Friday 12 September 2014

Analysis of Tesco 2014

Tesco, a British supermarket and retail company

Company: Tesco

ISIN GB0008847096 | WKN 852647   

Business: A British supermarket and retail chain. Their business units are: Tesco UK, Tesco in India, Tesco Malaysia, Homeplus (in Korea), Tesco Lotus (Thailand), Tesco Czech Republic, Tesco Hungary, Tesco Ireland, Tesco Poland, Tesco Slovakia, Tesco Kipa (Turkey), Tesco China, Tesco Bank (simple personal banking products, principally - mortgages, credit cards, personal loans, savings) and finally dunnhumby (a consultancy company working with the analysis of customers). Very frequently the business unit name is also their location and they very frequently own the land and buildings they sit in.

Active: In twelve countries with 6,784 stores. Main focus is UK and Ireland, Eastern Europe and some countries in Asia.

P/E: 19.1 (P/5: 10.5)

Here you can find the very ancient analysis of Tesco which was based on the 2012 annual report.

contrarian values of P/E, P/B, ROE as well as dividend for Tesco

The P/E of Tesco is looking high with 19.1 and the two last year they have taken heavy extra costs. The P/E5 does however end up at 10.5 and the P/B is 1.3. Based on the current P/E value Graham is turning the shoulder towards Tesco. The earnings to sales are not impressive with 2% but they rarely are in this line of business and the ROE of 6.6% is also not very exciting. The book to debt ratio is low with 0.4 which I do not like.
In the last seven years they have however managed to have a good yearly revenue growth of 4.3% which gives us a motivated P/E of 15 to 17 which means that Tesco is slightly overvalued today on the market.
They pay an excellent yield of 6.5% which on the other side corresponded to over 120% of their earnings so they better sort out the extra costs that they have had lately!
Conclusion: Graham says no and I look upon Tesco as a turnaround. The question as always has the knife handle stopped shaking yet or will the share price drop even further. I do not know. The P/E5 is good, the P/B is ok and the dividend is excellent. I could step in as a shareholder in Tesco today.

Tesco will remain on the Stock of Interest list. It has dropped several positions and the P/E5 is used in the table.

If this analysis is outdated then you can request a new one.


defensiven said...

Tesco recently cut their dividend 75% so the current DY is below 2%.

Fredrik von Oberhausen said...

Ah, that I missed to read but that then also explains why they dropped so much in share price not that long ago.

Thanks for the update defensive!