Broker snap: Deutsche Bank sees deteriorating LFLs at Tesco

26th Nov 2013 09:32

Deutsche Bank has cut its target price for Tesco from 405p to 386p ahead of its third-quarter trading update next week, saying that like-for-like (LFL) trends have deteriorated.Nevertheless, the bank maintained its 'buy' rating for the stock on the back of the potential upside to total shareholder returns."We expect Q3 LfL trends to have deteriorated in most markets versus Q2, most notably in the UK, Thailand, Ireland and Korea, but this is unlikely to surprise the market given market share data in the UK and peer group and macro reports outside the UK," said analyst James Collins."While the backdrop in the UK is clearly very tough and we forecast a Q3 LfL sales decline of 1.5% we expect a relatively reassuring message on UK margins, reflecting a broadly stable market share performance versus the rest of the Big Four."Deutsche Bank has cut its forecasts and target price to reflect a more cautious view on both sales and margin trends in all regions. It now expects a 3% year-on-year decline in earnings before interest and tax to £3,345m in the year ending February 2014.The stock was trading 1.61% lower at 348.55p by 09:52 on Tuesday.BC