Broker snap: Tesco overseas better than UK

13th Jan 2011 12:11

Even though Tesco reported subdued sales in the UK, Nomura is pleased with the supermarket giant's international performance as it showed impressive growth.Like for like (LFL) sales in the UK for the six weeks to 8 January were up 0.6%, against expectations of flat to +2%. The Japanese broker said "we believe non-food LFLs were down by a small single-digit percentage as weather disruption shortened drive times leading to lower footfall into Tesco's Extra hypers (circa 40% UK floor space)."However, Tesco posted another strong outturn in its international portfolio, with constant-currency growth being 9.9%, consisting of a 10.8% and 8.7% rise in Asia and Europe respectively. "The US showed continued strength, with high single-digit LFLs."One percentage point of lost sales clips the broker's UK profit forecasts for 2011 by £30m. Nevertheless, "resilient Christmas trading" sees Nomura retain its 'buy' rating and target price of 495p.However, financial services firm Matrix has given Tesco a 'sell' rating and says the results are "a big miss" as the group struggles in the face of more competition."Tesco's non-food weakness was in direct contrast to Sainsbury, which said non-food benefited from the weather, as customers took advantage of Sainsbury's non-food to stock up on presents rather than struggle through to the High Street," said analyst Tom Gadsby."Our key points are that the UK business is struggling in the face of much more organised competition, that it has consistently lost market share in the past three years, and that the overseas is loss making and a cash drain in half of its markets."Matrix remains a 'seller' of the stock, issuing a target price of 370p.