Market Report: Why Tesco could be regarded as a bit of a basket case

It is always brave to hit at a share riding high in the popularity stakes. After outscoring J Sainsbury and leading the superstore charge into financial services Tesco has been one of the darlings of the stock market. Its upbeat profit performance and pounds 640m move into Ireland have merely added to its appeal.

But Rowan Morgan, experienced retail analyst at Nikko, the Japanese securities house, reckons the adulation is too intense. And he believes that the shares should be sold.

He says they look fairly valued and "offer little upside potential, having outperformed the market by 11 per cent over the last 12 months". So those seeking excitement should look elsewhere.

Shares of the superstores group milled around, ending 1.5p higher at 354p. More favourable comments from AGB Research on Tesco's performance in the supermarket sector probably offered support. In the past year the shares have been as low as 267p and as high at 370p.

Mr Morgan sees Tesco profits moving from pounds 750m to pounds 825m this year and reaching pounds 955m next.

Asda fell 1p to 110.5p and Sainsbury 4.5p to 321p. They have figures next month. Dresdner Kleinwort Benson was said to be suggesting Asda will produce pounds 435m against pounds 401.2m and Sainsbury will be down from pounds 764m to pounds 630m.

The rest of the market continued to ignore New York's sudden reawakening with Footsie, after a confident start, struggling to stay in positive territory. It ended 4.3 points higher at 4,298.9.

There has in recent years been growing evidence that the market is, to some extent, decoupling from New York. As the world's biggest market New York will, of course, continue to exert a deep influence on proceedings in London.

But its power seems to be much greater when it is in retreat. The adage if New York catches a cold then London sneezes still applies. But the market is much less interested when Wall Street is riding high: London has lagged a long way behind as New York has surged from 3,000 points in a little over two years.

Carlton Communications led blue chips higher. The share gained 22p to 528.5p following buy signals from Morgan Stanley. The US investment house is encouraged by Carlton's involvement in the British Digital Broadcasting consortium and looks for profits of pounds 340.7m this year; pounds 364.4m next and pounds 407.3m the year after.

Bass fell 7.5p to 785p, lowest this year. Societe Generale Strauss Turnbull was negative and the brewers' long struggle to swallow its Carlsberg Tetley rival is beginning to sap sentiment. Allied Domecq gave up 8p to 428p, responding to recent SBC Warburg caution.

Standard Chartered was the day's banking favourite, up 18p to 865p on Schroders support.

BT was unchanged at 442.5p despite bullish noises from JP Morgan and Inchcape rose 7.5p to 263p with Panmure Gordon signalling a 300p target; National Grid gained 4.5p 222.5p on Goldman Sachs support. But Smith & Nephew fell 3.75p to 176.25p on a rumoured Merrill Lynch downgrading.

Premier Farnell, the electronic components group that produced a shock profits warning in January is due to produce yearly figures on Monday. The warning sent the shares tumbling more than 150p in a few days, eventually hitting 457.5p. They rose 4p to 500p. Year's profits are likely to be around pounds 125m against pounds 110.9m. Still the group, which astonished the market with an audacious pounds 1.8bn US take-over last year, must feel it has a promising tale to tell. It has arranged a series of investment meetings next week and is arranging to fly fund managers to its US operations.

LucasVarity commenced its share buy-back, picking up 10 million at 198p through ABN Amro Hoare Govett; the shares fell 3p to 193.5p. Engineer Spirax-Sarco improved 26p to 733p with talk of a bid from Siebe, off 2.5p at 943.5p.

Sports retailers were firm. JJB Sports rose 23p to 452p after chairman David Whelan promised any share sale would be on a modest scale; he has just over 30 per cent. Blacks Leisure added 14.5p to 475p, a peak. Figures are due next month.

Vanguard Medica fell 5p to 625p. Greig Middleton suggest a year-end price of 1,507p.

Pittencrieff, the oil group, gained 12p to 54.5p on the signalled US bid and Hill Hire shaded to 137p after raising pounds 1.7m through a placing at 130p.

Dawson, the newspaper distributor, rose 11.25p to 240p after its 10- for-one share split.