Tesco Weighs Up Sale Of Asian Assets – What The Analysts Said

By Steve Wynne-Jones
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Tesco Weighs Up Sale Of Asian Assets – What The Analysts Said

Tesco confirmed at the weekend that it is weighing up the sale of its operations in Thailand and Malaysia, following 'inbound interest' in the assets.

'The evaluation of strategic options is at an early stage, no decisions concerning the future of Tesco Thailand or Malaysia have been taken, and there can be no assurance that any transaction will be concluded,' Tesco said in a statement.

Here's how leading retail analysts viewed the news:

Clive Black, Shore Capital

"In June 2019, at its well-received Capital Markets Day (CMD), Tesco announced that one of its growth poles for the future was Thailand, where management outlined the ambition to underscore its leading market position in the modern retail arena through the opening of c750 convenience stores (CVS) in this market over the next three to four years; three or so per week.

"Well, six months later Thailand and Malaysia are subject to a review of strategic objectives, which may involve a potential disposal.


"The nature and extent of the inbound interest in acquiring Tesco's operation in South-East Asia has not yet been revealed. One can, however, see how a number of major trade, family office and private equity investors in Asia that could be interested in this trophy asset within the Tesco Group albeit quite what local regulators think needs to be considered. No doubt regional and global bankers are now dusting off files and call lists as Tesco Asia could be considered to be 'in-play'; time will tell if the identity of the potential suitor emerges."

Steve Miley,

"Shareholders are cheering the news that Tesco is weighing up the sale of its Thai and Malaysian stores, after bid interest. Investors are well aware that the price would need to be high for Tesco to even entertain the idea of selling these operations. The businesses in Thailand and Malaysia brought in around a fifth of Tesco’s total global profits, in a much less competitive market than the UK and with margins of 6% compared to the UK’s 3%.

"Just months ago, Tesco was planning on opening a further 750 stores in Thailand, whilst it is closing stores and withdrawing from other foreign markets such as the US, Japan, China and Turkey.

"However, as an undervalued part of the group, at the right price, disposal certainly makes sense. The announcement comes as Tesco is disposing of assets in the UK as well, to concentrate on its UK core grocery business, part of its five year turnaround plan."


Russ Mould, AJ Bell

“Tesco’s shareholders are unlikely to object to a potential deal to sell its stores in Thailand and Malaysia as long as it gets a decent price. After all, streamlining has been the general direction of travel for the group for some time. The Asian operations accounted for 9% of group sales in the financial year to 23 February 2019 and 13% of group operating profit, so they are a decent contributor to the business.

“Getting out while the going is good could help management to sharpen their focus on the UK where it seems to be finding its feet again after a difficult period including heightened competition.

“We already know that chief executive Dave Lewis is leaving the group next year after saying he had completed the business turnaround. Striking a favourable deal in Asia would add another badge to his reputation as the man who saved Tesco and put it back on track.

"That said, strategically a better exit would be getting rid of the central European operations which generate greater sales than Asia but make smaller profits.”


Bruno Monteyne, Bernstein Research

"Tesco have confirmed they commenced a strategic review of its Asian business (Thailand and Malaysia) after incoming requests. The Dow Jones reported that valuation could be up to $9 billion.

"Does it make sense to sell the business? The Thai business is a great quality business: (1) 50% of earnings comes from a high-multiple mall-rental-business, (2) 50% comes from food retail in a market much less competitive than the UK; (3) the business still has material organic growth opportunities. In short: it is a high-quality business.

"Its main competitor, BigC, was sold for 16X EV/EBITDA; typical transaction multiples have historically been around 13X EV/EBITDA. Tesco itself trades at 6.8X EV/EBITDA or on a pre IFRS16 basis ~ 6X EBITDA. That leaves the Thai business hugely undervalued as part of the group. That in itself provides ample justification to consider a disposal, especially if there is unsolicited interest.

"The drawback of selling Asia would be to lose one of the few areas where there is potential for high ROIC growth. (EBIT margins are around 6.7% in Asia). However, if the valuation properly reflects those high returns and growth options, then selling Asia would make sense."

© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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