Seymour Pierce has retained its 'reduce' rating for supermarket giant Tesco after the group's first-half profits came in well below expectations.

Tesco this morning reported a 15% drop in first-half profit before tax (pre exceptionals and property profits) to £1,497m, under Seymour Pierce's £1,603m forecast. Trading profits fell in the UK, Asia and in Europe, while US losses were worse than expected.

"The market was prepared for a decline in profits but this is a disappointing statement even in that context we believe," said analyst Kate Calvert.

She said that the Bank division was the only positive in the figures; it reported a 114% increase in first-half earnings before interest and tax (EBIT) to £94m, well ahead of Seymour Pierce's £50m estimate.

Calvert said that while the valuation is not very demanding given Tesco's potential longer-term growth, "there is no visibility on where UK profitability will bottom and whether management actions will work in the medium term."

She also said that too many of its overseas businesses face trading issues short term.

The broker has maintained its negative view on the shares, saying: "we expect inflation to return which has proved not to be positive for volumes or margin given the maturity of the UK market."

Tesco a 'buy', says Panmure


In contrast, Panmure Gordon reiterated its 'buy' rating for Tesco today, saying that the UK recovery programme is on track.

"Getting the UK back onto a recovery path is all about doing 1,000 things 1% better, rather than having a wonderful store format that will save the company.

"Therefore, there are changes to staff numbers, staff hours, own label ranges, store layout and signage, the localisation of ranges, personalisation of offers through Clubcard and marketing strategy, all of which should feed through to a proposition that is in line with customers' needs and requirements. It will take time, but we believe that it is on track."

By 10:56, shares were down 1.06% at 333.13p.



BC

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