Broker snap: CS thinks price war to get serious, Tesco first casualty

13th Jan 2012 07:43

-Details of Tesco investment plans limited.-Many earnings uncertainties remain.-Near-term returns progress (key for recent Credit Suisse optimism) now looks limited. Analysts at Credit Suisse seem to be amongst those who were left somewhat traumatized by the carnage in retailer Tesco's share price yesterday. In a research note published this morning its analysts highlight how they "have long been proponents of a rational/stable UK industry, with prior claimed 'price wars' not materialising and generally providing buying opportunities for investors."No longer, now they think Tesco is a catalyst for a one-off step-down in near-term industry economics.That is not to say that the company's 'position' is irrecoverable but they believe that we are witnessing is an almost unprecedented increase in the intensity of UK food retail competition. For all of the above reasons Credit Suisse has revised down their Tesco earnings estimates by 13% for 2012/13E (slightly less thereafter), which is very sizeable in the context of Tesco's hitherto almost unblemished past. Credit Suisse also tells clients that, "even though the plan could be precisely the short-term pain required for longer-term gain," they add that they also, "do not expect a share price catalyst soon."Lastly, Credit Suisse is removing Tesco from the Credit Suisse Focus List and has cut its rating to Neutral (from Outperform) with a new 370p target price (from 500p). AB