Lights dim on Tesco's show, JP Morgan says, broker cuts target

Analysts at JP Morgan Cazenove took a more pessimistic view on Tesco on the heels of data from Kantar Worlpanel which revealed the steamroller that are the discounters continued to roll on.

On the basis of the latest grocery share data from Kantar the broker estimated that Tesco’s like-for-like sales are dropping at a rate of 2.5% and that its like-for-like sales on a two-year basis are not improving.

That indicates the improvement in the company’s trading momentum which started in November has not been sustained and the firm is once again losing market share.

On the other hand, its main rivals, the discounters have been putting in a more consistent performance - particularly in the case of Aldi.

As a result of the above, the broker moved to lower its forecast for the grocer’s UK like-for-like sales for this fiscal year by one percentage point and its estimate for the firm’s trading margins by ten basis points to 1.0%. The latter is partially a result of cost inflation.

Through a sum-of-the-parts (SOP) valuation method JP Morgan now arrives at a target price of 175p, versus 185p beforehand.

Analyst Borja Olcese reiterated his ‘underweight’ recommendation.