Fill your trolley at Tesco as grocers bounce back

There is still some good money to be made from investing in supermarket groups, according to German investment bank Berenberg.

The venerable institution understands fears of a ‘bloated market’, given that the listed Big Three food retailers – Tesco, Sainsbury’s and Morrisons – have all seen their share price soar over the past year. But Berenberg’s analysts, who remain bullish about the sector, reckon there are three key reasons the strong run can carry on for a while yet.

First up is that price competition ‘is now normalising’ after several years of price wars. Second, the threat of online is becoming less of an issue for supermarkets. And lastly, high Street retailers such as Poundland are now giving back some of their market share which for years they had pinched from supermarket.

Berenberg thinks Tesco – up 0.3pc, or 0.8p, to 235.1p and its top pick in the sector – should continue to benefit from ‘strong growth’ in its Booker division after recently taking over the wholesaler. Sainsbury’s should continue to improve heading into the second half, boosted by synergies peaking from its acquisition of Argos.

As for Morrisons, the bank’s analysts hiked their price target to 250p from 210p as they forecast a 9pc rise in underlying earnings in the second half of the year, compared with 4pc in the first.

The investment bank still has Morrisons as a ‘hold’, while it has ‘buy’ recommendations on Tesco and Sainsbury’s. Morrisons shares were up 0.5pc, or 1.4p, to 258p, while Sainsbury’s added 0.2pc, 0.5p, at 321.7p. Overall, however, investor weren’t doing much shopping in the market on Monday, with the FTSE 100 index closing 0.03pc, 1.94 points, lower at 7302.1, while the broader FTSE 250 index lost 0.01pc, or 1.48 points, at 20374.39.

elsewhere among the bluechips, Credit Suisse cut its target price for mobile phones giant

Vodafone, citing recent foreign exchange movements and commentary from a management presentation, leading to lower forecasts for headline earnings and free cash flow.

The Swiss bank reduced its target for Vodafone target by 10p per share to 225p, but still retained a positive ‘outperform’ rating on the stock and the shares managed to gain 0.4pc, 0.64p, at 168.08p.

But broker comment weighed heavily on FTSe250-listed software firm Sophos Group, which dropped 4.5pc, or 23.5p, to 494p as worries that competition in the cyber-security world is hotting up led Deutsche Bank to downgrade its rating to ‘hold’ from ‘buy’. Further down the market,

Frontera Resources fell 10.1pc, or 0.04p, to 0.31p as the AIM-listed oil and gas exploration company is in a dispute with a hedge fund YA II PN Ltd over the conversion of preferred shares into ordinary shares. Another AIM faller was Premier

African Minerals which shed 20.5pc, or 0.04p, to 0.14p on news Cadence Minerals has opted not to press ahead with its planned investment in the Zulu Lithium Project

At the end of June, the two parties agreed in principle for Cadence to take up to a 30pc stake in the project for up to $5.1m.

But Cadence confirmed on Monday that it had been unable to agree final terms on the deal with Premier, which said it will provide a further update on alternative strategies for the development of Zulu over ‘the coming weeks’.

On the up, AIM-listed oil and gas exploration company Clontarf

Energy surged 170pc, up 0.34p, to 0.54p after it resolved issues with the Ghana National Petroleum Corporation related to a contract to develop the Tano 2A Block.

And Anglo Asian Mining jumped 11.1pc, or 5p higher to 50p as recent exploration work at its Gedabek open-pit gold mine proved successful.