Broker snap: Mixed views at Tesco

19th Apr 2011 11:48

Panmure Gordon says that while Tesco's 2010 results were slightly below par - driving 5% downgrades to earnings - it sees potential to for a better performance.Pre-tax profits came in at £3.54bn, missing forecasts of £3.68bn, with UK profits underperforming by £60m and the US by £24m."The headline numbers are slightly disappointing, particularly in the UK, where Tesco's non-food offer clearly needs some work and the fourth quarter's like-for-like sales growth was -0.7%. We therefore believe that there will be much for the bears to get their teeth into. However, we don't think that this is important," said analyst Philip Dorgan."The shares are too cheap if Tesco can execute better in the UK, drive higher International returns and generate cash. We think that it will do all of the above and that this will drive a significantly higher share price. We don't think that small downgrades matter in this context," said Dorgan. The broker keeps its 'buy' and 500p target price.However, financial services firm Matrix has not been so optimistic, highlighting that over half of Tesco's overseas businesses are loss-marking and the UK business has been losing market share since 2007."To maintain overseas growth, Tesco is selling UK property to fund new space, which we believe will dilute UK margins and further reduce the group's competitive edge. We maintain our 'reduce' rating and 370p target price," said analyst Tom Gadsby.---bc