Tesco PLC 

Tesco PLC (LSE: TSCO) is an FTSE 100 index listed retail company headquartered in the United Kingdom. It operates in retailing and related services, including insurance and money services. The company’s business segments comprise the UK & ROI, which covers operations in the United Kingdom and the Republic of Ireland, and Central Europe. This Report covers the Key Recommendation Rationale, Conclusion, and Recommendation on the stock.

Key Recommendation Rationale – Sell at GBX 314.60

• Decline in Statutory Profitability: Statutory operating profit fell by (3.9%) to £2,711mn (FY23/24: £2,821mn), and statutory diluted EPS dropped by (5.7%) to 23.13p (FY23/24: 24.53p). This decline was largely driven by a non-cash net impairment charge of £(286mn).
• Reduction in Free Cash Flow: Free cash flow decreased by (15.2%), down to £1,750mn from £2,063mn in the prior year. The comparative period had benefitted from elevated trade working capital, which was not repeated this year.
• Drop in Profit Before Tax: Statutory profit before tax declined by (3.2%) to £2,215mn (FY23/24: £2,289mn), reflecting pressure from impairment costs and adjusting items.
• Underperformance in Booker Division: Booker recorded a (1.8%) drop in like-for-like sales, with notable declines in tobacco sales (8.8%) and Best Food Logistics (5.1%) due to weakness in the fast-food segment
• Macroeconomic Risk: The market sentiments can remain weak in the short term due to the subdued consumer disposable income, geopolitical tensions, and political risks.

Valuation Methodology: Price/ Earnings Approach

Share Price Chart  

Conclusion

TSCO is expected to trade at a discount, considering the recent decline in Statutory Profitability, reduction in Free Cash Flow, also statutory profit before tax declined by (3.2%) to £2,215mn and Increased Capital Expenditure Amid Margin Constraints, etc. For conducting the valuation, the following peers have been considered: Associated British Foods PLC (LSE: ABF), Marks and Spencer Group PLC (LSE: MKS), etc.

Given its current trading levels, decline in Quarterly Revenue, reliance on Select Product Categories, relative valuation, and associated risks, it is prudent to exit the stock at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the Closing Market Price of GBX 314.60 as of 10 April 2025.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 10 April 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.