Tesco recovery building, says Shore Capital
Management changes at Tesco (TSCO) show the supermarket giant is serious about its competition and can continue its recovery, says Shore Capital.
Analyst Clive Black reiterated his buy recommendation on the stock, which was trading flat at 250p at the time of writing.
The group has made three internal changes to its senior team as Tony Hoggett returns to the UK in a new role as group chief operating officer to help run the core chains stores.
We believe that the group can consolidate upon its recent recovery, weave Booker into the wider business, stay focused in the face of whatever emerges with respect to Sainsburys proposed merger with Asda, and correspondingly deliver strong earnings per share growth, considerable free cashflow and even more robust dividend per share distribution, he said.
At the same time we believe that ongoing deleveraging can bolster the stock rating.
I agree. What I don't agree with though is ending the "Best Before" dates on it's packaging. I live on my own and like to buy the freshest packs I can, so the dates are a must for me.
Supposedly to "Cut food waste". I really think this will backfire on them/us!
Shoppers are used to them (the dates) and like as much info as they can get. It'll only take one pepper in a bag of three to go mouldy and they'll think all the produce is being dumped on them. Reverse this decision now please...and, didn't they survey people?
"With the recent avalanche of bullish comments in the MSM on this company that has put it into the spotlight, I thought I would chip in with my chart analysis. Many are touting it as a solid recovery play. As you know, I am mainly searching for ..."
dregor mate it did drop at least 9p on Monday morning and so did MRW,due to the merger news.Both recovered pretty well on the day and MRW is getting towards a year high.
As for TSCO it appears to have real resistance at 2.40ish,lets hope it gets above that or maybe its waiting for the next results...................
"LSE:LLOY:Lloyds Banking Group, LSE:TSCO:TescoÂ and LSE:VOD:VodafoneÂ are among several UK names on a 31-strong list of European "top stocks" that together have the potential to deliver EPS growth far greater than the wider market.The European Top ..."
The sp has still some unfinished business at ca 177, if indeed this is the bottom formation. And, if it isn't, then sub 150!
There are many factors acting against traditional grocers in the UK:
iii)The big daddy of them all, Amazon. These guys will disrupt the sector to such an extent that we are more likely to see "kids", i.e. Orcado, or even new start-ups challenging the status quo of this monstrous squid
vi)Back to basics, and locally produced and sourced produce
" I'm not sure how the merger is going to work where they have 2 competing stores next to each other. e.g. Bridge of Dee Aberdeen.
Will they be forced to sell off some stores in these cases as a condition of the merger?
Could this end up benefiting Tesco? "
If it did turn over to a Tesco, I hope the unit is rented, otherwise the carpark resurfacing every two to three years would wipe out the profits.
It's certainly a strange tie up between Asda & Sainsburys, the demographics of the two I would have thought would be different but then again I would have thought 25% of Aldi, sales could be by the more affluent. In the mid 90´s Sainsbury's - Tesco controlled the s/e grocery market, I think it was 60%+, so the synergies would have made sense then but Asda´s were opening everywhere in the s/e by 2000. Even Kings Hill, had an Asda, you don't get much more affluent than that in Kent.
The trouble with Wal-Mart in the UK is that their Asda stores don't possess the floor space of their U.S. counterparts, Wal-Mart is hardly a sole food retailer, 75% of Wal-Mart U.S. can be anything but.
Most of the merger deals are in the benefit of the merchant bankers that provide the finance for such deals.
Yes there's lots of questions about how this will work in terms of merging/operating 2 such divergent brands. That said will clearly be major operating synergy benefits/economies of scale/buying negotiating leverage (supplier positions will become increasingly invidious cum serf-like). Coupe has said publicly no store closures, no in store layoffs (but no comment on the wider staff scenario, so there will be significant non store staff layoffs) & -10% price cuts on key major lines.
It's a classic engorge, enlarge, devour, delayer.
The big 4 are being reset to Tesco / AS / Aldi / Lidl. Morrisons, M&S & Waitrose look well up the creek to me. There's always an outside chance Amazon might buy Morrisons to provide an operating infrastructure if they are serious about online grocery.
I'm not sure how the merger is going to work where they have 2 competing stores next to each other. e.g. Bridge of Dee Aberdeen.
Will they be forced to sell off some stores in these cases as a condition of the merger?
Could this end up benefiting Tesco?
Don't quite understand why a major price war is inevitable. The individual companies are supposed to be keeping their identities so one is going to be cheaper than Tescos, but poorer quality, whilst the other is slightly more expensive but, in theory, better quality. Any "savings" will be in purchasing power, distribution and management. If Wal-Mart are effectively selling 80% of Asda then there is going to be quite a lot of debt to be earnt out. By the way, what happened to the £99 mopeds that we were promised when WM originally took over Asda?
So much for the nascent Tesco turnaround & profit rebuild. Asda + Sainsbury = major price war incoming. Tesco will have to run very hard to stand still. Competition from the discounters will only increase. Within the A/S deal Walmart look the junior partner & this looks like a phased exit by them from the UK, which is a major red flag for grocery retail investing in the UK.
I'll give this one a miss still. Howls of anguish incoming as before ...............
Charlie Wilson had the following impact at Booker.
Booker had been run in a manner that increased debt and so drove down dividends. CW's approach on his arrival, cut the dividends and address the balance sheet. A healthy balance sheet is a healthy company.
Booker dividends went from £0.0228 in 2011 to £0.0862 in 2017. That is by looking after the balance sheet.
So do I hope a change here in a similar vain. Yes use the Booker profit to cover debt reduction and pension fund deficits. Do not use this new cash generation platform to increase dividends. Whilst still using Tesco profits in part to cover the same, as exists in Tesco's business plan.
What will be the effect of all this? Long term, debt will be a small part of the liabilities, the pension deficit will be covered and the share price will rise.
I bought Booker for £0.47875 at the end of December 2009 and they were in the £2.20 region at sale. The dividends had risen a great deal over that time frame, as shown above and I had multiple 100% gains on the share price.
CW can handle the balance sheet, by good management, let's hope he is allowed to do the same.
Money is only numbers & numbers are infinite so if money is your only source of happiness, you will never be happy.
I think caution must still be headed with Tesco, namely the cash flow still needs to be watched very closely not sales volumes, this could be the red herring. However, I think the SR may prove to be the escape if you´re still holding, I think 250p - 260p - 270p are very real possible SR targets. Notice also targets are being reached with considerable cost cutting, namely jobs. The European/world figures were hardly encouraging. However, I think the SP trend is encouraging, 25% off of lows but this too has to be reflected in LR, trades/volumes (this is where it gets complicated) you need some decent computer software.
Also how long before a recession in the UK? Also general indices don´t give me much confidence (they never have). I still think August/September/October we could see a repeat of the events of 2008. The law of averages/chance/probability states at least 1 crisis every decade. I posted a piece by JP Morgan on the Barratts BB, it's worth a read.
You can be right once & then be proved wrong 100 times after! We are at & playing a casino game!
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