The major grocery stocks were in high demand today after an influential broker turned more positive on the sector.
Tesco PLC (LON:TSCO), up 3.2%, was given the biggest boost by US investment bank Goldman Sachs, which effectively did an about turn on the shares - upgrading to ‘buy’ from ‘sell’, while boosting its price target from 155p to 220p (current price 201p).
“While Tesco is still passing through less inflation than its big four peers, the data suggests it has stopped inflating below the overall market since August 2017,” analysts at Goldman’s London operation said.
“Scale and a superior cost savings programme mean we forecast Tesco can continue taking share from the big-four, supporting like-for-like [sales] growth, while reinvesting cost savings at a lower level than in the first half.”
The American house also upgraded its stance on Wm Morrison Supermarkets PLC (LON:MRW) - to ‘neutral’ from ‘sell’ - while raising its valuation to 210p from 195p. The shares were up 2.9% to 220p.
Overall, it has turned a lot more bullish on the quoted food retailers, which have seen their profits and market share eroded by Germany’s discount chains.
“Margin pressure in the UK grocery market is easing,” said Goldman.
“Competitive intensity is still high, but multiple datapoints suggest 2018 will see greater industry margin expansion than 2017.”