Investing Comment |
|
Your Money > Investing Comment Articles > O ye of...
|
|
By Richard Hunter, Hargreaves Lansdown Stockbrokers
Tesco has yet again confounded its doubters, not only with another sparkling set of full year results, but also with an upbeat accompanying statement which sets it apart from the crowd. At a time when other retailers have been almost all been bemoaning the "challenging" nature of the environment and just how difficult the remainder of 2008 is likely to prove, Tesco is well prepared for the fight. Indeed, it was at pains to point out that it was in a position to report a strong start to the year 2008, since its year end for reporting figures fell at the end of February - "We began the new financial year confidently, with a good start in the UK, excellent progress in our established international markets and promising early performance from our investments in future growth." Its recent share price performance - prior to the results down 17% over the last six months and 9% over the last three months alone - had been caused by concerns over slowing consumer spending and higher food prices, which most retailers seem loathe to pass on to the customer in full. There was also the tacit admission by Tesco that, at least over the Christmas period, it was probably Morrisons who had won the bragging rights for a successful season. In addition, some doubts were being raised over the success or otherwise of Tesco's move into the US, notwithstanding that the venture has not yet even had six months to bed in. According to a local US source, the "do it yourself" nature of the Tesco (Fresh and Easy) experience will take some getting used to from an American perspective, where other supermarkets not only pack the shopper's bag but usually put it in the customer's car as well. Additionally, the own brand of "Fresh and Easy" for ready meals will apparently take some time to build up a trusting following. Nonetheless, the company itself maintains that it is encouraged by the early signs and will report a full update on progress along with its interim results in September. Its online offering continues to grow apace, whilst international sales have again weighed in with another strong contribution, rising 25% during the period. This included a contribution from Chinese operations of over £700 million, which appeared fully consolidated in the accounts for the first time. International expansion continues to be high on the strategic agenda, with the group planning to open over 11.5 million square feet of new space over the course of 2008, with 80% of this being overseas. Meanwhile, the remaining numbers were bang in line with estimates, and there were few signs of any erosion of Tesco's substantial market share. Of course, the ongoing Competition Commission inquiry continues to cause a little unease amongst investors and, despite the company's upbeat comments, there is increasing evidence that the UK economy is chartering more uncertain waters. However, given the wider economic backdrop, the double digit growth which Tesco has maintained takes on more significance. In addition, the company displays every sign of continuing to be a growth stock whilst maintaining its defensive qualities and strong diversification. Its strategy of diversification, both geographically as well as by product type and delivery channel is being bolstered by its economies of scale. From a technical perspective, the ongoing buyback scheme and progressive dividend policy should lend further support to the shares. The relative weakness in the share price performance over the last few months has also provided a value investment opportunity for some and has further fed into the general market consensus that Tesco remains the clear darling of the sector. Useful links: |
| ||||||||||||||||