Tesco leads FTSE 100 as analysts post sunnier outlook on sector

 
Helen Cahill
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Customers leave a Tesco supermarket in w
The Christmas period is crucial for retailers (Source: Getty)

Tesco is leading the FTSE 100 today after Goldman Sachs said pressure on the supermarket sector was easing.

Higher inflation has allowed supermarkets to pass on cost pressures to consumers; food prices rose by 1.5 per cent in October, according to the British Retail Consortium (BRC).

And, BRC said today that over the three months to November, food sales increased by 2.8 per cent on a like-for-like basis and by four per cent on a total basis.

Read more: Next concession in store for Tesco in bid to use extra space

Goldman Sachs has said that the supermarket sector still faces challenges, but the bank upgraded its stance on Morrisons and lifted its target price for Sainsbury's.

At time of writing, Tesco's share price was up by five per cent to 204p, making it the top riser on the FTSE 100. Sainsbury's and Morrisons' share prices were up by 3.99 per cent and 3.8 per cent respectively, making them the second and third top risers.

Peel Hunt analysts John Stevenson and Jonathan Pritchard also released a relatively positive outlook on the retail sector today, saying reports of retail's demise were "greatly exaggerated".

Read more: Thousands of Morrisons staff set for payout over data leak

"The General Retailers are trading on a four-year low in valuation terms as macro concerns take a toll on the sector. However, this isn’t really about external factors. Half of the stocks in our universe are up year-to-date, while half are down; the driving factor here is that structural growth businesses, or those with a strong and defendable market position are better able to handle the headwinds," the analysts said.

"Christmas will be fine, but there’s no macro help to bail out the weaker formats in 2018."

Their top picks for the sector included B&M, JD Sports, SuperGroup and Joules.

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