Tesco's Full-Year Results – What The Analysts Said

By Steve Wynne-Jones
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Tesco's Full-Year Results – What The Analysts Said

Tesco has posted a healthy 28.4% profit increase in full-year 2017/18, according to its preliminary full-year results, with group like-for-like sales up 0.7%, and by 2.2% in its home market of the UK.

Chief executive Dave Lewis said, "[The company is] firmly on track to deliver [its] medium-term ambitions and create long-term value for every stakeholder in Tesco."

Here's how the analysts saw it.

Barclays European Food Retail Equity Research

"We believe that Tesco's valuation will look compelling if it can deliver on its group margin target of 3.5-4.0% for 2019/20. Today's FY results suggested a much stronger underlying margin step-up in 2H, compared with 1H, and the company explicitly stated that it is 'well on track' to deliver its ambition.

"Although EBIT was the main profit driver, we also note the additional boost being delivered by the joint ventures and interest lines (combined improvement of £80 million in 2H alone). Importantly, the cash-generation story looks strong, too, with net debt falling by another £635 million in 2H and retail operating cash flow rising by 22%, to £2.8 billion."


Thomas Brereton, GlobalData

"Tesco boss Dave Lewis will be particularly pleased with the tangible success of the Group’s UK division, as like-for-like sales increased 2.2%, supported by a stronger performance in the second half of 2017, based on consistent growth in fresh food, own-brand products, and adding an additional 260,000 customers.

"This certainly supports Tesco’s claim of a strengthening in own-brand sales and improvements in both quality and value – and, coupled with the forecast £200 million per annum synergistic savings from the £3.7 billion Booker merger, Tesco looks well placed to maintain its position as the formidable force in UK retail and weather future troubles that may extinguish other household names."

Clive Black, Shore Capital Stockbrokers

"Tesco’s recovery has been slow but steady. With the FY2018 out-turn, the group is now stable and putting together growth on growth, albeit still on a substantially rebased business. That progress in FY2018 is manifested in 26% constant currency growth in group trading profit to £1.644 billion (management guidance was £1.575 billion), [and] a group margin of 2.9% (SC forecast 2.8%), which is 60 bps higher YOY.

"With FY2018 results confirmed, we expect to issue forecasts for the combined business shortly. However, given the content from the FY2018 results, we feel confident enough to stand by our November 2017 recommendation upgrade and reiterate our BUY stance on Tesco stock."


Danielle Pinnington, Shoppercentric

“The change in approach from Tesco seems to be paying off. A strong Christmas showed how far things had turned around, and the more confident approach to advertising and communication continues to demonstrate a return to what they are best at.

"That said, they’ve had a couple of recent slips that have kept social media busy: the proposed changes to Clubcard were not well received by loyal shoppers, nor was the meal-deal shrinkflation, which hit stores in this last week. So, they need to be mindful that shoppers have so many easily accessible alternatives to Tesco. The business needs to cast a shopper perspective over all their plans, to make sure they don’t lose touch and alienate the very people making such a difference to their bottom line.”

Bruno Monteyne, Bernstein Research

"Group operating margin in H2 was 3.0%, with 42bps H2 improvement in the UK and the rate of improvement accelerating. A similar step-up in the UK next year could see Tesco already within the 3.5%-4.0% guidance next year. Management increasingly talking about a focus on cash generation and 'sustainable returns to shareholders' (i.e. think buy-backs/special divis).

"Big-box problem? Not really. Large stores drove 1.9% LfL, space was reduced by 1.1 million square feet, and £290 million of cash released from selling surplus assets."


Alastair Lockhart, Savvy

“In large part, Tesco’s results today are a continuation of the retailer’s recent progress. Sales are growing, profitability is improving, and, crucially, Tesco has its confidence back and [is] behaving like a market leader. From the shoppers’ perspective, stores are looking better, innovative products are hitting the shelves, and the retailer’s price position is sharper.

"What we’re looking for now is further clarity on Tesco’s plans for Booker, as this is set to form the foundation for Tesco’s development over the next few years. It will be interesting to see how Tesco’s technology and processes can benefit Booker customers and symbol operators. And, perhaps more importantly, the merger gives Tesco access to the food services market, and therefore a new platform for growth.”

Martin Lane,

"Tesco seem to be fending off the fierce competition from the likes of Aldi and Lidl. These results show they’re still holding their ground and excelling in these challenging conditions. It will be interesting to see how the takeover of Booker will affect their profits in the future. Tesco have currently managed to buck the trend of poor profits and margins, which is affecting so many retailers, managing to keep their customer base steady.

"Tesco can’t afford to rest on their laurels, though. The supermarket giant needs to keep prices competitive despite inflation, to keep customers loyal and coming back for more."

© 2018 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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