Tesco
Note: This is a daily stock update and the information stands true as of 09/01/25, 09:00 CET.
Company Update:
We are likely to improve the financial estimates and target price slightly.
Expert Opinion:
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Company Update:
Tesco’s Q3 + Christmas trading performance (for 19 weeks ended 04 January 2025) was ahead of ours as well as the market expectations.
Group’s lfl sales grew 3.1% yoy (+40bp vs consensus). While both UK and ROI clocked strong momentum (+3.9% and +4.4%, respectively), the wholesale business Booker remained in the red due to weak sales of tobacco and Best Logistics. Central Europe also witnessed healthy momentum of +3.5% yoy.
Notably, Tesco’s lfl performance was stronger during the Christmas period (+3.8% yoy during the six weeks ended 04 January) vs +2.8% lfl during Q3 (13 weeks ended 23 November 2024).
Key takeaways:
• In UK, Tesco continued to witness volume growth and clocked highest market share since 2016 (at 28.5%; +78bp yoy). ROI also witnessed 40bp share gains.
• In UK&ROI, the online sales remained robust, with double-digit sales growth.
• Food sales were healthy in all operating geographies (+4.7% in UK, +3.7% in CE).
• Management has confirmed the full year outlook: retail adjusted operating profit of £2.9bn and FCF at £1.4-1.8bn.
We are likely to improve the financial estimates and target price slightly.
Another strong quarter for Tesco which is marginally beating analyst consensus. The guidance is confirmed but there could be some marginal disappointment as retail adjusted profit is reiterated at £2.9bn, short of the current consensus at £3.07bn.
Valuation is still relatively attractive with PE 25 (Feb) at 13.9x going down t0 11.8x for 2027 (Feb), even though it is the second most expensive (After Jeronimo martins) in our Food retail universe. This is why we have a reduce rating, predicated on the absence of upside over the short term.
But Tesco keeps gaining market share in its main market which is the main performance driver in that business which is why I still like Tesco as a buy and hold stock. I still believe food retail is a must have in the current environment and with its positioning, Tesco is likely to keep benefiting from market share gain.
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