MARKET REPORT: Tesco in demand after analysts predict bumper profits

Shares in Tesco rose as analysts backed Britain’s biggest grocer to produce bumper profits – with investors in line for further handouts.

Investment bank Morgan Stanley expects Tesco to report a profit of £2.53billion for the year to mid-April – above the range of £2.4billion and £2.5billion the grocer gave in January. 

In that trading update, Tesco also reiterated its forecast to generate at least £1.8billion of cash at the end of its financial year.

But Morgan Stanley has pencilled in £1.87billion and thinks Tesco has room for another £200million of share buybacks. 

The broker raised Tesco’s rating to ‘overweight’ from ‘equalweight’ and increased the target price to 296p from 263p.

Upgrade: Morgan Stanley expects Tesco to report a profit of £2.53bn for the year to mid-April – above the range of £2.4bn and £2.5bn the grocer gave in January

It also said the grocer should withstand the pressures of rising food prices as the latest industry data shows that volumes are holding up even as prices increase.

‘Food retail typically outperforms during bouts of market volatility,’ said Morgan Stanley.

And, concerning rumours surrounding a possible sale of Tesco Bank, Morgan Stanley said it has more than £300million of spare cash that could be paid out.

Tesco shares, up 17 per cent this year, were up 3 per cent, or 7.6p, to 262.5p.

Other retailers were faring well, with Ocado up 7.7 per cent, or 34p, to 478p while Sainsbury’s added 1.1 per cent, or 3p, to 267.8p.

On the wider market, the FTSE 100 rose 1.1 per cent, or 80.02 points to 7564.27 and the FTSE 250 was up 1.3 per cent, or 236.12 points, to 18,632.81. 

London’s top index made gains for a third consecutive session amid hopes the turmoil in the banking sector can be contained.

Stock Watch – Versarien

Graphene firm Versarien could tap investors for funds to shore up the business.

Chairman Diane Savory and the two other non-executive directors have agreed to work without pay to help reduce costs.

It has also axed staff and reduced non-essential spending.

It said it could raise fresh funds from disposals, grants, tapping investors or placing extra shares. 

And a turnaround specialist has been drafted in. 

The shares fell 20.6 per cent, or 0.64p, to 2.45p.

Barclays gained 3.5 per cent, or 4.84p, to 142.02p, HSBC was up 2.4 per cent, or 12.9p, to 554p and Lloyds rose 1.6 per cent, or 0.73p, to 47.13p.

Shore Capital analyst Gary Greenwood said the rally showed signs that the UK banks were in a ‘relatively strong position when compared to US peers’.

Oil prices rose, with Brent crude reaching nearly $80 a barrel.

It sent BP up 0.5 per cent, or 2.7p, to 510.5p while Shell added 1.6 per cent, or 35p, to 2298p. Asset managers also staged a rally with M&G up 3.7 per cent, or 6.6p, to 185.95p while L&G rose 3.1 per cent, or 7.2p, to 236.8p and Phoenix Group gained 3.2 per cent, or 17.4p, to 566.8p.

But Smith & Nephew slipped after Barclays downgraded the medical devices maker to ‘underweight’ from ‘overweight’ and cut the target price to 1100p from 1480p. Shares fell 1.1 per cent, or 12.5p, to 120.5p.

At Essentra, the components business made a positive start to the year with orders 8pc ahead of 2022 on a like-for-like basis. It rose 5.4 per cent, or 9.6p, to 187p.

Meanwhile the UK subsidiary of defence group Chemring has secured an order worth £43million to deliver vital components used in the Next Generation Light Anti-Tank Weapon system.

It will take some time for Chemring to get the components, meaning they will be delivered to customers from 2024 through to 2026. It rose 0.7 per cent, or 2p, to 273.5p.

Moneysupermarket soared 4.8 per cent, or 11.6p, to 255.8p after UBS raised the comparison website’s target price to 270p from 250p.

The boss of kettle controls maker Strix said recent sales data this year shows ‘some green shots are appearing’ as his company eyes a return to growth after revenue slid 10.5 per cent to £106.9million in 2022 while profit plunged 31.1 per cent to £22.2million. Shares soared 5.7 per cent, or 5p, to 93.2p.

At Michelmersh, the brick maker said orders have been rolling in already this year as it looks to cater for the premium end of the UK and Benelux markets.

Last year revenue surged 15pc to £68.4million while profit soared 17.2 per cent to £11.4million. Shares gained 3.3 per cent, or 3p, to 94p.