Tesco: verdict on the first quarter
By John Hughman , 11 June 2012
A selection of views from analysts covering Tesco’s hotly anticipated Q1 trading statement suggests the jury remains very much out on the grocer’s recovery.
Although Tesco said that it was making good progress on its turnaround plan despite a tough consumer backdrop, UK like-for-like sales nevertheless fell by 1.5 per cent in the quarter.
Of course, it would have been unrealistic to expect chief executive Philip Clarke’s six-point plan to “Build a Better Tesco” to have yielded immediate results. But the update also brought worrying signs that overseas growth was grinding to a halt – international like-for-like sales climbed just 0.5 per cent, as the effects of the Eurozone crisis and a slowing Chinese economy continued to be felt. Further questions over how quickly the US business, Fresh & Easy, can make a profit were also asked as like-for-like growth there slowed from 12.3 per cent in the fourth quarter to 3.6 per cent.
One thing’s for sure, and that is that there will be no instant return to form for Tesco. As analyst Philip Dorgan at broker Panmure Gordon notes, “turning Tesco UK around is all about doing 1,000 things 1% better”. For an organisation of Tesco's size, that's a lot of work, and in the meantime we still think there are better investment opportunities elsewhere. Hold at 301p.
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Is Tesco in value territory yet?
By John Hughman , 16 January 2012
After several lacklustre updates at the end of 2011 - and more recent figures from industry research group Nielsen which showed that Tesco had lost ground to rivals over Christmas - no one expected the retail giant's January trading statement to be particularly good. But not many expected it to be as grim as it was, a bona fide profit warning that saw the shares slump to their largest daily fall in living memory.
Such falls are almost unheard of among blue-chip shares, especially ones that are still on course to make £3.5bn of pre-tax profits in the year ahead. More worrying was the fact that after an initial heavy drop Tesco shares continued to slide throughout the day as investors digested the news, and then fell another 2 per cent on Friday and 1.5 per cent on Monday as even the glimmest slither of reassurance from analysts from management of analysts failed to materialise. The fear, it seems, is that something is very wrong, and Tesco's admission that it would have to invest heavily to right its course was hardly reassurance that there was no need to panic.
Not that retail investors seem overly concerned, with many citing the mantra that when everyone is fearful is the time to get greedy. Comments on our site suggest that many saw the fall as a fabulous BP-like buying opportunity not to be missed - and trading stats from Barclays Stockbrokers support that anecdotal evidence. “Despite the drop in value, sentiment from traders towards Tesco was almost overwhelmingly positive, with the vast majority of Barclays Stockbrokers clients taking the opportunity to purchase the stock at a price that was perceived to be good value. Of the deals placed in Tesco yesterday by Barclays Stockbrokers clients, an unprecedented 96% were buys," said Paul Inkster, Co-Head of Product at Barclays Stockbrokers, noting that Tesco had been its top traded share on the busiest trading day of the year so far.
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