Shares in Tesco (LON:TSCO) have fallen deep into the red in today’s session as Kepler Cheuvreux lowered its price target on the blue-chip grocer. Proactive Investors reports that the analysts have pointed to the grocer’s troubles in Thailand where the company has been trying to renegotiate its deals with food manufacturers.
As of 14:24 BST, Tesco’s share price had given up two percent to 210.50p, underperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.96 percent lower at 7,248.04 points. The grocer’s shares have added more than 12 percent to their value over the past year, as compared with about a 3.6-percent dip in the Footsie.
Kepler trims valuation on Tesco
Kepler Cheuvreux lowered its price target on Tesco from 232p to 261p today, arguing that the group’s ‘sound UK performance’ was overshadowed by problems in Thailand. The move came after Britain’s biggest grocer updated investors on its interim performance last week, posting a rise in profits.
“While the company had already highlighted the continued negative impact of the end of bulk selling on LFL [like-for-like], no warning was given on a change in negotiations with food manufacturers,” the analysts elaborated, as quoted by Proactive Investors. The newswire explained that in Thailand, Tesco has been trying to move to a ‘front margin’ model where the profit comes from the difference between purchase price and sale price, rather than a ‘back margin,’ where the manufacturer might give the retailer a small fee for each product sold.
“This move is leaving margin on the table, as food manufacturers are not moving as fast as Tesco expected,” Kepler pointed out.
Other analysts on blue-chip grocer
The 16 analysts offering 12-month price targets for Tesco for the Financial Times have a median target of 277.50p on the shares, with a high estimate of 300.00p and a low estimate of 200.00p. As of October 5, the consensus forecast amongst 21 polled investment analysts covering the blue-chip grocer has it that the company will outperform the market.