Tesco share price tumbles after negative broker note

on Jul 6, 2016
Updated: Oct 21, 2019

Tesco (LON:TSCO) has slumped to the bottom of the blue-chip leaderboard following a negative note on the sector at HSBC amid expectations that rival Asda might cut prices. The analysts have trimmed their stance on the UK’s biggest supermarket, arguing that short-term sentiment will be against the industry.

As of 13:33 BST, Tesco’s share price had fallen 9.36 percent to 159.30p, underperforming the benchmark FTSE 100 index which currently stands 1.58 percent in the red at 6,442.19 points. The grocer’s shares have lost more than 22 percent of their value over the past year, but have recovered some six percent in the year-to-date.
HSBC trimmed its rating on Tesco from ‘buy’ to ‘hold’ today, noting that Walmart’s Asda might move to cut its prices, pressuring the industry’s profits and intensifying the ongoing supermarket price war.

“The chief executive of Walmart stated recently that Asda will prioritise sales over margin,” the bank’s analyst David McCarthy said, as quoted by City A.M. “We believe this suggests Asda may be preparing a major price repositioning. If Asda does reposition fundamentally, then it could seriously damage sector profitability.”
Reuters further quoted HSBC as saying that Tesco in particular “has lost a lot of its buying power and position over recent years due to mismanagement”.
“We downgrade (it) to ‘hold’ from ‘buy’ as short-term sentiment would be against the sector,” the bank pointed out.
The analyst comments follow Tesco’s results last month when the blue-chip supermarket revealed that its sales had climbed for a second quarter in a row, with the group’s recovery continuing in a challenging market.
Analysts meanwhile remain downbeat on the stock, with Credit Suisse reiterating its ‘underperform’ stance on the company this week, valuing the shares at 115p. Deutsche Bank, which rates the blue-chip grocer as a ‘hold’, meanwhile trimmed its price target on the stock from 195p to 185p.
As of 14:03 BST, Wednesday, 06 July, Tesco PLC share price is 159.20p.