MIDAS SHARE TIPS: Tesco is one for your trolley as cost fears ease
Every Little Helps, and it seems to some as if Tesco has helped itself to the extra pennies added on to the price of products in our supermarkets in recent year.
The retailer’s six-month results, published on Wednesday, showed a 14 per cent increase in adjusted profit.
This led to cries that the supermarket was profiting from the cost-of-living crisis, but boss Ken Murphy denies it. He says the supermarket is adding to its market share by luring customers from competitors through helping them with their costs.
Murphy says sales are improving at ‘both ends of the basket’, meaning we’re snapping up cheap own-brands while indulging in the Finest range as an alternative to a pricey night out.
Tesco tills are ringing up some impressive figures. Sales are up 9 per cent, and Tesco Bank too has done well out of higher interest rates and much credit cards use. With profit up 25 per cent, the bank has returned cash to its parent via a special dividend.
Every Little Helps: Tesco tills are ringing up some impressive figures
Excluding the bank, full-year profit guidance is at between £2.6 billion and £2.7 billion, compared with previous suggestions that it would make £2.5 billion. Shares are up 39 per cent over 12 months at £2.78 (though they are up a more modest 29 per cent on five years ago), helped by a share buyback programme and a belief in Tesco’s ability to manage its supply chain, use its size to negotiate with suppliers, and capitalise on loyalty with its Clubcard scheme.
Analysts welcomed the figures. Martin Maloney at stockbroker Killik said share buybacks and higher dividends would improve investor returns, as the company generates more cash than predicted. While the interim dividend was held as expected (Tesco has a policy of setting the interim payment at 35 per cent of the full-year dividend of the previous year) there is more to come.
And, despite the recent share surge, Tesco stock is still at more Value than Finest prices. Historically, the company’s value has been 14 times its forecast profit for the next financial year. At present, that figure is nearer 11.
While Tesco has been paying to stay competitive – with an Aldi Price Match strategy and cheaper Clubcard prices for loyal customers – there are signs of cost pressures easing.
Murphy says prices have fallen on pasta, oil and dairy products, though some other items are going up, and the higher oil price and minimum wage bill add to inflationary pressures.
Despite this, Murphy says customers are ‘optimistic’ and keen to enjoy Christmas. He’s making sure he buys in more turkeys.
Midas verdict: Tesco shareholders can afford a turkey or two this Christmas, especially if they bought a year ago. There’s more good news to come as the squeeze on consumers eases. With a prospective dividend yield of 4.5 per cent hold on to your trolley.
Traded on: Main market Ticker: TSCO Contact: tescoplc.com or 0800 591688
Credit: Source link