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Kepler upgrades Tesco and Sainsbury on consumer election boost

“Should consumer confidence continue to improve, this would prove to be a strong support for an improvement in private consumption”

Tesco PLC -

Tesco PLC (LON:TSCO) and J Sainsbury PLC (LON:SBRY) shares were lifted by an upgrade from broker Kepler Cheuvreux as the UK grocers are expected to benefit from a post-election revival.

Analysts at the French firm said the UK remains subdued, “impacted by low consumer confidence in light of Brexit”, even though grocers performed relatively better than general retailers.

The UK grocery market has seen declining volumes but there is still some price inflation and the gains by German discounters has not been as fast in recent weeks, the Kepler analysts noted.

Even though management at Tesco cited a "subdued market" and Sainsbury also remained cautious about the coming year, both suggesting in their post-Christmas statements that there was no pent-up demand after the general election, the analysts were more optimistic.

Citing top-down economic evidence such as strong labour market data and the government’s minimum wage hike, this is seen as supporting the thesis that the election will lead to rising consumption.

“Should consumer confidence continue to improve, this would prove to be a strong support for an improvement in private consumption.

“Indeed, consumers grew more upbeat about the general economic situation and their future personal financial situation.”

Tesco and Sainsbury were both upgraded to ‘buy’ from ‘hold’, with the former’s price target lifted to 289p from 236p and the latter’s to 263.6p from 217p.

This sent their shares climbing 1% to 248.3p and 218p respectively on Friday morning.

Quick facts: Tesco PLC

Price: 230.9 GBX

Market: LSE
Market Cap: £22.61 billion

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