Tesco PLC (LON:TSCO) shares jumped as Barclays reinstated its rating on the stock at ‘overweight’ following the completion of the supermarket’s merger with Booker.
In a statement on Monday, Tesco said it had completed its £4bn takeover of wholesaler Booker after receiving approval from shareholders and the UK Competition and Markets Authority.
READ: Tesco completes £4bn takeover of Booker after getting shareholder approval last week
“The Booker merger is now complete and the market can focus on the merits of the two businesses and the opportunities for collaboration,” Barclays said in a note to investors on Tuesday.
The bank, which gave Tesco a target price of 225p, said sales at both companies have “strong underlying momentum”.
The supermarket is also making good progress towards its margin target of 3.5% to 4% while the Booker synergies look eminently achievable, Barclays said.
Barclays added that Tesco is “moving towards the cash generation/return model that served Booker so well”.
“We think the stock is very reasonably priced and, given we forecast 24% EPS (earnings per share) growth in the coming year, Tesco only needs to hold its current P/E (price to earnings) multiple to hit our price target (which implies 26% upside potential),” it said.
Shares rose 3.7% to 211.6 in morning trade.
Tesco and Morrison come out on top in latest trade data
Tesco’s shares were also supported by the latest industry data, which showed the company and WM Morrison Supermarkets PLC (LON:MRW) were the best performers of the UK’s big four supermarkets over the last three months.
Kantar Worldpanel said Tesco and Morrisons’ sales both rose 2.7% year-on-year in the 12 weeks to February 25.
In comparison, J Sainsbury plc (LON:SBRY) sales increased 1.1% and Asda sales grew 2.3%.
Grocery inflation eased to 2.9% from the 3.6% Kantar reported in February.
Jefferies said on Monday that it believes inflationary pressures will ease this year on the back of a stronger pound, providing a boost to UK supermarkets.
READ: Tesco, Morrisons and Sainsbury's to benefit from easing inflation, says Jefferies
The broker upgraded Tesco and Morrisons to a 'buy' rating but left Sainsbury's at 'hold'.