Financial Trading Blog
Stock of the day 20/06/2016 – Tesco PLC
Despite the well-documented turbulence at the start of 2016 the first few months of the year were very kind to Tesco. From an opening price of £1.46 the company had jumped to £1.70 by the middle of January thanks to a stellar Christmas trading update that saw Tesco post a 1.3% rise in like-for-like sales growth in the holiday period (though for the third quarter sales did drop 1.5% overall). Controversy over its supplier-payments took it lower at the end of the month, before an impressive run across February and March left the stock at a 5 month high of £2.01.
(Source: IT-Finance.com 20/06/2016)
Yet from this peak onwards things began to sour for the supermarket. The initial catalyst for its downturn came in the form of its full year figures in the middle of April. Even though Tesco swung to a annual pre-tax profit of £162 million from that record £6.4 billion loss in 2014/15, the stock still dived 8% on the day of its results as the company warned profit growth would be hard to deliver going forwards due to the ongoing price war.
Since then the stock has struggled to find the momentum it saw in the first quarter of 2016. A comment from JPMorgan at the end of April took a chunk off its value, with analysts stating that the supermarket is in worst shape than it looks, while the sale of restaurant chain Giraffe and garden store Dobbies helped to push the stock even lower still. Eventually this led to Tesco hitting a 5 month low of £1.47 in the middle of June, though news that it was scrapping 24 hour opening times in 50 of its stores has helped spark a mild rebound, the stock now at a current trading price of £1.59 (IT-Finance.com, 20/06/2016).
In terms of its first quarter update on Thursday, analysts are expecting Tesco to post a 0.3% to 0.5% increase in like-for-like UK sales. If those estimates are accurate that would mean that the supermarket giant has posted 2 consecutive quarters of UK like-for-like sales growth for the first time in over 5 years, an achievement that both captures the company’s elevated status compared to its rivals AND highlights just how difficult the sector has become.
Tesco PLC has a consensus rating of ‘Hold’ with an average target price of £1.92.
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