Tesco shares hit 10-year low following S&P downgrading


LONDON (ShareCast) - Tesco (Xetra: 852647 - news) shares reached their lowest point in a decade on Thursday, as Standard & Poor's (S&P) cut its rating on the supermarket's stock following last month's profit warning.

The profit alert was issued in July as David Lewis, president of Unilever (NYSE: UL - news) 's personal care division, was announcement as the replacement for outgoing chief executive Philip Clarke.

S&P cut its rating by one notch, claiming Tesco's profitability could weaken even further in 2015.

"The downgrade reflects our view that Tesco's profitability will continue to weaken because market competition in the UK will remain persistently high, and even intensify, over the next 12 months," S&P said in its research note.

"Tesco's market and financial positions have not tangibly improved, despite extensive restructuring and substantial spending on a long-term program to improve its stores and customer service."

Earlier this week, HSBC warned that Tesco needed to take "drastic" actions and that it could also cut its 2014 dividend by 50% to 7.25p.

"Tesco needs to take drastic action to protect its future. We believe that UK operating profits need to more than halve to give Tesco a base on which to grow," HSBC said in a statement.

Tesco shares have been in freefall in recent months and analysts are saying that Lewis will begin a massive deck-clearing operation once he's officially installed in his new role at the beginning of October.

Tesco chairmain Sir Richard Broadbent insisted he's confident about Lewis' ability to turn the company's fortunes around.

"Dave Lewis brings a wealth of international consumer experience and expertise in change management, business strategy, brand management and customer development," said Broadbent.

"He is already known to many people inside Tesco having worked with the business over many years in his roles at Unilever. The board believes that with Dave's leadership Tesco will sustain and improve its leading position in the retail market."

Tesco shares showed a slight sign of recovery on Friday and they were up 1.21% to 246.75p at 16:32.


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