MS favours Tesco among European food retailers as focus shifts to volumes

Jeronimo Martins SGPS SA

02/02/2024 10:36

** Morgan Stanley gives its 2024 view on European food
retailers, saying it will look for volume winners best geared to
profitable growth and with scope to return cash to shareholders 
    ** As price inflation moderates across geographies, top-line
growth will become increasingly reliant on volumes, the broker
says
    ** With improving volumes, margins stand to benefit from
operating leverage, it adds
    ** Tesco  TSCO.L  is MS's top pick, as the broker expects
retailers "in the sweet spot" to be rewarded by the market
    ** It expects volumes/mix to turn positive from Q2 in the
UK, driving FY25 growth of 2.5% y/y despite slowing pricing 
    ** Jeronimo Martins  JMT.LS  also looks attractive, MS says,
with a 20% upcoming minimum wage hike, 5% growth in consumer
stimulus and easing mortgage burden in Poland set to drive a
bounce-back in volumes
    ** It upgrades the Portuguese food retailer to "overweight"
from "equal-weight", saying Polish volumes are likely through
the worst now
    ** MS also raises J Sainsbury  SBRY.L  to "equal-weight"
from "underweight", and cuts Associated British Foods  ABF.L  to
"equal-weight"

 (Reporting by Joao Manuel Mauricio)
 ((JoaoManuel.VicenteMauricio@thomsonreuters.com))