Shore Capital remains bullish on Tesco (LON:TSCO), admitting, however, that its stance on the blue-chip grocer might be ‘premature,’ Citywire has reported. The comments follow the FTSE 100 group’s third-quarter and Christmas results yesterday.
Tesco’s share price tumbled in the previous session, as investors digested the grocer’s update. The stock closed 4.53 percent lower at 202.3p, underperforming the broader UK market, with the benchmark FTSE 100 index closing marginally higher. The supermarket’s shares are down by more than three percent over the past year, as compared with about a 6.5-percent gain in the Footsie.
ShoreCap upbeat on Tesco
Shore Capital reiterated its ‘buy’ rating on Tesco yesterday, arguing that a ‘warmer’ trading update and unconditional clearance of the group’s acquisition of wholesaler Booker Group (LON:BOK) had left Britain’s biggest grocer in a positive position.
“We see material valuation rating compression for Tesco stock out to 2020, albeit that contraction is back-end weighted [...] we continue to believe that we may be a little premature on our upgrade [to ‘buy’],” the broker’s analyst Clive Black explained, as quoted by Citywire, adding, however, that ShoreCap also believed that it was “better to be too early than to miss the anticipated appreciation of Tesco’s shares”.
“The underlying progress is undeniable and the direction of travel clear,” the analyst concluded. The upbeat comments came after Tesco revealed a rise in sales during the third quarter of its financial year and the crucial Christmas period. The group, however, also pointed to downbeat performance at the company’s general merchandise division.
Reuters meanwhile quoted broker Bernstein as saying that Tesco’s like-for-like food numbers were ‘very strong,’ but that its Christmas overall could disappoint due to tobacco and general merchandise.