Broker snap: Tesco hit by Goldman downgrade to 'sell'

14th Nov 2013 09:12

Supermarket giant Tesco was being pressured lower on Thursday morning by a Goldman Sachs downgrade from 'neutral' to 'sell', with the bank saying that investors will have to wait a while for a cash return.Goldman estimates that Tesco store sales have lost 100 basis points (bp) of grocery market share since 2010, though this decline is only 30bp when including online sales."Continued pressure from the discount and online channels will drive lower UK margins in the medium term, in our view," the bank said.Ahead of a third-quarter trading update on December 4th, Goldman predicts that Tesco will report like-for-like (LFL) sales growth of 0.5% excluding fuel, up from a flat second quarter. Conditions overseas are expected to have improved also, with the LFL decline in Asia easing from 3.6% to 0.2% and falls in Europe slowing from 4.5% to 1.8%.However, the bank has revised its estimates for the retailer to reflect anticipated falls in UK margins, with earnings per share forecasts for years ending February 2014 and 2015 lowered by 1% and 5%, respectively. As such, its target price for the stock has been cut from 375p to 332p."Capital discipline at Tesco has improved significantly following the sale of the US business and restructuring of the China business, but we believe that investors still have some time to wait before a cash return programme (buyback or special dividends) can be instigated. "An International disposal programme remains an upside scenario for the shares, but one we think is unlikely."Tesco was one of the few stocks on the FTSE 100 to register losses on Thursday morning, trading down 0.1% at 364.35p by 09:29.BC