Credit Suisse has sounded a downbeat note on Tesco (LON:TSCO), arguing that Britain’s biggest grocer is most at risk from further growth of discounters. The comments come ahead of the FTSE 100 supermarket’s interims tomorrow when the company is expected to reveal that it continued to recover three years after an accounting scandal.
Tesco’s share price was subdued yesterday, shedding 0.27 percent to close at 186.65, underperforming the broader UK market, with the benchmark FTSE 100 index ending the session in positive territory. The group’s shares have added about two percent to their value over the past year, as compared with a near eight-percent rise in the Footsie.
Credit Suisse, which has an ‘underperform’ rating on Tesco, lowered its price target on the shares from 145p to 140p yesterday, arguing that the group remained most at risk from the continuing rise of discounters Aldi and Lidl. Using a proprietary database of over 8,000 store locations throughout the UK and calculating over the distance between 62m neighbouring pairs of shops to determine the relative impact of continued discounter growth on Tesco, Morrisons and Sainsbury's, the analysts explained that there were ‘plenty of opportunities left’ for the German-owned pair.
“Tesco appears most at risk” with only 65 percent of its 743 supermarkets in the UK within 2km of an Aldi or a Lidl which is the lowest percentage among the Big Four grocers, Credit Suisse said, as quoted by Sharecast.
The comments come as Tesco prepares to update investors on its half-year performance and the Guardian reports that analysts at Deutsche Bank are expecting the supermarket to announce on a rise in like-for-like sales in the second quarter to two percent from 0.9 percent a year ago. They are further forecasting underlying half-year earnings of £713 million, up from £596 million. Analysts are also hopeful that the company will restart its payouts to shareholders, about three years after the 2014 accounting scandal.