Shares digital

While Tesco (TSCO) has complained about the Competition Commission’s findings into food retailing in the UK, Nick Bubb of brokers Pali International believes the report is ‘remarkably benign’ and that Sir Terry Leahy’s company must be inwardly very satisfied with the results of its lobbying.

The so-called competition test will apply when a retailer has 60% of any area’s market. That is unlikely to affect the group’s ability to grow in the UK. Similarly, Tesco is not being forced to divest any stores or sell any of its land bank. Thus the Commission has done virtually nothing to increase competition among UK supermarkets. Indeed the abolition of the ‘needs test’ is likely to result in even more supermarkets being built.

Although the Commission is proposing the creation of an independent ombudsman to oversee a strengthened code of practice and to arbitrate upon disputes between supermarkets and their suppliers, the balance of negotiating power will still remain strongly with the former.

At 406p, Tesco is trading on a prospective PE of 16.1, falling to 14.3 next time, compared with prospective PEs of 20.2 for Sainsbury (SBRY) and 20.3 for Morrison (MRW).

Shares says: Tesco is still the best stock in the sector. Neither Sainsbury nor Morrison will benefit significantly from the report and are fully valued.

BUY Tesco

HOLD Morrison

SELL Sainsbury

by: John Marshall

The writer holds shares in Tesco and Morrison