Broker snap: Credit Suisse sees little Q3 improvement at Tesco

27th Nov 2012 10:35

Credit Suisse has retained its 'neutral' rating and 350p target price for supermarket behemoth Tesco ahead of the company's third-quarter results due on December 5th.Analyst Andrew Kasoulis said in a research report on Tuesday morning: "We do not expect quarter-on-quarter underlying improvement in key regions, which has largely been already flagged by market share and macro data."The broker is forecasting a 1.9% increase in total group sales, which represents growth of 2.8% when excluding currency."In the UK, market share data for the first eight weeks of Q3 suggests to us robust Grocery performance in-line with Q2, but a decline in Non-Food. Initially we expected Q3 progress on Q2, but now expect deterioration - we estimate -0.75% ex-fuel like-for-like (LFL), which would be a slow down on Q2 (+0.1%)," Kasoulis said."Although some of the recent Food initiatives appear to be working, Non- Food has slowed in a tough market and as Tesco's attentions seem to be switching more to Food. Including fuel/new space, we expect total sales +2.65%."Elsewhere, Credit Suisse said that first-half trends in Central Europe - fading sales growth in the first half - are unlikely to have reversed and little underlying change is expected in Asia. The broker expects LFL sales growth of -1.9% in Europe, -1.3% in Asia and +5% in the US.In conclusion, Kasoulis said: "In tough markets, we think little underlying progress was expected. But a negative UK Q3 LFL, as seems likely from the eight-week data, would be slightly disappointing. "We think Tesco needs to prove it can win the UK battle, and rebuild momentum elsewhere, while improving returns before its currently low rating [(just nine times 2013/14E earnings]) materially improves."BC