Tesco’s share price closed up 3.6% yesterday after the City applauded the group’s jump in profits, increased dividend, and news that it was on track to meet its margin and cost cutting targets.
The group’s Chief Executive Dave Lewis also garnered much praise for his achievements since taking on the role nearly five years ago. He stated that the business had met or was about to meet the vast majority of his turnaround goals and that he was “very confident that we will complete the journey in 2019/20”.
Here’s what some market analysts thought about the results statement:
Laith Khalaf, senior analyst at Hargreaves Lansdown, stated that Lewis deserved praise for steering Tesco through a difficult period. “He took over a business that was reeling from the inroads made by Aldi and Lidl into the UK supermarket sector, and one of the first things on his plate was dealing with an accounting blunder,” he said.
“Five years down the road and the supermarket has rebuilt profits and dividends, and gathered consistent sales momentum. It’s now in much better shape to deal with the challenges it faces.”
John Moore, senior investment manager at Brewin Dolphin, said: “These are strong numbers from Tesco. Like a super tanker, it’s hard to turn such large businesses around, but when you do get positive momentum, it tends to last a long time.”
Meanwhile, Alastair Lockhart, insight director and retail analyst at Savvy, commented: “Tesco’s results are impressive on multiple levels. Principally we see a strong financial performance, driven by the turnaround of the core UK grocery business.
“Innovation is back at the top of the agenda and shoppers are responding well. Exclusively at Tesco has reinforced the retailer’s own brand and has provided valuable differentiation is a competitive market.
“Finally, the Booker merger is confirmed as a move of strategic genius, delivering financially but also providing critical buying scale, at a time when it now looks unlikely that the Asda/Sainsbury’s merger will proceed.”
Neil Wilson, chief market analyst at online trading platform Markets, added: “Job done, Tesco can confidently say the turnaround under Dave Lewis is as good as complete.”
Freddie Lait, the CEO of Latitude Investment Management, said: “The Tesco turnaround is in full swing and reaching their margin goals of 3.5-4% this year (with Booker this will be even better) looks very straightforward.
“The business has generated £8.6bn of retail operating cash flow in the past three years and the most exciting aspect of the financial position which Tesco now finds itself in is that the pension is under control, debt levels are neutral and cash flow remains high.”
He added: “Tesco is a shining example of modern stakeholder capitalism where customers, colleagues, suppliers and shareholders are all given equal priority in management strategy, to everyone’s long term benefit.”
Meanwhile, Shore Capital analyst Clive Black said the financial year had been “productive… but not a bed of roses”.
“Looking into FY2020, challenges remain not the least of which is the comparatives in the first half for the UK business, an industrywide situation. That said if the Competition and Markets Authority does indeed kill off the attempted merger of Sainsbury’s-Asda then the mood music around Tesco UK from investors may be better than it could have reasonably been expected,” he said.
CITY A.M.’s Sebastian McCarthy added: “Questions still loom large over Tesco’s future. Whether the chain’s new discount store, Jack’s, will really combat the likes of Aldi and Lidl remains up for debate, and as Amazon knocks on the door of the groceries sector, rivalries in the industry are only likely to become more heated.
“But as it celebrates its 100th birthday Tesco looks in solid shape to confront the changes shaping its industry. The same cannot be said of Sainsbury’s … Perhaps Sainsbury’s could do with a Drastic Dave of its own.”
Meanwhile, Russ Mould, investment director at AJ Bell, asked: “Will Dave Lewis ride off into the sunset now he is achieved, in his own words, ‘the vast majority’ of his turnaround goals?”
NAM Implications:
- Fingers crossed in unprecedented times…
- Opportunities for NAMs that tailor initiatives that integrate with Tesco strategies…
- …provided fair share apportionment is built in…
