JPMorgan downgrades Tesco to 'underweight'

JPMorgan Cazenove downgraded Tesco on Friday to ‘underweight’ from ‘neutral’ and cut the price target to 230p from 240p as it took a look at the European food retail sector, highlighting its cautious stance.

The bank noted that its concerns since it downgraded the sector back in September were based on disinflation triggering lower like-for-like sales, impacting margins and valuations. JPM said it sees this as recurring in 2024/25.

"We see Tesco’s outperformance previously linked to executed self-help and macro tailwinds, therefore unlikely to be structural/sustainable over time without incremental investment," it said.

The bank noted that Tesco shares are up 25% year-to-date, versus its price target indicating 15% downside.

"Long positioning is crowded, whilst Tesco is now past peak positive newsflow/LFLs/margin/free cash flow/capital return cycle," it said.

In the same note, JPM also downgraded Germany’s Metro to ‘underweight’ from ‘neutral’ and cut the price target to €4.95 from €5.02.

At 1020 GMT, Tesco shares were down 1% at 282.80p.