STOCK WATCH: Tesco is ‘overweight’, as it prepares for leaner times
It is hard to believe that it’s exactly five years since Tesco chief executive Dave Lewis alerted the City to a black hole in the supermarket’s accounts.
As if running a company with enough employees to populate a small country weren’t enough – 464,505 at the last count, almost exactly the same as Malta – he had to turn the business around in a fiercely competitive retail market.
The road has not always been smooth. This year, Tesco made thousands redundant to pave the way for potentially leaner times and bolster its balance sheet in the face of stiff competition from Aldi and Lidl.
Tesco’s share price hit £2.45 last week, just 21p off last year’s record under Lewis, despite mounting Brexit uncertainty
But Lewis must also take credit for one of the biggest turnaround jobs the retail sector has ever seen. The share price hit £2.45 last week, just 21p off last year’s record under Lewis, despite mounting Brexit uncertainty.
And analysts expect that improvements to the bottom line will continue even if the top line at its core UK supermarket chain remains sluggish.
Barclays said in a report ahead of the publication of interim results on Wednesday that Tesco has ‘a good story to tell’ on improving volume growth.
‘We expect these results to paint an encouraging picture on profit growth and cash generation,’ said the bank’s seasoned analyst, James Anstead, who has an ‘overweight’ rating on the stock.
Marks & Spencer
Marks & Spencer has hardly been out of the news recently, with announcements on keener food prices and a departing finance director, as well as being drawn into a colourful legal spat with a former Ocado director.
New plans: This week, M&S is set to unveil more details about its ambitious food plans
And this week brings M&S’s ‘capital markets day’ with analysts, when we can expect the company to unveil more details about its ambitious food plans under grocery boss Stuart Machin.
Change at the food division is coming thick and fast – and Shore Capital’s Clive Black, a house broker, said the day is an opportunity to illustrate how talk of lower prices and improving ranges is being put into practice.
That may help support the share price, which this month hit lows not seen since 2000.
Canny investors will have been thinking whether Thomas Cook’s woes breed opportunity.
Mark Benbow, manager of Kames Capital’s Short-Dated Yield Bond Fund, sees Tui as a beneficiary as it is ‘the sole remaining’ travel firm ‘with any sort of significant retail store base’.
He says that Tui should see a significant portion of Thomas Cook’s market share in both Britain and Germany head to them.
Benbow adds: ‘The public may be worried about a repeat of the collapse of Thomas Cook at Tui but both companies have materially different balance sheets.
‘What ultimately caused Thomas Cook’s decline was not Brexit, nor margin pressures, nor a hot British summer. It was ultimately the banks pulling their funding lines.
‘They only do this when worried about a firm’s liquidity position. With Tui having almost £1.5billion of cash on hand, it is an entirely different story to Thomas Cook.’