Tesco drops as former broker sees consumers defecting
SHARES in Tesco, the UK and Ireland's largest retailer, fell the most in more than three months as JPMorgan Cazenove cut the stock to underweight a week after being dropped as the supermarket company's co-brokerage adviser.
The shares fell as much as 3pc to 362.65 pence in early London trading, the steepest intraday drop since June 20, as JPMorgan analysts said the emergence of German discounters Aldi and Lidl may cause Tesco to go "through a painful rebasing of pricing and the gross margin, synonymous to a profit warning."
Tesco is struggling to maintain its dominant 30pc market share as UK consumers defect to discounters, upscale chains such as Waitrose and the internet.
The grocer's market share fell to 30.2pc in the 12 weeks ended September 16 from 30.9pc a year earlier, Kantar World panel said. Tesco is scheduled to report first-half earnings next week.
Aldi and Lidl are disrupting a price and range architecture that the UK's four biggest supermarkets used for two decades, JPMorgan analysts said in a report. That is "of most concern to Tesco because its prices and ranges are margin driven."
Tesco dropped JPMorgan Cazenove and Nomura as brokerage advisers last week and said it appointed Barclays to work alongside Deutsche Bank in the role.
Nomura's new food retail analyst David Payne started his coverage of Tesco with a neutral recommendation last week. His predecessor Nick Coulter recommended buying the stock before leaving this year to join Tesco's investor relations team.