Broker snap: UBS upgrades Tesco to "Buy"

17th Oct 2012 12:45

UBS has upgraded Tesco to "buy" from "neutral" with a twelve month price target of 370p, up from 350p. Its analysts stated that they believe Tesco is recalibrating the manner in which value is delivered to shareholders by lowering capital intensity and focusing on cash generation. "This has the scope to drive significant cash returns - our analysis suggests the company could feasibly buy back almost £8bn ofequity and return around 60% of market cap to investors in cash, including dividends, over the period to February 2018."They went on to conclude: "In our view, Tesco is a cheap asset with under-appreciated strategic optionality. The prospect of a decisive shift in strategy towards cash generation, prompts us to shift the basis of our price target (now 370p versus 350p) to a 10% sector premium."