Citigroup has resumed coverage of supermarket giant Tesco PLC (LON:TSCO) with a ‘buy’ recommendation.
With the dust beginning to settle on the takeover of cash-and-carry operator Booker, Citi thinks the focus on the cost synergies available from the merger has overshadowed the long-term growth potential of the expanded group.
READ: Tesco posts 28% rise in underlying operating profits as turnaround under Dave Lewis continues
Citi argues that the addressable wholesale market is much larger than is generally realised, with Citi putting it at around £90bn, compared to the “oft-quoted” £30bn valuation usually ascribed to the market.
The Booker deal will see Tesco expand to provide food to restaurants, bars and smaller grocers... https://t.co/s3QMeFjEYV pic.twitter.com/hD2Kd524wT
— David Kennett (@DavidAKennett) May 16, 2018
Booker is currently taking about £5.6bn of this market so that leaves plenty of room for growth.
Citi’s free cash flow-based target price of 290p is about 40p above the current Tesco share price.