Shares in supermarket giant Tesco were making gains on Wednesday after Credit Suisse raised its recommendation for the stock from 'neutral' to 'outperform' and hiked its target price from 355p to 430p.

In a research report, the broker said: "We think growth/capital discipline can co-exist and the shares outperform on that basis rather than via Tesco focusing on a cash-return strategy."

The stock was 2.1% higher at 379.85p in early trading.

Credit Suisse said that Tesco's "exceptionally strong" shareholder returns over the last 20 years have been overlooked as of late. This will likely remain so as the group continues to struggle to sustain like-for-like sales, but the broker said that growth remains "engrained in company culture".

While long-term growth plans and near-term debt repayments will likely preclude a near-term share buy-back, the broker said that this should not detract from the bull case.

"Why? Because, Tesco is exceptionally placed amongst peers in having the footprint/capability to grow and, we think, can strike the right growth/capital discipline balance to realise that competitive advantage without a buyback."

Credit Suisse concluded: "More organic growth and/or consumer recovery would imply further upside and are outcomes Tesco, by continuing to invest in future growth, will be well prepared for, we think."

BC

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