Tesco share price surges as UBS lifts valuation on grocer

Analysts point to expectations for strong margin recovery

Tesco share price surges as UBS lifts valuation on grocer

Shares in Tesco (LON:TSCO) have advanced in London in today’s session, as analysts at UBS lifted their price target on the stock. The Swiss bank has cited expectations for strong margin recovery at Britain’s biggest supermarket as a reason for the upgrade, as well as prospects for the company following its merger with Booker Group (LON:BOK).

As of 12:22 BST, Tesco’s share price had added 1.49 percent to stand at 183.60p, outperforming the benchmark FTSE 100 index which is currently 0.32 percent better off at 7,454.25 points. The group’s shares have added just under 10 percent to their value over the past year, but have given up some 11 percent in the year-to-date.

Shares in Tesco have been in demand as UBS, which has a ‘buy’ rating on the group, lifted its price target on the stock from 235p to 260p. Proactive Investors quoted the analysts as noting that they expect the company to hit the upper end of its 3.5-4.0-percent “mid-term EBIT margin guidance and, moreover, to do so in a healthy way”.

UBS further pointed out that range rationalisation and closer collaboration with suppliers were helping improve the supermarket firm’s price position, underpinning a volume-led recovery in UK grocery, while its £1.5-billion operating expenditure plan provided flexibility. 

UBS further commented on Tesco’s proposed merger with Booker, noting that the enlarged group “will enjoy a huge competitive moat” in the fragmented UK food wholesale market, “with double digit price advantage, lower marginal cost to serve, plus superior offer in fresh and prepared food”.

The comments come as the tie-up is currently undergoes a detailed competition investigation. Tesco and Booker recently defended the merger to the Competition and Markets Authority arguing that they operate in distinct market sectors – wholesale and retail – and do not compete with each other. 

As of 12:59 BST, Friday, 01 September, Tesco PLC share price is 183.90p.

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