Broker snap: Tesco making progress, says Nomura

11th Jun 2012 10:44

Nomura has reiterated its buy recommendation and 430p target price for supermarket giant Tesco, saying that while still early days, there was 'incremental progress evident' in the group's first-quarter statement.Group sales for the thirteen weeks ending May 26th increased by 2.2% including petrol (3.8% at constant exchange rates) and by 2.6% excluding petrol (3.9% at constant exchange rates). Total sales in the UK including valued added tax (VAT) and petrol grew by 2.1% and by 2.0% excluding petrol.On a like-for-like (LFL) basis, excluding both VAT and petrol, sales fell by 1.5%; that performance was an improvement on the 1.6% decline in the preceding quarter and in line with Nomura's estimates.Although mixed and against a weak macro-economic backdrop, the broker highlighted that LFL sales in both Asia and Europe were in positive territory; analysts were expecting a slight decline."Although Tesco's recovery to a market rate of growth remains work-in-progress, we believe it has succeeded in stabilising its underlying LFL at -1% post-Christmas and is beginning to close the gap relative to the market. Q2 should also see over 100bps of Jubilee benefit," Nomura said.Operationally, the broker has maintained its forecasts but has trimmed its full 2012/2013 earnings per share estimates (EPS) by 1.5% to reflect changes in foreign exchange."Buoyed by an in-line update, and trading on 8.8 times FY12/13E ex-property EPS and a 5% yield, we continue to see clear value."By 10:42 on Monday, shares were trading 0.5% lower at 301.3p.BC