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Credit Suisse says Tesco is “most at risk” from Aldi and Lidl’s continued growth

Analyst Stewart McGuire says only 65% of Tesco stores have an Aldi or Lidl within two kilometres of them - the lowest percentage of the 'Big Four'
tesco extra store
McGuire believes the discounters still have "substantial room to grow"

Tesco PLC (LON:TSCO), the UK’s biggest supermarket chain, is the “most at risk” from German discounters Aldi and Lidl, according to Credit Suisse.

The Swiss banking giant said only 65% of Tesco stores have an Aldi or Lidl within two kilometres of them – the lowest of percentage of the ‘Big Four’.

READ: UK supermarkets sales up by over 3% for sixth month, with Tesco again leading the ‘Big Four’

Analyst Stewart McGuire expects the growth of the discounters to continue to accelerate over the coming years, which means more and more stores will start to open and likely nearer to Tesco shops.

He thinks Tesco will account for roughly a third of all losses sustained by the big supermarkets as a result of Aldi and Lidl.

McGuire also forecasts a  “general stagnation in operating profit growth”, and chopped his target price to 140p a share (from 145p) as a result.

Sainsbury’s issues priced in

The analyst also thinks J Sainsbury PLC (LON:SBRY) will be impacted by the continued rise of the discounters, but reckons other factors matter more.

“Operational deleveraging, higher costs and the integration of Argos are all ongoing risks.

READ: Sainsbury's to expand Argos click-and-collect service as it responds to competition from Amazon

“We also see the expansion of bank activities as a potential risk factor depending on how aggressive Sainsbury becomes in writing new business.”

However, McGuire believes these are all priced in at the moment and has kept his ‘outperform’ rating on the stock.

He has lowered his price target to 295p from 320p though as a result of a slight recalculation of near-term profit forecasts.

Morrisons least likely to be affected from future Aldi/ Lidl growth

There was some good news for WM Morrisons PLC (LON:MRW), which McGuire says “bore the brunt of the impact from discounter expansion in 2014-15”.

He has upped his target price to 250p (from 240p), claiming it is “more insulated from discounted growth” while he has also been impressed with the “improved trading” in the premium ranges.

READ: It’s all about the cash - or the perceived lack of it: That's analysts conclusion from Morrisons' results

The price rating cuts didn’t affect Tesco or Sainsbury’s too much this morning, with the stocks up 0.5% 1.35% to 188p and 241.1p respectively.

Morrisons, up 0.65% to 235.6p, was also boosted by McGuire’s upgrade.

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