“Whilst we believe that the worst may be behind Tesco’s, the competition levels will continue to remain tough and margins therefore will not return to historic levels anytime soon,” remarked The Share Centre’s investment research analyst Helal Miah.
“The dividend will be raised, but investors should appreciate that this will take a while to get back to historic norms too. We therefore continue to recommend Tesco as a ‘hold’ for medium risk investors seeking growth.”
Wealth manager Killik & Co also expressed reservations about Tesco’s prospects over the medium term.
“Whilst the UK performance was slightly better than expectations, there remains a significant level of uncertainty surrounding the medium-term outlook for Tesco.
“We believe that the UK supermarket sector is largely uninvestable, given high competition between the big players, and the threat from rapidly-expanding discounters, as well as ongoing input cost inflation with little ability to pass this on to customers.
“Tesco shares appear expensive on 18.4x 2018 consensus earnings with a 1.5% prospective yield, and we reiterate our ‘sell’ recommendation,” it concluded.
