Analysts have broadly welcomed Tesco’s latest trading update and pointed to the strong performance from the UK retailer’s international operations.
“In investment terms, Tesco has been something of a serial under-performer of late, but there are some encouraging signs in this statement,” Hargreaves Landsdown head of UK equities Richard Hunter said today (7 December) after the retailer released its third-quarter trading update.
“In particular, the growth in overseas sales continues apace, with promising numbers from Europe, Asia and the US. Whilst revenues from the US are still a minor percentage of overall group income, after a rocky start there seems to be a steady gathering of momentum,” he added.
Similarly RBS analyst Justin Scarborough said that Tesco’s “international momentum is clear in the like-for-likes”.
Bernstein analyst Christopher Hogbin said the “strength” of Tesco’s international business, in our view was “far from fully reflected in its current share price.
“The recent investor trip [to Asia] highlighted the value of Tesco’s international business, and going forward we expect the stock to re-rate as management continue to highlight the returns progression as well as the growth potential of international.”
Speaking about the retailer’s home market, Hogbin added that the 8.8% growth in group sales (excluding fuel), reflected a “modestly better performance than we expected in its core UK business”.
Meanwhile, Charles Stanley analyst Sam Hart said he expects trading conditions in the UK food retail industry to remain “relatively benign” but that consumer demand should be “resilient in the face of austerity measures”. He expects Tesco’s international and retailing services divisions to be growth drivers, with the core UK business “acting as the ‘cash cow’ to fund growth in these areas”.
However, outlining concerns for the retailer’s future performance in the UK, Hunter added: “On the downside, higher food inflation, the change in senior management and pressure on the group’s non-food business continue to drag on the shares.”
Shares in the retailer were up 2.5% today at 16:01 GMT to 430.35p a share.