Broker snap: Seymour Pierce downgrades Tesco on visibility issues

1st Oct 2012 09:43

Seymour Pierce has downgraded its rating for supermarket giant Tesco from 'hold' to 'reduce' ahead of the group's first-half figures this week, saying that visibility remains poor.On October 3rd, Tesco will report its results for the six months to the end of August, in which Seymour Pierce is forecasting a 6% drop in pre-tax profit to £1,603m and a flat dividend per share of 4.6p. The broker said that a fall in profits from the UK is likely to be partially offset by improvements in Asia, US and the bank. Analysts say that the focus of the results will be on the performance in the domestic market and whether the run-rate of like-for-like (LFL) sales has improved from the 1.5% decline in the first quarter. The group is also expected to given an update on its six-point plan though Seymour Pierce says that it is still too early for the new strategy to have an impact on the UK performance."While the valuation is not the most demanding given longer term growth potential, it is hard to see the shares performing while there is no visibility on UK profitability and whether management actions will reinvigorate the business," the broker said."With inflation expected to return, which has proved to be a negative for volumes or margin, we take advantage of the recent rally in the share price and downgrade our recommendation."Shares were up 0.85% at 334.83p in early trading on Monday.BC