Stock of the day 25/06/2015 – Tesco PLC

Those at the top of Tesco are preparing themselves to face more difficult questions on Friday when the supermarket announces its Q1 2015/16 interim management statement alongside hosting its first AGM since its recent troubles began.

The supermarket’s big fall across 2014 saw it enter 2015 at £1.77, just over half of its £3.35 starting price a year before. Whilst Tesco is still embroiled in issues on many different fronts, its stock price has so far managed to avoid its start of the year lows in the past 6 months; in fact, by April 7th Tesco had reached £2.53, its highest price since August of the previous year. Things have trailed off slightly since then, largely due to the supermarket’s announcement of a £6.4 billion loss on April 22nd, one of the most severe losses in corporate history and definitely Tesco’s own nadir. The subsequent declines have left Tesco at a current price of £2.18 (25/06/2015, IT-Finance.com).


(Source: IT-Finance.com 25/06/2015)

The sales front is continuing to pose a problem for Tesco; the latest Kantar review, for the 12 weeks ending the 24th May, showed that the supermarket’s sales had fallen 1.3% for the same period year-on-year, causing a 0.4% decline in market share. Whilst this still leaves Tesco far and away at the top of the pile with 28.6%, market share it provides yet another sign of not only Tesco’s issues, but the issues of the Big 4 as a whole.

Yet CEO Dave Lewis is undeterred, and has continued to try and implement his turnaround plan. One of the biggest cogs in the multi-faceted re-organisational machine that has been at work since the profit misstatement last year is the intended disposal of Tesco’s $7 billion South Korean unit Homeplus, with HSBC handling the sale and multiple different private equity firms interested. Yet come Friday’s AGM Lewis and co. may be facing more questions about which assets they have apparently decided to keep, with shareholders querying the wisdom of Tesco holding onto its Giraffe restaurants chain.

There are some things, however, that Lewis has had more difficulty in changing. Tesco was just rated the worst of the Big 4 at complying with government-backed industry code; in fact, only Iceland was rated worse out of the 10 supermarkets polled. This result is hardly surprising, however, given that Tesco is currently under investigation by the Groceries Code Adjudicator for its handling of its suppliers, with the results to be posted in autumn.

Given the mixed fortunes surrounding Tesco, analysts have given the supermarket a consensus rating of ‘hold’ with an average target price of £2.27.

Thursday’s stock news:

Following a well-received report earlier in the week that indicated Petrofac’s bill for its Laggan-Tormore project would be lower than expected, the oil and gas company jumped by another 4% this Thursday after Nomura upgraded it to a ‘buy’ rating. This means Petrofac has leapt by around 13% this week and is currently sitting at a 2 month high.

News of a €190 million deal for Spanish company Grupo Lantero caused UK packaging firm DS Smith to hit an all-time high of £3.91 this Thursday, around a 4% increase on the day, with the company now in line to take control of an exciting 10% market share of the much-buzzed about Spanish corrugated packaging industry.