"It is true to say that some of our major rivals have been growing a bit faster but that's what you get in a competitive market. It's the customer that wins," said Tesco chief executive Sir Terry Leahy, in a clear swipe at a decision by the UK's Competition Commission to recommend a 'competition test' that could limit the group's expansion.
In fact, after an extended period of rivals gradually eroding its dominant market share, Tesco believes that action taken to improve their value offering to customers during the recession has helped it bring growth rates back in to line with its major rivals. It said that UK like-for-like sales growth had "converged with the industry", thanks to pricing action and its new Clubcard scheme, which has signed up a million new customers since relaunch. Analysts remain mindful that falling inflation could still hamper sales growth, but Tesco believes that deflation isn't a real threat in the UK. "Food prices will be firmer in the next decade," said Leahy, pointing to population growth in Asia.
Such demographic trends, and the expectation that Asia will emerge more sharply from the downturn, are also good news for Tesco's growing presence there. "If Asia becomes 60 per cent of the world's GDP then we're well placed, " said Leahy, pointing to Tesco's expansion in Korea and China. And while its US business, Fresh and Easy, continued to rack up heavy losses, Mr Leahy said that he was comfortable with the performance. "The western United States was the epicenter of the sub-prime crisis," he said, noting that while expansion has been scaled back, its unique format has been well-received by US shoppers.
Having been full integrated into the group, its nascent financial services arm has been rebranded as Tesco Bank. Management scotched rumours that it plans to accelerate growth via the acquisition of Northern Rock, and said it will roll out new infrastructure this year before launching new products.
Broker Evolution Securities expects adjusted pre-tax profits of £2.8bn in the year to February 2010, giving EPS of 26.2p (2009: £2.6bn/24.4p).
| ORD PRICE: | 396p | MARKET VALUE: | £ 31.4bn | |
| TOUCH: | 395-396p | 12-MONTH HIGH: | 415p | LOW: 284p |
| DIVIDEND YIELD: | 3.1% | PE RATIO: | 14 | |
| NET ASSET VALUE: | 163p* | NET DEBT: | 73% | |
| Half-year to 29 Aug | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 25.4 | 1.40 | 12.9 | 3.57 |
| 2009 | 27.8 | 1.42 | 13.0 | 3.89 |
| % change | +9 | +1 | - | +9 |
Ex-div:14 Oct Payment:18 Dec *Includes intangible assets of £3.9bn or 49p a share | ||||
