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AJ Bell Youinvest Breaking the Mould – Tesco full year results 2020


The Coronavirus outbreak will, quite understandably, still be the focus of investors’ attention in the week ahead especially as macroeconomic and company news flow will be relatively quiet as we head into the long Easter weekend However, the Financial Conduct Authority has lifted its moratorium on the publication of preliminary results statements so we may start to catch up on the ones that were held over and there are a few scheduled statements, too

We will also get some macro data, where the two stand-out items could come from the world’s biggest economy, the USA Both are due out on Tuesday 7th April and they are the NFIB Smaller Business Economics Trends survey and the JOLTS – the Job Openings and Labour Turnover survey The last NFIB reading was 1045 That maintained a run of scores above 100 that stretched back to December 2016, just after the election of Donald J

Trump as President of the USA Make of that what you will, but it seems logical to expect a hit to smaller company sentiment thanks to the rapid spread of COVID-19 in America It’s just a matter of how big and whether the fiscal and monetary stimulus packages offered by the US Government and the US Federal Reserve are seen as being sufficient or not Note also how the NFIB and the American small-cap Russell 2000 index have tended to move in lockstep over time – and the Russell has already taken a big leg down As for the JOLTS survey, the last reading we got – for January – of 6

9 million job openings was good, or at least an improvement on December However, that did represent the sixth year-on-year decline in seven months and came in well below the 75 million peak figure from January 2019, as if to suggest the US economy had been cooling a bit, even before the viral outbreak hit home A further decline seems possible this time around although it may not be until the March and April figures that we get to see an extended of the slowdown On the company front, there is a select list of companies due to update shareholders, although keep an eye open for statements that were held over due to the FCA moratorium and also any unscheduled trading updates

• On Tuesday 7 April, online fast fashion player ASOS is due to reveal its interim results • On Wednesday 8th, Tesco is scheduled to release its preliminary, full-year figures • And on Thursday 9th, Fevertree Drinks will publish its full-year numbers Of those three it is Tesco that could create the biggest fuss, although they are all likely to be of interest in their own right As we can see here, the bear market has been relatively kind to Tesco’s shares, which are broadly unchanged over the past year That compares to a 25% drop in the FTSE 100 I would suggest there are three reasons for that resilience: • First, the acquisition of wholesaler Booker in 2017, albeit on for a lofty valuation, is helping sales and earnings momentum at the group • Second, Tesco has announced the sale of its Thai and Malaysian operations for around £8 billion, with the cash going to erase the pension deficit and fund a £5 billion special dividend • Finally, panic buying of pasta, flour and loo roll, to name but three consumer staples, means that the grocery giant is getting some respite from the market share war with Aldi and Lidl as punters flock through its doors so they can stock up, hunker down and wait out the COVID-19 outbreak

So, when it comes to the full-year results, investors will look to three numbers in particular • The first is like-for-like sales growth, where the third quarter revealed a further loss of momentum, in the face of pressure from the discounters On a like-for-like basis sales fell 09% year-on-year in Q3, so let’s see what the final three months of the year brought Attention will then switch to the regional trends – in Q3, the UK slipped 0

4%, Asia by 16% and Central Europe by 116% on a like-for-like basis, year-on-year • The second headline number to watch will be pre-tax profit The consensus forecast is for £1

98 billion, before exceptional items, against, £156 billion a year ago • The third number is the dividend After a first-half payment of 265p analysts are looking for a full-year distribution of 8

27p, up from 577p a year ago Also look out for comments on the planned cash distribution once the Thai and Malaysian disposal goes through – £5 billion equates to around 51p per share Over and above those, investors will look to outgoing boss Dave Lewis – for he steps down to be replaced after nearly six years at the helm by Ken Murphy some time this summer – for any guidance for the new year In case, he does feel able to say anything, the consensus analysts’ forecasts are currently looking for an increase in pre-tax profit to £2

3 billion and for a 10% increase in the ordinary dividend to 913p per share In terms of strategic issues, shareholders will watch out for an update in the goal to generate synergies worth £140 million in total from Booker by January 2020 and a total of £210 million by January 2021 Thank you for watching and I look forward to seeing you next time

Source: Youtube

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