This week’s UK Index winner is supermarket Tesco (TSCO) whose shares have climbed an impressive 6.7% as investors went wild in the aisles for a broker upgrade (HSBC upgrades to Buy from Hold, target increased to 260p from 195p) and helpful monthly market share data. The importance of broker upgrades (and downgrades) is indisputable with big institutions often influencing share prices with their updated stance on a company. It’s one of the reasons we monitor them so closely for clients. The week thus started well for Tesco investors, however, it was grocery market share data for the 12 weeks to Nov 6 from Kantar and Nielsen on Tuesday that really gave the shares impetus, helping them revisit 15-month highs of 215p. However, not for reasons you might expect.

Nielsen said market share rose to 27.7%, while Kantar said it had climbed to 28.2%. Increases are based on comparisons with the same period a year ago rather than last month, so analysis of the latter might be considered more important in terms of trend. However, comparison of monthly Kantar data actually shows Tesco’s market share unchanged. In fact, it was as high as 28.5% earlier in the year suggesting it has in fact declined over the year. So how come the shares rallied?

Firstly, year-over-year comparison is more appropriate in retail, stripping out seasonality. For example Christmas is a hugely important period, so there will be no point comparing December with November. So gains are good news. Secondly, Tesco’s rivals (Sainsbury 16.3%, Asda 15.5%, Morrisons 10.5%) actually saw their market share fall versus last year, which is good news for the market leader.

Thirdly, Kantar suggests Tesco seeing a return of more affluent customers who tend to spend more per visit. Margins were also boosted by higher sales of ‘Farm Brands’ and own label stuff (basic and premium) suggesting Tesco getting help from both ends of the shopper affluence spectrum. Fourthly, the positive trend that Kantar reported this week adds to news last month that Tesco had posted its first year-over-year market share gain in over five years, something which helped its shares perform strongly in late October.

However, the most important reason for Tesco’s shares topping the UK Index leaderboard board this week, we believe, relates to the fact that the march of the German discounters, those who have unleashed fiercely competitive price wars on the sector this decade, may finally be on the wane. The combined share of Lidl and Aldi has fallen back to 10.7% and Kantar deemed it worthy of note that their market share growth is now at its slowest pace since end 2011.

This is hugely significant in our view. Especially with last month seeing Tesco return to growth for the first time in….. five years. It may only be coincidence but we doubt it. With big rivals actually losing share it implies Tesco may well be the sole beneficiary of a plateauing in German market share theft and customers reviewing their options.

While Tesco share have been in recovery all year, does this mark the start of a real turning point and more consistently positive data for Tesco, putting the travails of the past few years (overinvestment, US failure, accounting scandal, huge net loss) behind it? Can the shares build on an October breakout to extend their recovery from a horrible 3yr downtrend that started just shy of 400p before bottoming out at 135p early this year?

Can Morrisons’ partnership with Amazon help it make gains in on-line shopping and usher its shares back to 3yr highs? Can a rising sector tide among the non-Germanic incumbents gather Sainsbury up and out from a 2yr sideways channel?

The sector may be turning, and you know what they say: “the early bird catches the…turn”.

To stay abreast of such themes and benefit from our analysis, get access to our research now to see why Accendo clients trade with a smile.

Enjoy your weekend.

Mike van Dulken, Head of Research, 18 Nov