You are here: Home | City and Corporate | Tesco needs to start talking up a good story
Tesco needs to start talking up a good story
Tesco has been quietly taking regular beatings from its critics following the release of monthly TNS sales data that has shown the grocer delivering slower growth than each of its major rivals since midway through last year.
By Glynn Davis, City editor
After 15 years of growth in excess of the market average the pace was always going to slow at some point but it has still been a bitter pill to swallow for the City and industry commentators.It has been argued that the slowing growth was exacerbated by the introduction of the Discounter range in autumn 2008. And it is undoubtedly true that it has had an effect because the range has proved so popular with shoppers. So much so in fact that it has be
However it has been caused, the deterioration in Tesco's top-line has given it some grief on the market with its share price trading in a constrained range of 300p to 350p since November. This compares with a 12-month peak of 442p and has put the company on a PE of only 10x earnings for 2009.
But as we run up to the company's full-year results on April 21 there looks to be some upside mileage in the shares as there may be an increased recognition in some quarters that there are in fact some positive aspects to the Tesco story if they are able to get beyond the barrier of its recent market share performance in the UK.
Starting with the Discounter brands, the fact is that they are a strategic tool that was always going to adversely affect the top-line, but Tesco is playing the long game and recognises that these cheaper products should bump-up footfall over time, which will offset the impact of the lower prices. There is some early evidence of an increase in frequency of visits over recent weeks (in contrast to all the other major grocers), which has to be seen as good news.
There is also the contribution the Discounter range is making to the price perception of Tesco, which should not be underestimated as the company continues to fight a war of words with Asda over who is the cheapest UK supermarket.
Another positive element of the group that looks set to be a trigger of upward share price movement over the course of the year is its Personal Finance business. There is no doubt that this represents a growing opportunity for Tesco as it can benefit from the continuing demise of the banking sector. Plans are already afoot to open 30 bank branches.
Recent research from Citi suggests investors should also consider the real estate value of Tesco as being a positive rather than a negative. Yes, property values have of course been ravaged but the stored value in its portfolio is not going to go away and over the long- term this is a valuable element in justifying the business case for Tesco.
Overseas has also shifted from being a positive part of the group to a negative as a result of the collapse in the growth in emerging markets. But again, international is very much a long-term game for the group. So despite it currently negatively affecting sentiment, the group is taking market share in all its key overseas territories, which suggests an even-stronger international business once we are out the other side of the recession.
Sentiment has also had a major adverse impact in respect of the group's Fresh & Easy business in the US. The criticism the business has received for performing worse than expected has been massively disproportionate to the size of this chain and the capex Tesco has committed.
The negatives (whether real or otherwise) that exist around the company have weighed heavy on the performance of the shares and the forthcoming results could well be an opportunity for management to inject some positives into the story, which would at least give the perception that the business is returning to the front foot.
glynnd@theretailbulletin.com
Tagged as: tesco | grocery | supermarkets | tns |
Should your colleagues be reading the Retail Bulletin? Let them know about us.