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Fitch Ratings has affirmed Tesco’s investment grade debt rating, citing its “strong market position in a highly competitive core UK market”.

The ratings agency affirmed the supermarket chains BBB- rating – one notch above a rating considered ‘speculative’ – with a stable outlook.

Fitch said the rating of Tesco reflects its position as a leading European food retailer, “characterised by its with deep format diversification and enhanced value perception”.

It said Tesco has continued to perform well, although Fitch expects cost inflation to continue to erode its profitability in its 2023/24 financial year as cost inflation will not be fully passed on or mitigated.

Fitch said that Tesco has built headroom under its rating over the past few years and it assumes the group will continue to operating withing its target leverage range.

It also said it anticipates upcoming debt maturities to be refinanced and thus keeping gross debt flat.

The ratings agency forecasts broadly flat EBITDAR in 23/24 at around £4bn before it increases towards £4.5 billion by 2027. Revenue growth, albeit slower than in the previous year, and a gradual 50bp recovery in profitability as cost pressures ease and cost saving delivery will drive the improvement by that 2027 period.

However, Fitch assumes a further 30bp reduction in EBITDA margin to 4.6% in 23/24, following a 60bp decline in 22/23 on the back of continued cost inflation, mainly structural (labour/ energy), not being fully offset by its £1bn cost saving programme.

“Profitability is also weighed down by Tesco’s approach to slightly delay cost of goods sold (CoGS) inflation pass-through and swift commodity-led price reductions in line with a heightened focus on value amid tightening consumer spending,” it stated.

Morning update

On a quiet morning, property investor Supermarket Income REIT has made a number of changes to the board’s committees and director responsibilities.

Most notably Sapna Shah will be appointed as chair of the management engagement committee.

The group’s overall chair Nick Hewson will step down from his role as chair of the management engagement committee but will remain as a member.

It has made a number of other tweaks to board committees “to improve the efficiency” of the committees.

On the markets this morning, the FTSE 100 is up 0.4% to 7,500.7pts.

Early risers include Virgin Wines, up 5.3% to 31.6p, Kerry Group, up 3.3% to €89.00 and Nichols, up 2.6% to 983p.

Fallers include FeverTree, down 7.5% to 1,134.6p, Glanbia, down 2.8% to €13.61 and Just Eat, down 2% to 1,204p.

Yesterday in the City

The FTSE 100 closed yesterday down 0.4% at 7,471.7pts.

B&M European Value Retail lost 6.5% to close at 552p despite posting double digit quarterly sales growth as the chain declined to provide forward guidance.

Science in Sport lost 16.7% back to 12.5p after its annual results were short of expectations as it fell to a loss amid inflationary pressures.

Other fallers included Nichols, down 3.6% to 958p, Tesco, down 3.5% to 246.9p, Sainsbury’s, down 2% to 266.2p, Premier Foods, down 1.9% to 126.8p and Hotel Chocolat, down 1.6% to 120p.

The day’s risers included Virgin Wines, up 5.3% to 30p, THG, up 3.6% to 78.3p, McBride, up 3.3% to 26.9p, FeverTree, up 2.3% to 1,226p, Ocado, up 2% to 540.2p, Just Eat, up 1.8% to 1,228p and AG Barr, up 0.5% to 464.5p.