Oriel Securities slashes recommendation on Tesco

26th Feb 2014 11:45

Broker Oriel Securities has downgraded Tesco after the troubled supermarket chain launched 200m pounds of price cuts and said it was stepping up its store revamp programme.Oriel, which downgraded Tesco from a 'buy' to an 'add' last October, reduced its recommendation again to 'hold' with a 325p target price.It criticised Tesco's plans to speed up its turnaround programme outlined at the group's strategy day on Tuesday, saying they were just "more of the same".Clarke halved capital spending plans to just £700m a year from £1.4m a year and effectively abandoned Tesco's target for a UK operating margin of 5.2%, the highest in the industry, by saying "the margin will be what the margin will be."Clarke said he did not see the need for a change of strategy, saying the group just needed to speed up its turnaround plans.But he admitted the group's performance "has not been what we wanted it to be".He outlined plans to revamp all the company's larger stores by 2017 and to expand in convenience and online retailing, including click-and-collect.Oriel said Tesco needed to do more than it was doing at the moment to overhaul the business, including increasing its planned £200m of price cuts and improving product quality.It said it was taking 5% off its UK pre-tax earnings before interest forecast for Tesco next year, which meant pre-tax profit progress was unlikely.Oriel said: "We disagree with management that a firm base has been rebuilt, and that simply evolving the current strategy will bring results."With the exception of some aggression where online is concerned, there was nothing much of any substance on how Clarke and his team see the brand moving forward."Shares in Tesco fell 14p or 4.25p to 321.2p at 11:50 in London.PW