Jefferies upgrades Tesco, Kingfisher

Tesco, the UK’s largest supermarket by market share, and B&Q-owner Kingfisher have both been upgraded to ‘buy’ from ‘hold’, with target prices of 310p and 330p respectively.

The broker said it had reviewed its ratings in response to sequential deflation in energy prices, "one we still view with some wonderment". Gas prices are now down 48% since the November budget statement.

On Tesco, it said: "We are approaching the anniversary of the downtrade inflection in UK grocery. Mix pressures in the market should start reducing a little, and Tesco’s focus on assortment optimisation should help optimise in-store mix dynamics.

"Reducing margin pressures in the second half 2022/23 should provide investors with improving confidence on free cash delivery."

On Kingfisher, Jefferies said that despite weakness in the UK housing market, the European DIY retailer - which also owns Screwfix, Castorama and Brico Depot - had "the greatest valuation/forecast upside to current inputs".

Jefferies left its other UK general retailer recommendations unchanged. It has a ‘hold’ on Next, Primark-owner Associated British Foods, Marks & Spencer and J Sainsbury, and an ‘underperform’ on B&M Retail.

As at 1130 GMT, shares in Tesco were ahead 1% at 259.42p, while Kingfisher was trading 1% higher at 287.85p.