Broker tips: Tesco, ABF

Analysts at Barclays reinstated their 'overweight' recommendation for shares of Tesco on Monday, pointing to the shares' underperformance across 2020 and multiple tailwinds.

During the preceding year, the shares had delivered a total shareholder return of -7.0%, against -6.7% for rival Morrison and 1.1% over at Sainsbury.

That was despite the grocer's exit from Asia and accompanying £5bn cash return, as well as the end of the sizeable drag on its free cash flow from pension top-up payments, they highlighted.

Furthermore, food retail was "far from the worst hit" by the pandemic, they added.

Barclays placed a 290.0p target on the firm's shares.

Analysts at Shore Capital reiterated their 'buy' recommendation for shares of Associated British Foods, even after the firm warned of the impact that tighter-than-expected restrictions would have on its topline.

Earlier, the food ingredients maker and fashion retailer said that newly announced Covid-19 restrictions by governments in the UK and Ireland would force a larger proportion of its stores to temporarily shut.

That would push the amount of lost sales from £430m to £650m and, according to ShoreCap, reduce gross profits in retail by a further £90-100m.

But the analysts retained a possitive take on the outlook given expectations for the roll-out of Covid-19 vaccines.

"Hence, through no fault of its own the New Year news remains a bit mellow for Primark, but we would take advantage of any markdown in the ABF share price as equity markets reopen, should that occur, to participate in a fundamentally high quality stock, one where Primark in particular is set to be a winner, as it showed through the unlocking period in CY2020," ShoreCap said.

Indeed, Grocery operations were still expected to be a net beneficiary of Covid-19 related market conditions, they added.

Associated British Foods was also set to benefit from its "multi-facted" global reach and from its management's "financial conservatism", with the latter a "huge plus" for the group's investment thesis.

The latter, especially the mid-to-high single digit enterprise value-to-earnings before interest, tax and depreciation multiple "mean that for the conservative, long-term investor it is a stock with considerable merit".

ABF was also expected to adopt measures to mitigate operating expenses with management's work on this front during the preceding financial year having already left the company's balance sheet in an "immensely strong" position "embracing substantial cash balances".