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If Tesco shares could be purchased in-store they’d be flying off the shelves this morning. Strong half-year results suggest ‘Drastic’ Dave’s turnaround at the grocer is working; music to the ears of the investment faithful. Revenues in-line coupled with consensus beating opening profit (pre-exceptionals, of course), a smaller net loss and lower debt is always a good start.
With outlook and income so important in an era of squeezed returns, ambitions to increase cost-cutting to boost group operating margins from 2.18% to a whopping 3.5%-4.0% by 2019/20 also sits rather well with long-term investors hoping this allows for a return of dividends and the healthy 3-4% yields of years gone by.
Whilst not alone in admitting a considerable rise in pension deficit, hurt by historically low bond yields, it’s interesting that this isn’t weighing on sentiment more, suggesting confidence that future profits can fill the gap.
Share price strength is attracting much interest this morning with a breakout to 2016 (almost 12-month) highs and beyond what has been a bugbear trendline of falling highs resistance going back a whole 3 years. Turnaround for both the business and the shares?
Mike van Dulken, Head of Research, 5 Oct
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
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