Tesco reset due to realistic expectations An hour after reporting a collapse in European earnings on Wednesday, Tesco shares had lost nearly 5 per cent. From then to the close of play on Thursday, they had climbed nearly 7 per cent. Two lines of thought had powered the recovery, said analysts. First, the weak headline figures had disguised signs of stabilisation, particularly in the UK. Second, with Tesco valued at 20 per cent below the long-term average at only 13 times 2014 earnings, investors were already pricing in further disappointments. For a diverse company like Tesco, all rarely goes well at the same time. But surprises such as the scale of the Europe first-half miss need to be eradicated," said Credit Suisse. There is no obvious imminent catalyst to suggest a share price rally. But we think Tesco is doing the right things in key areas to secure sustained improvement, and this direction of travel is more important to us than even a big one-division miss. Citigroup, one of Tesco's most vocal critics in recent years, reckoned profit forecasts remained too high. But the broker still took Tesco off its "sell" list as it thought investor expections had finally been reset to realistic levels. Tesco's operating data remains grim. We do not expect any medium-term pick-up. The big change is that these facts seem well established," it said. Simply stated, we fail to see much misperception about the company today. Tesco ended the session up 2 per cent at 365p, outperforming a slow wider market. The FTSE 100 edged up 11.54 points at 6,449.04, a 0.2 per cent gain. A profit warning from William Hill suggested that investors were anticipating bad news more accurately than analysts. The bookmaker's alert of a £20m hit to quarterly earnings, largely from unfavourable football results, lifted its stock 0.4 per cent to 413p. BP was up 1.1 per cent to 437.2p after successfully appealing to overturn a US claims process that would have forced it to pay out bogus compensation claims for the 2010 Deepwater Horizon disaster. Aviva rose 1.4 per cent to 413.1p after completing the disposal of its US life operations for £1.7bn, which was £500m more than the price it had agreed in December. Talk of potential acquisitions by Reckitt Benckiser, down 0.3 per cent to £43.90, were given another airing. Morgan Stanley forecast that Reckitt can spend between £4bn and £5bn to help deliver management's goal of growing its Consumer Health division. WPP drifted 0.1 per cent to £12.57 after Chris Sweetland, its deputy finance officer, gave a cautious presentation to Citi's sales team. At the first-half results [in late August], the group talked about 5 per cent organic growth underpinned by the continued improvement in the US. The company has not given detailed numbers on August, but has indicated growth has not been quite as strong," said Citi. However, Mr Sweetland was also reported to have played down fears that emerging markets had deteriorated further, as well as dismissing the idea that WPP might react to the Publicis-Omnicom merger with its own mega-deal. Aggreko remained out of favour, down 1.9 per cent to £14.79. Barclays was the latest broker to downgrade the power generator specialist on concerns that emerging market contract awards had stalled.