Sheep-Shagger is a slur used to describe Welsh/scottish in a derogatory way. There's a myth that Scotsmen and/or Welsh have a thing for buggering sheep. The sheep are said to outnumber the people in both some European and Australian countries/states. On an interesting note, the first sheep was cloned in Scotland.
The word Sheep-Shagger is a racial slur that has been used historically to degrade and dehumanize welsh/scottish. The word is still used by some people for this purpose, and it is seen as offensive and hurtful to welsh/scottish. If you are unsure about whether or not it is appropriate to use the word Sheep-Shagger, it is best to err on the side of caution and avoid using it in any situation.