Tesco has posted a 12.8% increase in group sales to £28.3 billion for the first half of its financial year, with like-for-like sales up 2.3% in its home market of the UK.
Commenting on the retailer’s performance, chief executive Dave Lewis said, “We are firmly on track to deliver our medium-term ambitions and are continuing to improve the quality and value of our offer for customers in all of our markets. In doing so, we are well-positioned to deliver strong, sustainable returns for shareholders."
Here’s how some of the UK’s top retail analysts viewed Tesco’s performance.
Russ Mould, AJ Bell
“Tesco’s recovery continues to head in the right direction judging by its half year results which show growth in sales, pre-tax profit, margins and the dividend. At first glance it looks like a good performance, yet the recovery is far from complete and Tesco has slipped up in a few areas.
“The supermarket only delivered £933m operating profits before exceptional items versus analyst forecasts of £978m. Its Thailand and Malaysia operations saw weaker earnings as a result of price cuts and renegotiated terms on promotional activities.
“Every little helps, as Tesco used to say, and shareholders don’t want to see any slip-up as the business regains strength to fight off tough competition.”
Clive Black, Shore Capital
“Overall, FY2019 is somewhat of a transition year for Tesco’s shares as the stock remains reasonably fully rated on a 15x PER. However, if the Group delivers its plans then the earnings multiple compresses quite notably out to FY2021 (11x PER), which creates the basis to justify the argument to expect capital appreciation.
“Additionally, we feel that Tesco can be further work on dividend cover as cash flows come through, noting today’s capital expenditure guidance and the anticipated Booker synergies. As such, we believe that the market will be a little disappointed by the Asia outcome today but in the big scheme of things, amortisation noted, Tesco appears to be broadly on-track with its medium-term plan and we reiterate our ongoing BUY stance.”
Richard Lim, Retail Economics
“These are solid results which have no doubt been buoyed by the extraordinarily hot summer.
“The unwavering focus on cost reduction, productivity improvements and the expansion of own-label underlie the retailer's solid performance. While the integration of Booker remains in embryonic stages, there is still considerable upside to come. And with the launch of Jack’s, the newly formed group is taking the fight right to the heartland of the discounters.”
David Beadle, Moody's
“Strong performance in the home market, despite challenges overseas, confirms our expectations that Tesco’s credit quality will continue to improve, which was factored into the change to a positive outlook on the Ba1 rating in June.”
Bruno Monteyne, Bernstein Research
“Group operating profit (£933m) was well below our forecasts of £1,085m.
“From first discussions that is due to (1) more seasonality in profits that we assumed (year on year improvement is on track, according to company), (2) material investment in the 'Exclusive at Tesco' brands and (3) mixed bag of non-recurring factors: Tesco Direct (recently closed) at -£23m, IFRS restatement of -£9m and property profits of -£9m.”
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
