Broker snap: Tesco's scope for UK growth underrated

28th Jan 2011 10:21

Nomura says that while Tesco's international operations are widely acknowledged as under-appreciated, the same can be said of its position in the domestic market as the retailing giant has the headroom to double the number of its UK compact hypermarkets.Analyst Nick Coulter says that Tesco has scope to double its 'Extra' store portfolio to around 400 stores in the long term, "thereby underpinning mid-single digit space growth for much of the next decade." The Japanese broker estimates that this expansion would add over £2bn to 'pure' non-food sales, to approach around £6bn in the long term."A strong performance in the exceptionally weak category of electricals, and a weak performance in a robust clothing market have acted as a drag on sales. We see improved performance in the key clothing category as a catalyst," Coulter says.The expected non-food and services performance, along with its hyperspace expansion and UK efficiencies, prompts the broker to retain its 'buy' rating and target price of 500p.