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(Sharecast News) - JP Morgan has cut its performance rating for UK-listed stocks B&M and Tesco as part of its downgrade of the whole European food retail sector.
"We take a cautious stance on the sector, reflecting our analysis of grocery pricing deflation prospects as we approach 2024," said analyst Borja Olcese.
"We think current sentiment and valuations make for an unattractive risk reward as investors start to reassess portfolios into 2024, when we expect grocers' profit/loss and cash-flow dynamics to worsen vs 22-23, triggering downside risk to consensus."
Olcese said deflation is a "real possibility" and one that it not fully factored into retailers' forecasts of their share prices.
As such, the bank has downgraded stocks in its coverage it thinks are the most exposed, two of which are B&M and Tesco. B&M has been hit with a double-downgrade from 'overweight' to 'underweight'; Tesco has been cut from 'overweight' to 'neutral'.
