Tesco PLC (LSE:TSCO) was given a boost by Morgan Stanley (NYSE:MS) ahead of results in a fortnight, with the investment bank upgrading its rating and predicting some extra shareholder handouts.
Back in January, the grocery giant guided to an adjusted operating profit of between £2.4bn and £2.5bn for the year to the end of February, with free cash flow of at least £1.8bn from its retail arm and for Tesco Bank to make an adjusted operating profit of £120-160mln.
Since then, the group has cut jobs as it closed most of its hot food and deli counters, placed limits on the amount of fruit and vegetables, slashed its Clubcard reward vouchers, and reportedly started looking at selling off its banking arm.
Meanwhile, supermarket food inflation has continued to soar too, which Morgan Stanley suggested would not hit sales volumes.
Forecasting that Tesco will post a profit of £2.5bn and generate almost £1.9bn of cash, the analysts said this would allow for a new £200mln share buyback, with a potential sale of Tesco Bank freeing up more than £300million of spare cash.
Morgan Stanley's rating was upgraded to ‘overweight’ from ‘equalweight’ and the share price target hiked to 296p from 263p.