Tesco looks wobbly after JPMorgan flags concerns

Are the wheels coming off supermarket juggernaut Tesco?

JPMorgan flags up a triple whammy of worries about the grocery giant. The heavyweight broker reckons chief executive Sir Terry Leahy has got his strategy all wrong, letting margins dictate business.

It believes Tesco's basket of goods has become too costly for its average shopper, having raised the prices of branded goods much more than its competitors. Although it has upped prices of its own-label products less than rivals, sales are not responding to the low prices.

Rising net debts, which JPMorgan tips to reach £9.4 billion by the end of its financial year, £1.4 billion above target, and an increasing pension deficit are also causes for concern.

Meanwhile, analysts forecast the US business, Fresh & Easy, will make a loss of £100 million for 2009-10.

The broker advises clients to dump the stock, setting a price target of 300p for the shares, which changed hands at 336.6p, 12.1p cheaper.

Supermarkets were generally off everyone's shopping lists as investors pocketed profits, with Wm Morrison down 11p at 261p and J Sainsbury off 8p at 316p.

In London, the bears were back in town after the bulls came out in force yesterday, pushing the FTSE 100 up 4.3%. Shares were generally giving in to profit-taking, with the benchmark slipping 10.75 points to 4114.22.

Trading was thin as investors waited for the US non-farm payroll data for direction, which came in worse than expected at 663,000 jobs lost in March.

BSkyB sank 12p to 4201/4p, sparking talk that it is about to guide down the market on profits. The satellite broadcaster has so far proved to be remarkably recession-resilient but the old fears that Britons will give up their Sky packages as the recession continues to bite have resurfaced. The thinking behind it is shared by the hedge funds, who have been shorting its shares.

But wise heads in the City were quick to dismiss the rumour, noting that trading volumes in BSkyB's shares were about half their usual levels. They attributed the sell-off instead to a bit of profit-taking after a modest rally and investors switching to more-risky punts.

Meanwhile, brokers can't agree on DSG International. Oriel Securities said the argument for buying the PC World and Currys owner's shares is getting stronger, thanks to chief executive John Browett's turnaround strategy.