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Tesco still a ’buy’ at Nomura well-positioned relative to peers

Last updated: 09:41 21 Dec 2011 GMT, First published: 10:41 21 Dec 2011 GMT

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Nomura Equity Research has reiterated Tesco (LON:TSCO) as  a stock to ‘buy’, as the broker believes the supermarket’s ‘Big price Drop’  initiative will gain further traction and the non-food offer will  continue to drive improved trading into 2012.

The price cut initiative has driven an early volume response in the third quarter, Nomura said in a note on Tesco out today.  It expects the fully funded initiative to increasingly resonate with a squeezed consumer.

“We think the new executive and UK operating boards will conclude a busy first year by adapting its UK store strategy to reflect the likely persistence of a low-growth market and a global trend to smaller store formats.”

Initiatives across its UK offer and resilient growth overseas, allied to an increased focus on execution and capital discipline, leave Tesco well positioned relative to its peers, in its view.

Regarding the non-food business, the bank said “Set against the backdrop of what we expect to be a challenging Christmas for the broader UK retail sector, we think Tesco is relatively well positioned for peak trading. We also expect Tesco’s non-food performance to improve steadily over the coming quarters, as former Tesco Hungary CEO Per Bank shapes the offer.”

Nomura retains a 500 pence price target.  At 10.35 am, Tesco was trading at 384.3 pence.

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