Are the wheels coming off supermarket juggernaut Tesco?

JPMorgan flags up a triple whammy of worries about the grocery giant. The heavyweight broker reckons chief executive Sir Terry Leahy has got his strategy all wrong, letting margins dictate business.

It believes Tesco's basket of goods has become too costly for its average shopper, having raised the prices of branded goods much more than its competitors. Although it has upped prices of its own-label products less than rivals, sales are not responding to the low prices.

Rising net debts, which JPMorgan tips to reach £9.4 billion by the end of its financial year, £1.4 billion above target, and an increasing pension deficit are also causes for concern.

Meanwhile, analysts forecast the US business, Fresh & Easy, will make a loss of £100 million for 2009-10.

The broker advises clients to dump the stock, setting a price target of 300p for the shares, which changed hands at 336.6p, 12.1p cheaper.

Supermarkets were generally off everyone's shopping lists as investors pocketed profits, with Wm Morrison down 11p at 261p and J Sainsbury off 8p at 316p.

In London, the bears were back in town after the bulls came out in force yesterday, pushing the FTSE 100 up 4.3%. Shares were generally giving in to profit-taking, with the benchmark slipping 10.75 points to 4114.22.

Trading was thin as investors waited for the US non-farm payroll data for direction, which came in worse than expected at 663,000 jobs lost in March.

BSkyB sank 12p to 4201/4p, sparking talk that it is about to guide down the market on profits. The satellite broadcaster has so far proved to be remarkably recession-resilient but the old fears that Britons will give up their Sky packages as the recession continues to bite have resurfaced. The thinking behind it is shared by the hedge funds, who have been shorting its shares.

But wise heads in the City were quick to dismiss the rumour, noting that trading volumes in BSkyB's shares were about half their usual levels. They attributed the sell-off instead to a bit of profit-taking after a modest rally and investors switching to more-risky punts.

Meanwhile, brokers can't agree on DSG International. Oriel Securities said the argument for buying the PC World and Currys owner's shares is getting stronger, thanks to chief executive John Browett's turnaround strategy.

Analysts reckon that his five-point plan, which includes a new format for stores and greater staff training, is working with the group reporting better-than-expected sales last month.

Sales at the new stores have been between 15% and 50% higher than the rest of the network, and Oriel reckons the rollout over the next two years will dramatically boost profitability.

Analysts set a 72p target for the shares, which gained 31/4p to 281/4p, thanks in part to short-covering. JPMorgan remains unconvinced, however. The broker warned that rising unemployment and the need to save more are undermining the benefits to the consumer of lower interest rates and falling inflation. It trimmed its target for the shares from 19p to 17p, warning that a rights issue is likely, and keeps its sell rating.

It believes a better pick is Kesa Electricals, 71/2p up at 118p. JPMorgan has raised the price target for its shares from 115p to 130p and restates its buy rating.

Goldman Sachs thinks Premier Foods is not looking quite so tasty and has kicked the Branston pickle-to-Hovis bread group off its buy list.

It said the recent rally in Premier's shares is “as good as it gets” and has cut its rating on the shares to neutral. Analysts believe its share offer has removed the risk of Premier breaching its banking covenants, allowing management to concentrate on building sales.

While Goldman forecasts sales growth of 3.5% in 2009, it expects that a higher finance charge will drive down profits by 3.5%. It set a target for the shares of 37p, which dropped 11/4p to 35p.