Broker tips: Tesco, Halma, Rolls-Royce

(Sharecast News) - Shore Capital has reiterated its 'buy' rating on Tesco ahead of the supermarket's first-quarter results next week, though it doesn't expect any big positive surprises with the company facing tough comparatives with last year. "We sense that Q1 trade will be sound but not effervescent, so mix, operating costs, where there are new pressures due to Iran, and productivity programmes take on importance," the broker said in a research note on Friday.

Trading conditions were "excellent" during the spring and summer of 2025, the broker said, with Tesco benefiting not just from warm weather but also the impact of cyberattacks affecting competitor operations and better consumer confidence. Tesco's stock, meanwhile, has come off its recent highs lately due to a weaker macro outlook.

"Tesco stock was testing new highs, deservedly to us as an effective cash compounder, and so we understand the sentiment behind the recent mark down," the broker said.

"On reflection, though, we still see a stable, defensive, asset-backed retail powerhouse, with a strong financial constitution, good capital allocation, and excellent execution. For the medium-to-long-term investor, we, therefore, reiterate our 'buy' stance."

Citi upgraded Halma to 'buy' from 'neutral' on Friday and lifted the price target to 4,600p from 3,700p after the company's results a day earlier.

Shares in the safety equipment firm tumbled on Thursday as it posted a jump in full-year earnings but gave a conservative outlook.

Citi said in a research note that Halma shares are no longer pricing in a photonics premiums. "Halma's FY27 guidance has driven a circa 4% digit upgrade to our FY27 EBIT forecast, meaning today's more than 15% share price decline has driven a near 20% de-rating in the shares," it said.

"It is of course all about photonics, where the circa 30% growth guided in FY27 is a moderation from the circa 50% seen in FY26."

Citi said comments from the call suggest photonics guidance reflects the order book and ramp-up visibility, "although of course the upwards revision to photonics growth guidance during FY26 points to a history of prudence".

The bank said Thursday's approximately £2.7bn decline in market cap is equivalent to more than 4x sales for photonics, and de-rates the group from circa 28x EV/EBITA to 23x on FY27, in-line with the 2022-23 average which it sees as the "pre-photonics" norm.

"We continue to expect photonics to remain attractive, and after today's reaction, the shares no longer include a 'photonics premium' and we upgrade to buy."

Analysts at Berenberg raised their price target for Rolls‑Royce from 1,270p to 1,430p on Friday and upgraded the stock from 'hold' to 'buy', citing the firm's best‑in‑class engine fleet and defensive qualities.

Berenberg noted that Rolls‑Royce had the youngest large engine fleet among European peers on a thrust‑adjusted basis and had delivered the strongest growth in flying hours so far this year. Thrust‑adjusted large commercial engine flying hours were up 5% year‑to‑date, compared with a 2% increase at Safran and a 1% decline at MTU.

The German bank noted that engines under ten years old account for 51% of Rolls‑Royce's fleet, versus 43% at Safran and 35% at MTU, giving an average thrust‑adjusted age of 12 years and an attractive platform as widebody production ramps up. It added that widebody capacity has proved more resilient than narrowbody in the face of higher jet fuel prices, favouring Rolls‑Royce given its 93% exposure to the widebody segment.

Berenberg also noted that Rolls-Royce's defence and power systems divisions together were expected to contribute about 43% of 2026 underlying earnings, providing diversification into structurally growing end‑markets.

Looking ahead, Berenberg now forecasts 6% engine‑flying‑hour growth in 2026 and lifted its 2026 underlying EBIT margin assumptions for Rolls-Royce's civil aerospace and power systems iunits by 50 and 60 basis points, driving 2% and 3% upgrades to EBIT and free cash flow estimates, respectively.