Berenberg cuts Pets at Home to 'hold' on cost headwinds

(Sharecast News) - Shares of Pets at Home were under selling pressure on Thursday after analysts at Berenberg cut their rating on the stock from 'buy' to 'hold' and slashed their target price by nearly 10%. In a research note covering consumer-focused sectors, the broker said noted an improving outlook for consumer confidence, but said it has a preference for companies exposed to the food industry in the first half of 2023 "given more resilient end-market trends, market structure and pricing power".

As such, food manufacturer Cranswick is Berenberg's top key pick as it should "continue its run of strong trading momentum and benefit from the high customer concentration of outperforming large grocer names (primarily Sainsbury's and Tesco)". Cranswick is rated 'buy' and its target price has been raised from 4,694p to 4,921p.

Homeware chain Dunelm is also rated 'buy' due to current "conservative" market forecasts for revenue with the broker seeing upside in the aftermath of management's investment in pricing to deliver expanded market share. The target price for Dunelm was lifted from 1,370p to 1,410p.

As for Pets at Home, whose target price was trimmed from 440p to 390p, Berenberg downgraded the stock due to significant cost headwinds and downside risk to near-term like-for-like retail revenue targets.

"We are of the view that Pets at Home's success in 2024 will be determined more by its ability to manage costs than to drive top-line growth. Management will need to tame significant cost headwinds in FY 2025E to avoid further downgrades to consensus forecasts," the broker said.

Pets at Home shares were down nearly 3% at 272.2p by 1020 GMT.