ShoreCap stays at 'buy' on Tesco, expresses confidence in management

ShoreCap sounded a confident note on the implications of the impending changes in Tesco's top ranks for the company's share price, reiterating their recommendation to 'buy' in the process.

Until the grocer's new chief executive, Ken Murphy, was "in place and understood, there is an additional risk factor of sorts," they said.

However, they expected that company chairman, John Allan, would have been "diligent" in the selection process, so they were eyeing Murphy's rival with "calm and with interest".

The broker also expressed a positive view on the remainder of the management team, telling clients that it had executed largely effectively across the board - especially in Asia and UK foodservice.

"Much remains to be done but we can foresee a gently building cash compounder with sound [earnings per share & dividend per share] growth," ShoreCap said.

The analysts were anticipating three year compound annual growth of 11.5% and 25.7% in Tesco's EPS and DPS, respectively.

They also saw margin for the firm to generate free cash flow and reduce its leverage, even while providing "acquisition optionality" and being "shareholder friendly".

"Such 'stuff' is the thing of rating appreciation in our view."