Goldman Sachs downgrades Pets at Home

31st Oct 2018 10:33

(Sharecast News) - Analysts at Goldman Sachs downgraded retailer Pets at Home on Wednesday as it now expects slower growth across the veterinary segment as a whole.Goldman Sachs, which cut its stance to 'sell' from its previous 'neutral', highlighted increasing wage pressure in the sector as a result of a limited availability of veterinary surgeons and nurses in the UK as a key headwind for vet practices over the last two years.The broker believes this has impacted Pets at Home's profitability, leading to an increase in operating loans provided by the firm to practices of roughly 73% over the last three years."We see no abatement in wage cost pressure in the near term, which could lead to a review of new openings as well as closure of underperforming practices," said Sachs' analysts.Goldman now thinks it unlikely that Pets at Home will open any new practices during FY20/21, believing the guidance of 1,000 practices in the long term "looks ambitious".Goldman analysts, as they dropped their target price from 145p to 100p, noted that, over the last five years, the UK pet food market had grown roughly 2% per annum but volume growth had been flat.As the category shifts online, with 12% of the total market currently being serviced by web-based sales, the analysts expect like-for-like growth to "remain slightly negative" and Pets to start closing stores from 2020.