Tesco Shares Set for Upgrade

Morningstar analysts expect to raise their fair value estimate for Tesco after rising profits and sales in the supermarket's annual results

Ioannis Pontikis 11 April, 2019 | 11:42AM

Tesco

Tesco (TSCO) shares have risen this week after 2019 preliminary results showed UK and Ireland like-for-like sales up 2.9%, with core UK sales up 1.7% like for like and Booker up 11.1%. Group profit growth, including Booker, was up 35% to £2.21 billion. This is almost 9% higher than our full-year estimates due to better profitability in the international segment, faster Booker synergies and cost savings delivery – £532 million versus £450 million in our model.

Management reiterated guidance on synergies and medium-term margin targets and raised the dividend at 5.77p per share, 15% higher than our expectations. Given these better-than-expected results, we expect to raise our 253p fair value estimate by a mid- to high-single-digit percentage to reflect the time value of money (3%) and better-than-expected underlying profitability (3%-4%) in the international business. The current share price is around 248p after gains fuelled by stronger annual results.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Tesco PLC227.80 GBX-1.77

About Author

Ioannis Pontikis  is an Equity Analyst for Morningstar

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