technology platform to maintain its market-leading position. For instance, it increased the number of software releases in the first half of the current year by 10% to provide a better customer experience. It has also shifted a rising proportion of its customer base to premium packages that provide the business with greater profit growth potential.
In addition, Rightmove has introduced innovative new tools to improve its customer offering. For example, it is currently testing appointment booking functionality for prospective tenants on its website that could speed-up the rental process and further differentiate its site from those of rivals.
The economy’s weak outlook means that both companies face uncertain trading conditions. However, Pets at Home is likely to benefit from a steady population of pets in the UK. Moreover, vet services and pet products are relatively price inelastic and can prove to be defensive compared to other consumer goods.
Meanwhile, Rightmove may benefit from an upswing in the housing market as low interest rates and tax changes lead to rising demand for homes. With searching for a home online likely to become more popular post-lockdown, its potential to innovate and broaden its services could lead to long-term share price growth.
Therefore, in my view, both stocks have attractive long-term prospects. Their solid market positions and growth strategies may mean they outperform the wider market in future.