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magazineGreat Ideas update: Tesco
Tesco (TSCO) 202.95p
Gain to date: 23.4%
Previous Shares view: Buy at 164.45p, 25 Aug 2016
Our bullish call on Tesco (TSCO) is now 23.4% in the money, the recent rally sustained by half year results (5 Oct) confirming progress with CEO Dave Lewis’ turnaround plan. With positive like-for-like sales growth delivered across all parts of the group – the core UK business grew 0.6% like-for-like – investors have renewed confidence in the recovery story.
Tesco is battling back against German discounters Aldi and Lidl through price cuts, simpler product ranges and better customer service in a deflationary UK market. Meanwhile, Lewis also reported a 2.6% improvement in international same-store sales and significantly lower net debt helped by disposals. Lewis also shared his ambition to rebuild Tesco’s battered operating margin to between 3.5% and 4% by the 2019/20 financial year, aided by some £1.5 billion of additional savings.
Curbing enthusiasm somewhat was a 28.3% slump in statutory profit before tax to £71m after exceptionals and Tesco’s rising pension deficit, up from £2.6bn to £5.9bn due to lower bond yields. (JC)
We’re staying positive given the fresh improvement in UK sales and further reduction in the debt pile.
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