Should I Buy Tesco?

Should I Buy Tesco?

By Harvey Jones
October 8, 2012

LONDON -- It's time to go shopping for shares again, but where to start? Mining giant Rio Tinto? High-yielding insurer RSA Insurance Group? Or renowned U.K. engineer Rolls-Royce?

There are plenty of great stocks to choose from, and I'm enjoying doing some window shopping. So, here's the question I'm asking right now. Should I buy Tesco (LSE:TSCO.L  ) ?

The big drop
Gosh, hasn't Tesco been a disappointment lately? A couple of years ago, this growth-hungry retail giant had gobbled up most of the U.K. high street and was sizing up the rest of the planet. It looked unstoppable.

But the world turned, and Tesco fell out of favor. U.K. shoppers bridled at its charmless big-box stores. The supermarket's 500 million pound Big Price Drop campaign famously flopped. Sales fell for the first time since 1994.

In January, the unthinkable happened. Tesco's share price suffered its own Big Price Drop, plunging nearly 25% to from 4.11 pounds to just 3.12 pounds in a matter of days, wiping 5 billion pounds off its market value. 

Just as shockingly, it has scarcely recovered since. You can now buy Tesco for 3.18 pounds. Does that make it a bargain?

A little help needed
It's a good time to find out, because Tesco has just posted its results for the half year to Aug. 26. And it's looking a bit shop-soiled, reporting a 12.4% fall in U.K. trading profits to 1.12 billion pounds, although it did return like-for-like sales growth for the first time in seven quarters, thanks to the success of its rebranded Everyday Value range. It was only a quarterly rise of 0.1% but, as they say, "every little helps."

Tesco also reported 11% growth in online U.K. sales, while chief executive Philip Clarke defended the profits drop by saying it had spent big this year, taking on 8,000 new staff and investing 1 billion pounds in its stores, in a bid to boost the customer experience.

Mr. Clarke also blamed the disappointing performance on rising fuel prices, tax hikes, and slowing incomes, all of which have hit Tesco customers hard.

Mind you, they have also hit shoppers at Sainsbury's, but sales growth has been stronger.

Think small
Investors who bought right after the big Tesco share price drop in January in the hope of making a quick profit will have to hunker down for a lengthy wait.

After years of sweeping all before it, Tesco has some adapting to do. It now plans to investmore in its online offerings, and slow its aggressive campaign to slap a new giant store on the edge of every U.K. city, town and village. Smaller stores are the future, it believes.

Tesco isn't just struggling in the U.K. International profits fell 17% to 378 million pounds, because of the slowing Chinese economy and eurozone austerity, where sales dropped nearly 7%.

This isn't an easy time to invest in retailers. Then again, the share price slump has left Tesco trading on a juicy yield of 4.5%, with a forecast price-to-earnings ratio of 9.8 for February 2013.

I like to buy big companies on bad news. Although I expect Tesco to struggle for a little longer, I wouldn't bet against it in the longer run. Over a five-year time frame, I'm tempted to gamble on its recovery.

http://www.fool.com/investing/international/2012/10/08/should-i-buy-tesco.aspx

A Quick Review of Tesco's Results

A Quick Review of Tesco's Results

By G. A. Chester
October 3, 2012 |

LONDON -- Last week, in a preview of Tesco's (LSE: TSCO.L  ) half-year results, I told you about some of the key numbers to look out for.

The U.K.'s biggest supermarket announced its results this morning, so let's have a quick look at how it did in the first half -- and whether it's on track to meet analysts' forecasts for the full year. The forecasts are the analysts' consensus ahead of the results.

	H1 2012/13	H1 Growth	Forecast FY 2012/13	Forecast FY Growth
Revenue*	32.3 billion pounds	1.6%	67.2 billion pounds	3.1%
Trading profit	1.6 billion pounds	(10.5%)	3.6 billion pounds	(3.0%)
Trading margin	4.9%		5.4%
Underlying profit before tax	1.8 billion pounds	(8.5%)	3.8 billion pounds	(4.0%)
Underlyingearnings per share (diluted)	17.08 pence	(7.9%)	35.1 pence	(6.3%)
Dividend per share	4.63 pence	0%	14.83 pence	0.5%

*Excluding VAT, including petrol.

Overall, the H1 growth percentages are below the rate analysts are expecting for the full year, so a much stronger H2 is baked into the full-year forecast numbers.

It should be relatively easy for Tesco to beat last year's H2 because performance was weak during that period and included an unusually poor Christmas. Nevertheless, the company has something to do after today's H1 numbers if it's to meet analysts' full-year forecasts. I wouldn't be surprised to see those forecasts edging down a bit now.

In the U.K., like-for-like sales (excluding VAT and petrol) -- the key indicator of how management action to turn around the core home supermarket business is going -- were broadly in line with the expectations of the house brokers: namely, a Q2 rise of 0.1%, following Q1's -1.5%.

Internationally, Tesco's U.S. Fresh & Easy business continues to be loss-making at the same 70-odd million pound level as last year's H1. The company has to improve here in H2 to meet the chief executive's prediction earlier this year of a "significant" reduction in losses during the current year.

In the recent past, Tesco has relied on Asia and Europe as the powerhouses for group growth. However, a hefty fall in H1 profits in these regions now leaves the company facing difficulties on many fronts.

Finally, Tesco maintained its interim dividend at the same level as last year -- the first time it's failed to increase the dividend in I don't know how long.

Tesco remains one of the most popular shares with U.K. small investors. It's also a favorite of legendary U.S. billionaire investor Warren Buffett. In fact, Buffett bought a trolley-load of Tesco shares earlier this year.

You can find out the price the Sage of Omaha was willing to pay for his shares by downloading an exclusive Motley Fool report: “The One U.K. Share Warren Buffett Loves.”

http://www.fool.com/investing/international/2012/10/03/a-quick-review-of-tescos-results.aspx

Can Drive-Through Grocery Shopping Save Tesco?

Bloomberg's Tom Gibson on how Tesco is trying to win back customers with their `click-and-collect' service.

Tesco Seen to Regain Market Share Through 2013

Oct. 3 (Bloomberg) -- Bryan Roberts, an analyst at Kantar Retail, talks about competition between U.K. retailers Tesco Plc and J Sainsbury Plc. He speaks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

Tesco Reports First Profit Decline in Almost Two Decades

By Sarah Shannon - Oct 3, 2012 3:20 PM GMT+0800

Tesco Plc (TSCO), the U.K.’s largest retailer, reported the first profit drop in almost two decades after increasing investment to halt declining supermarket sales.

So-called trading profit, a measure that excludes property gains, fell 11 percent to 1.59 billion pounds ($2.6 billion) in the six months ended Aug. 25, the Cheshunt, England-based retailer said in a statement today. The average estimate of 12 analysts compiled by Bloomberg was 1.62 billion pounds.

Chief Executive Officer Philip Clarke has pledged to invest 1 billion pounds in new products, additional staffing and Tesco’s 2,900 U.K. stores as he seeks to boost a leading market position that fell to a seven-year low earlier this year. Same- store sales rose in the second quarter, snapping a run of six straight quarterly declines.

“The last couple of years have shown us that even the giants can falter when they take their eye off the shopper,” said Bryan Roberts, an analyst at Kantar Retail in London. Still, the second-quarter sales performance “tell us that its underperformance in the U.K. may well have bottomed out.”

Tesco fell as much as 2.1 percent in London trading and was down 1.7 percent at 331 pence as of 8:06 a.m. The shares have fallen 18 percent this year, while those of competitor J Sainsbury Plc have gained 14 percent.

Sainsbury Sales

Sainsbury said today that U.K. same-store sales growth accelerated to 1.9 percent in the second quarter on a basis that excludes gasoline as it stepped up price competition with Tesco.

Tesco’s same-store sales rose 0.1 percent in the most recent quarter, excluding fuel and value-added tax, the first increase since the third quarter of the 2011 financial year.

“The changes are coming through at a pace,'' Clarke said on a conference call. ''Customers are starting to tell us they like what they’re seeing. I wouldn’t be saying we’ve turned the corner, we’re on the road.”

The CEO said the external environment “continues to present challenges all over the world.”

In South Korea, Tesco’s second-largest market after the U.K., profit was hurt by restrictions to store opening hours. Business in European countries including Poland, the Czech Republic and Hungary was affected by the debt crisis and falling consumer sentiment. The retailer gets about a third of sales and earnings from outside of the U.K.

Tesco maintained the first-half dividend at 4.63 pence, the first time this century that it hasn’t raised the payout.

http://finance.yahoo.com/q?s=tsco.l&ql=1

All Eyes on Tesco's Results

By G. A. Chester | 

September 28, 2012 

TSCO.LTesco

CAPS Rating0/5 Stars

 $332.98 $0.98 (0.30%)

+ Watch TSCO.L

Britain's No. 1 supermarket with a market share of over 30% -- streets ahead of rivals J Sainsbury, Wm Morrison, andWal-Mart-owned Asda -- issued its first profit warning in 20 years following poor Christmas trading.LONDON -- All eyes will be on Tesco (LSE:TSCO.L  ) when it announces its interim results on Wednesday this coming week.

Moreover, Tesco acknowledged its home market performance in 2011-2012 reflected deeper-rooted problems. The group had been over-greedy in its U.K. business -- "running the stores too hot," as chief executive Philip Clarke put it -- to squeeze out cash to fund international expansion.

Tesco's results on Wednesday will give us an idea of how Clarke's plans to get U.K. operations back on track are progressing. News on two or three other areas of the company's activities will also be keenly scrutinized by shareholders.

GroupLet's begin with Tesco's overall performance. How will the group have performed in the first half compared with last year's first half? And is it on track to meet analysts' consensus forecasts for this year's key full-year numbers? Here's your cut-out-and-fill-in table!

	H1 2011/12	FY 2011/12	H1 2012/13	Forecast FY 2012/13	Forecast FY growth
Revenue* (billion pounds)	32.2	65.2	?	67.2	3.1%
Trading profit (billion pounds)	1.8	3.8	?	3.6	(3.0%)
Trading margin	5.5%	5.8%	?	5.4%
Underlying profit before tax (billion pounds)	1.9	3.9	?	3.8	(4.0%)
Underlying earnings per share (diluted; in pence)	18.3	37.4	?	35.1	(6.3%)
Dividend per share (pence)	4.63	Final: 10.13 Total: 14.76	?	14.83	0.5%

*Excluding VAT, including petrol.

In a June trading update, the company said: "At this early stage of the year, we are performing in line with market expectations for the Group." In spite of that, analysts' views on full-year EPS vary widely from the consensus, ranging from a low of 29.9 pence to a high of 37.3 pence.

On trading profit, look out for how this number measures up against the forecast of one of Tesco's three house brokers for a first-half fall of 9% to just over 1.6 billion pounds.

Personally, I think the number to keep a particular eye on will be the level of the interim dividend, which could be the truest barometer of management's confidence in getting the U.K. business back on track this year. An interim above 4.8 pence would be very encouraging, a modest sub-inflationary increase would be in line with market expectations, and a flat dividend would suggest management could be cautious on how things are progressing. A dividend cut would be a real shocker.

U.K. operationsThe key U.K. operational number to watch out for -- an indicator of how management action to turn around the core home supermarket business is going -- is U.K. like-for-like sales (excluding VAT and petrol).

The table below shows the trajectory across the past five quarters.

	Q1 2011/12	H1 2011/12	Q3 2011/12	Q4 2011/12	Q1 2012/13
Growth	(0.1%)	(0.9%)	(0.9%)	(1.6%)	(1.5%)

Another quarter of -1.5% or, heaven forbid, a slide back to negative growth of worse than -1.5% would be hugely shocking. In fact, any negative growth worse than, say, -0.5% would be a disappointment. One of Tesco's house brokers is forecasting a flat U.K. performance for Q2, while another is actually forecasting positive like-for-likes of a modest 0.1%.

International operationsTesco's nascent "Fresh & Easy" U.S. business is currently a small part of the group's international operations -- and a detractor from profits, being loss-making -- but it will perhaps be the part of global operations shareholders are most keen to hear news on. Earlier this year, the company put back the breakeven date of Fresh & Easy from the current financial year to 2013-2014.

As recently as last week, Tesco's chief executive insisted he would continue to persist with Fresh & Easy, having previously said there would be a significant reduction in losses during the current year.

In the first half of last year, Fresh & Easy made a trading loss of 73 million pounds on revenue of 300 million pounds. One of the house brokers has penciled in a loss of 70 million pounds for this year's first half. A lack of progress or even a serious deterioration of prospects might not actually hurt Tesco's share price as a number of major shareholders have been calling for the company to pull out of the U.S.

Results checkoutTesco is probably one of the most popular shares with small U.K. investors. It's also a favorite of legendary U.S. billionaire investor Warren Buffett. In fact, Buffett bought a trolley-load of Tesco shares earlier this year.

You can find out the price the Sage of Omaha was willing to pay for his shares by downloading an exclusive Motley Fool report: "The One U.K. Share Warren Buffett Loves." You can have this free report dispatched to your inbox immediately, simply by clicking here.

"10 Steps to Making a Million in the Market" is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the free report today -- it may transform your wealth.

Further investment opportunities:

• The World's Greatest Retailers
• How to Unearth Great Oil and Gas Shares
• 8 Shares Held by Britain's Super-Investor

http://www.fool.com/investing/international/2012/09/28/all-eyes-on-tescos-results.aspx

Tesco: Buy, Sell, or Hold?

By Zarr Pacificador
September 18, 2012 

TSCO.LTesco

CAPS Rating0/5 Stars

 $339.75 $-3.70 (-1.08%)

+ Watch TSCO.L

on My Watchlist

Right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue chip index.LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

I hope to pinpoint the very best buying opportunities in today's uncertain market, as well as highlight those shares I feel you should hold… and those I feel you should sell!

I'm assessing every share on five different measures. Here's what I'm looking for in each company:

1. Financial strength: Low levels of debt and other liabilities
2. Profitability: Consistent earnings and high profit margins
3. Management: Competent executives creating shareholder value
4. Long-term prospects: A solid competitive position and respectable growth prospects
5. Valuation: An underrated share price

A look at TescoToday I'm evaluating Tesco (LSE: TSCO.L  ) , a U.K.-based multinational retailer that also engages in general merchandise, telecom, banking and insurance services,which currently trades at 346 pence. Here are my thoughts:

1. Financial strength: Tesco has relatively modest gearing with net debt of 52% of tangible equity. The balance sheet is solid, backed up by property assets worth 36 billion pounds and interest cover of 15. I do not foresee any problems with liquidity as free cash flow generation has been strong -- averaging 2.5 billion pounds the past three years -- and will only improve with the company's intention to decrease capital expenditures and keep it below 5% of sales the next few years.

2. Profitability: Tesco's performance this past decade has been impressive, consistently delivering ROEs of 16%, compounding sales by 10% and earnings by 12% annually, while keeping operating margins at 6%. For the past five years, international sales and operating profits have grown by 14% and 8% per annum, respectively. Also, the company's online retail business has been highly successful, with Tesco now the world's largest and most profitable online grocer with revenues of well over 2 billion pounds. Moreover, the company has profited from its strategy of releasing the value of its property portfolio, gradually selling off property assets the last few years.

3. Management: After 14 years, CEO Terry Leahy has stepped down and has been replaced by Philip Clarke on March 2011. Admittedly, Leahy will be a tough act to follow -- during his tenure, sales have more than doubled and earnings have tripled, while the business has expanded into 13 countries, in the process becoming the world's third largest retailer. Nevertheless, Philip Clarke appears to be an able replacement -- he has been with Tesco for 36 years and was a huge part in the company's expansion into the international market.

4. Long-term prospects: Despite its recent struggles, Tesco still leads the U.K. with a market share of 30%, followed by Wal-Mart's ASDA on 17%, Sainsbury's 16%, and William Morrison's 12%. It has invested 1 billion pounds to revitalize U.K. operations, while its international business has been growing rapidly and now accounts for 32% of revenues. In fact, the company has managed to become the leader in most of its markets outside the U.K.

5. Valuation: Tesco's current market cap of 28 billion pounds is significantly lower than the current market value of its properties pegged at 36 billion pounds. Its forward price-to-earnings ratio of 10 is at the lower end of its 10-year historical P/E ratio, and it currently gives an attractive dividend yield of 4.39%.

My verdict on TescoAlthough past performance is not indicative of future results, I believe Tesco can duplicate last decade's performance. Its fundamentals remain solid despite recent struggles in the U.K., while its international operations, burgeoning general merchandise and retail services -- banking, telecom and online store -- and property development strategy provide huge growth potential. Furthermore, the market value of its properties provides a significant margin of safety while its stable dividend yield, which has been growing by 10% for the past 10 years by the way, will reward investors while waiting.

So overall, I believe Tesco at 346 pence looks like a buy.

http://www.fool.com/investing/international/2012/09/18/tesco-buy-sell-or-hold.aspx

Tesco says Fresh & Easy "fighting nicely"

Wed Sep 19, 2012 9:59am EDT

* CEO says worth persisting with Fresh & Easy

* Says changes having an impact on business

By James Davey

LONDON, Sept 19 (Reuters) - Tesco's loss-making Fresh & Easy chain in the United States is "fighting nicely" in a tough market, the chief executive of the British retailer said on Wednesday, underlining his belief that the chain can have a profitable future.

Tesco boss Philip Clarke has this year rejected investor calls to withdraw from the United States, though he told shareholders at their annual meeting in June he would pull the plug on the business if it continued to disappoint.

Speaking at the World Retail Congress (WRC) on Wednesday, Clarke gave the West Coast chain, which trades from nearly 200 stores, a renewed vote of confidence.

"The stores that we have continue to grow nicely and the reason it's worth persisting is that the stores themselves fulfil a particular need for a particular group of customers," he said.

"It's only five years old, it's playing in a play ground with some very big and very old retailers who are very wise and it's fighting nicely."

In April, Clarke said he did not expect Fresh & Easy to break even until its 2013/14 financial year, against a previous target of 2012/13.

Tesco, the world's third-biggest retailer, has slowed its expansion plans for Fresh & Easy and though the chain's underlying sales growth slowed to 3.6 percent in its fiscal first quarter from 12.3 percent in the fourth quarter of the previous financial year, the CEO said operational improvements, such as new product ranges, were having an impact.

"Already the changes that we've been making have gone some way to prove that's there's life in Fresh & Easy yet," he said.

"We'll continue to hopefully see those sales grow and it move towards profitability."

Once one of the most consistent British companies in terms of earnings growth, Tesco stunned investors in January with its first profit warning in more than 20 years.

In April, Clarke, a Tesco career lifer who as a youth stacked shelves in his local store, also slashed expansion plans for the business in Britain and said he would spend over 1 billion pounds ($1.63 billion) on improving stores and online shopping in a bid to reverse a decline in market share.

Tesco will report first-half results on Oct. 3.

In his speech at the WRC, Clarke said digital technology was shifting the "tectonic plates" of the retail industry. He expected that this Christmas one in five online orders in the UK would be made on a mobile device.

Shares in Tesco, down 8 percent over the last year, were 0.2 percent lower at 343 pence at 1350 GMT, valuing the business at about 27.7 billion pounds.

http://www.reuters.com/article/2012/09/19/tesco-fresheasy-idUSL5E8KJGB020120919?type=marketsNews&feedType=RSS&feedName=marketsNews&rpc=43