Jefferies reiterates 'buy' on Tesco ahead of Q1 sales, Capital Markets Day

Analysts at Jefferies reiterated their 'buy' recommendation on shares of Tesco, telling clients that the company's first quarter sales figures and Capital Markets Day would confirm steady progress in the UK and the increasingly cash generative nature of the business.

They were also hopeful that the coming weeks would help refocus investors' attention on the grocer's fundamentals, following the distraction of the prolonged Brexit process, which had detracted from the positive momentum in the business.

"More recently new gyrations in the Brexit debate detracted from that positive momentum. We are hopeful that the coming weeks should help refocus investors' minds on the stock's bottom-up merits," they said.

Their projections were for the company's free cash flow to rise towards £1.8bn by 20/21, with the rate of growth in earnings per share expected to have moderated to 9% by then, after a "meatier" 14% in 19/20.

For Tesco's first quarter sales, Jefferies was anticipating like-for-like sales growth of 0.6%, which the broker said would put the grocer well ahead of the average for its rivals.

No new target for cost savings was likely to be forthcoming at the Capital Markets Day, Jefferies added, but management was expected to discuss multiple sources of incremental efficiencies in order to grow the customer offering.

Jefferies also stuck to its 275p target price for the shares.