Retail

Tesco Half-Year Results – What The Analysts Said

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Tesco has published its half-year results, which showed a 3.5% increase in group sales at constant exchange rates, however operating profits were 9.8% lower.

Commenting, chief executive Ken Murphy said, " We have the right long-term strategy and we will continue to balance the needs of all of our stakeholders."

Here's how leading industry analysts viewed its performance.

Clive Black, Shore Capital

"Tesco has announced H1 FY23 results that are a little ahead of our expectations. For FY23 we are reiterating our PTP forecasts, noting a tightening on the downside of the guided range (£2.4-2.5bn versus a prior £2.4-2.6bn). For FY24 we remain nervous and so cut to a flat year-on-year outcome (so cutting from £2.06bn to £1.94bn for PTP), we expect top-end market downgrades today.

"In terms of the FY23F outlook, like many other UK consumer related businesses, notably the recent update from Lord Wolfson at Next, Tesco speaks to considerable uncertainty, which means the visibility and so reliability if its forward-looking thoughts are relatively low, which rarely helps investor sentiment.

"So, the Group states it is maintaining its FY23 profit guidance, which we sense will be a relief moment for the market albeit a narrower range with the top-end cut from £2.6bn to £2.5bn, Tesco stating that cost inflation is 'significant' but 'solid trading' and the acceleration of the Group's 'Save to Invest' programme contributing to the central expectation. On the basis if this commentary, we are inclined to retain our prior towards to bottom end of consensus forecasts (£2.45bn) So, for FY23 we, therefore estimate PTP of £1.98bn EPS of 20.4p."

Walid Koudmani, XTB

“Tesco's stock was unable to extend the recovery move after today's half year report showed a mixed performance by the company as it attempts to deal with the effects of cost of living crisis while continuing its post pandemic normalisation.

"The UK market share performance remains solid and in line with expectations reflecting normalisation and less inflation than market while Tesco has maintained profit guidance within the previous range, albeit towards the lower end. Furthermore, the company remains committed to its share buyback after having purchased £450m worth of shares; it will continue to purchase the remaining £300m worth over the coming months.

"Investors did not react too positively to this report, but it is important to remember that general market conditions and sentiment are negative and this stock performance is not limited to Tesco as it could represent a more widespread situation.”

Russ Mould, AJ Bell

“In an environment where consumers are being assailed from all sides by mounting energy bills, rising interest rates and higher costs for all manner of goods and services, you are much better off selling essential staples than discretionary items.

“However, that doesn’t mean Tesco is immune from the weak consumer backdrop as today’s modestly lowered profit guidance reveals.

“Tesco has to try and offer attractive prices to stave off the competitive threat from the German discounters Aldi and Lidl and while it can rely on its purchasing power to some extent, it is still having to sacrifice margins to meet this challenge. The uncertainty is palpable in the company’s outlook comments and inevitably this will make the market rather nervous.

“On the plus side, Tesco is entering a difficult period with a decent market position and solid balance sheet.

“However, it is hard to see the coming months as anything other than extremely difficult, with cost inflation affected not only by higher energy and labour costs but also the cost of importing goods from overseas thanks to lower sterling. The profitability of its online shopping business, which seemed to finally come into its own during the pandemic, will also be affected as smaller basket sizes still cost the same to deliver.”

William Woods, Bernstein

"Tesco reported its H1-22 results today with a strong beat to LFLs and FCF guidance upgrade but a cautious tone on retail operating profit (implying a -40bps hit to H2 margins). The key question is: are management being conservative or are margins going to be severely pressured? We still think they're conservative but this will likely weigh on the stock today.

"Tesco beat LFL expectations in both UK & ROI and Europe segments by +48bps and +500bps respectively, leading to total retail growing +3.2% vs. +2.5% expectations."

James Anstead, Barclays

"Tesco beat our expectations on sales and FCF and was in line on profits. It is now guiding to the lower half of its previous Retail EBIT range for FY22/23. It also expects to deliver on its £1bn cost-savings plan in two years rather than three, providing some offset to the challenges on cost and changing customer behaviour.

"Comparing Tesco's 1H22/23 with our expectations, Tesco has delivered ahead on sales (1H UK LFL of +0.7% vs consensus of -0.4%), broadly in line on profits (Retail EBIT of £1,248m vs consensus of £1,251m) and well ahead on Retail FCF (£1,283m vs consensus of £839m). Given the unusual backdrop, with high cost inflation and consumer spending coming under increasing pressure, it was likely that Tesco's outlook would receive as much attention as the period under review."

© 2022 European Supermarket Magazine – your source for the latest Retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.

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