Broker tips: Tesco, Tullow Oil, Greene King, KAZ Minerals

Supermarket operator Tesco has scope to materially improve its UK operations, according to Morgan Stanley which upgraded the stock from 'equalweight' to 'overweight' and hiked its target price from 155p to 260p.

Together with moves to optimise its portfolio, that should drive the shares to outperform over the next 12 months, Morgan Stanley analyst Edouard Aubin said.

Tullow Oil has $2.4bn of headroom on its debt facilities, but UBS still reckoned that the oil and gas group faced a “funding risk” as it slashed its target price for the stock from 465p to 335p and maintained a 'neutral' rating.

“A cyclical downturn in E&P asset markets has thwarted Tullow's execution of a key leg of its strategy – the early monetisation of discoveries and recycle of capital. This means until completion of the Tweneboa-Enyenra-Ntomme (TEN) [project in Ghana] in mid-2016 leverage will remain elevated,” UBS said.

Greene King’s Christmas trading update on Monday was “slightly lacklustre”, according to Canaccord Genuity, though the broker maintained its ‘buy’ rating on the pub and brewery group.

“Today's slightly lacklustre [third-quarter statement] from Greene King underlines the importance of the Spirit acquisition and the £30m of synergies to be extracted,” Canaccord analyst Nigel Parson said. “But the deal is more than purely defensive, we believe the combined entity will be a much stronger investment proposition with higher quality earnings, stronger free cash flow and better growth prospects. This goal is where investors need to remain focused.”

Credit Suisse has said investors of KAZ Minerals should keep an eye out for currency movements and balance-sheet concerns at the Kazakhstan-focused copper producer, as it reiterated its ‘underperform’ rating for the stock.

In a research note on Monday, the bank said: “Any unexpected project delays and/or weaker copper prices could pressure the balance sheet. At spot copper prices we would anticipate a funding gap which would require additional facilities and/or capex deferrals.”