Broker snap: Nomura keeps faith in Tesco

12th Jan 2012 09:43

Despite cutting forecasts for Tesco after a disappointing Christmas, Nomura has maintained its buy rating on the supermarket giant.The firm disappointed investors on Thursday after UK sales (excluding fuel but including Value Added Tax) in the six weeks to January 7th fell 1.3% on a like-for-like (LFL) basis versus the previous year. Tesco said its LFL sales performance was below its expectations. Shares dropped 14% in morning trade."Tesco traded through Christmas with a lower level of promotions, and against an increased level of competitor promotions and coupons, thus losing traction across the peak period," according to Nomura.The broker cuts its full-year UK trading profit forecast by £95m, or 3%, resulting in an ex-property underlying full-year earnings per share (EPS) estimate of 33.5p, a 2% cut.However, analysts remain optimistic: "Having underperformed UK grocery market LFLs in recent years, we believe the magnitude of investment underscores Tesco's determination to reassert its authority in its core market.""While we do not interpret this to mean leading LFLs, or perpetually increasing share, we believe Tesco will set out its stall to do what is necessary to sustain best-in-class operating metrics and returns, underpinned by LFL growth at a market rate or better," they said.Nomura maintains a 500p target price.BC