Pets at Home Group PLC (LON:PETS) has been upgraded to ‘buy’ from ‘neutral’ by Citi on the back of what the bank said was a “viable plan to turn around the business”.
In a note, analysts at the US investment bank said “strong market dynamics and company initiatives” would support a recovery for the FTSE 250-pet care group, which has been in the middle of restructuring its veterinary business to make it more profitable, by buying back more successful practices and closing the less viable ones.
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Citi said the turnaround would drive “strong” earnings (EBIT) growth over the 2018-2023 financial years, and estimated a compound annual growth rate (CAGR) of 14%.
For Pets’ retail arm, Citi’s analysts said concerns over the division had kept shares trading at “historically low levels” but added that its performance was “sustainable over the longer term”.
In an update for the 12-week period to 4 January, Pets at Home had reported a 4.7% increase in like-for-like sales in its retail arm.
While the bank said there were still some risks to the company’s gross margin versus online, factors including penetration of private-label products (goods manufactured by one company for sale under another company’s brand) and weighting its premium pricing in more discretionary categories could help mitigate the issue.
Citi has Pets at Home pegged with a target price of 180p.
In late-morning trading on Wednesday the shares were up 2.8% at 159.9.