June 11, 2012 / 8:22 AM / 7 years ago

STOCKS NEWS EUROPE-Tesco underperforms after Q1 update

Shares in Tesco gain 0.4 percent, underperforming a much stronger advance by the FTSE 100 index, up 1.6 percent, as the world’s third-biggest retailer reports a drop in quarterly underlying sales in its main British market, leading Seymour Pierce to cut its target price for the stock to 320 pence from 350 pence.

The supermarket group, with over 6,000 stores in 14 countries, says consumer confidence was subdued across all of its markets, with total sales up 2.2 percent including petrol in the 13 weeks to May 26, its fiscal first quarter.

Seymour Pierce says Tesco’s Q1 sales were broadly in line with market expectations and thinks there must be some relief that despite the well flagged negative UK like-for-like sales, the firm’s management is advising no change to full-year 2012/13 expectations.

“We continue to believe that Tesco is still a strong business with an unassailable market leading position in the UK that has temporarily come off the rails  Nevertheless it is hard to see anything other than pedestrian earnings growth from the company over the next three years,” the broker says in a note.

“UK profits are unlikely to grow while the company has to invest in its proposition to defend market share, and overseas, which still only accounts for circa 25 percent of operating profits, will not significantly move the dial,” Seymour Pierce adds, retaining its “hold” rating on the stock.

Reuters messaging rm://jon.hopkins.thomsonreuters.com@reuters.net

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