Supermarket surge after brokers say they’re a buy

Tesco surged up the FTSE 100 after analysts told investors to add the stock to their trolley.

Goldman Sachs upgraded the grocer to ‘buy’ from ‘sell’ for the first time in four years, claiming pressure in the grocery market is set to ease as discounters dial back on their aggressive pricing. The bank also upgraded Morrisons to ‘neutral’ and increased its price target on sainsbury’s – though it remained rated ‘sell’.

Supermarkets typically used to benefit from rising inflation, which allowed them to boost their margins by passing on price increases to customers.

However, the increasing popularity of discounters such as Lidl and Aldi in recent years has forced many to absorb the cost in order to avoid deterring customers.

Goldman said a less aggressive pricing strategy by the discounters, coupled with falling fuel prices and wages tracking below CPI for by Victoria Ibitoye the first time in four years, means the grocery market is likely to grow more in 2018 than this year.

The bullish update sent shares in Tesco up 3pc, or 5.85p, to 201p. Sainsbury’s up 2.8pc, or 6.4p ,to 239.3p and Morrisons up 2.2pc, or 4.8p, to 218.8p.

Goldman also said that Tesco’s scale and ‘superior cost saving programme’ means that it can continue taking market share from the Big Four while reinvesting in further savings in the first half next year.

Tesco takeover target, the wholesaler Booker, was downgraded to ‘neutral’ having reached its price target.

Goldman analysts, however, warned that it expects the supermarket industry to remain structurally challenged in the long term, with returns well below pre2014 levels.

The broker said: ‘We are not saying all is rosy in UK grocery.’

The FTse 100 finished down 0.2pc, or 11.47 points, at 7327.5 points while the FTse 250 finished down 0.3pc, or 64.87 points, at 19871.08 points.

Shares in Mears fell after it said that ‘challenging’ conditions in its housing division were likely to affect sales and warned of a separate £16.5m profit hit.

In a trading update, the housing and social care group said there had been a ‘softening’ of sales in its housing business following a fall in client workloads and it expects to incur a one-off charge of up to £16.5m relating to the disposal of its mechanical and electrical division.

Mears said that when selling the arm in 2013 it had been given a number of contractual guarantees which have not been met.

It has now taken legal advice to resolve the dispute and said that while it believes there is a ‘realistic expectation these funds will be recovered in due course’, the business will incur the costs as an exceptional item in its full-year results. The announcement yesterday sent shares spiralling 8.5pc, or 36p, to 387p.

Wizz Air flew higher after boasting a 22pc surge in passenger numbers in November. Shares increased 1pc, or 35p, to 3555p after the airline revealed it had carried 2.2m passengers last month, up from 1.8m the year before.

Shares in nutrition and genetics business Benchmark rose after it posted a healthy update.

Earnings for the full year will be ahead of forecasts at £10m – compared to its previous guidance of £8.7m-£9.3m – while sales are on track at £138m. Sales across its nutrition division, which includes supplements such as whey protein, were up 21pc thanks to a recovery in shrimp markets which helped fuel demand for its ‘hatchery diet’ products. Shares increased 2.9pc, or 1.5p, to 52.5p.