Stock of the Week: Tesco

VIDEO: Britain's largest supermarket had another good Christmas but the squeeze on consumers is likely to hold back profits

James Gard 17 January, 2022 | 5:44AM
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James Gard: Our latest stock of the week is Tesco, Britain’s largest supermarket.

It’s reporting season again, which means we get to hear how retailers performed over the key Christmas period. This week we’ve had the supermarkets updating us on how they’ve done amid a backdrop of rising prices and supply problems.

Like its rivals, Tesco has benefited from shoppers once again working and socialising at home because of Omicrom. Supermarkets have become the “one-stop shop” for essentials and treats since early 2020.

That is showing no signs of easing off as we adapt to the “new normal” of Covid-19 restrictions. Tesco expanded its market share at the end of last year and has raised its profit forecasts for the whole year. Sales in the run-up to Christmas were also 7.5% higher than in 2019.

Tesco provided no new information about dividends in this update, but shares currently yield over 3% and Tesco paid a special dividend of £5 billion last year. Full year results are due in April, when more dividend news is expected.

Despite a 20% rise in the shares, Morningstar analysts think Tesco are fairly valued. But the company doesn’t have an economic moat because of the competition in the UK grocery sector, especially with the threat from discount chains like Aldi and Lidl. And the cost of living squeeze may mean British shoppers can’t spend as much this year as they did in 2021. For Morningstar, I’m James Gard.

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James Gard  is content editor for Morningstar.co.uk