Shore Capital keep 'buy' rating for Tesco after decent festive sales

Tesco's share price dipped in morning trade despite the company reporting that sales growth picked up from 2.8% in the third quarter to 3.8% over the Christmas trading period, which Shore Capital said was a "little ahead of consensus".

However, as the broker highlights, despite a strong top-line performance, full-year profit guidance was unchanged – possibly as a result of additional investments such a 28,000-person increase in seasonal store staff.

"For a worried British shopper, even with rising living standards but hearing news of economic challenges, including rising gilt yields and the potential for tax rises, Tesco is showing that it is on their side, which means that it has probably foregone some scope to beat current market expectations to support ongoing earnings and cash flows," Shore Capital said.

Nevertheless, heading into Thursday's update, the broker said it was not expecting any upgrades to guidance, and that it continues to like the underlying strength of the business.

"Tesco is well set to face into the challenging UK consumer economy, where sentiment is rather weak and forthcoming cost pressures evident. We like the ongoing investment thesis of a cash compounder albeit sentiment and momentum are a little sideways today, but the stock could be a notable relative winner as matters unfold," Shore Capital said.

Shares were down 2.2% at 361.9p by 1134 GMT.