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It’s a quiet start to the week in terms of listed company news flow on the Stock Exchange, with statements to come from Greggs and Tesco on Tuesday and Wednesday.
The big news of the week is likely to be the recovery, or lack of, at Tesco (TSCO). Following some positive glimmers of hope for the supermarket sector last week, with Sainsbury’s unexpectedly upgrading profit forecasts, the latest figures from the UK’s biggest retailer could be set to show any stabilisation will be short-lived.
Profits at the group are predicted to have slumped by more than £500m in the first half, according to analysts at investment firm Cantor Fitzgerald. Mike Dennis is forecasting that Tesco’s operating profits will have come down from £916m to £330m – although some of the reduction will be the result of the sale of the South Korean business.
The analyst’s gloomy note is titled “needing more than 2020 vision”. He added the results could be “very disappointing” unless the revised strategy to rebuild the UK and group profits was convincing. “We believe, management needs to discuss a longer term recovery strategy to 2020 although, in our view, this needs to be very convincing if Tesco is to avoid a rights issue and maintain the current share price. For now, we expect more profit downgrades which redraws the starting line for any margin recovery.”
However, long-time Tesco supporter Bruno Monteyne of Bernstein is much more upbeat. He predicts that Tesco will impress on UK sales, with flat volume market share, have a more stable balance sheet and have the potential to double margins next year. “These results are CEO Dave Lewis’s opportunity to show progress made,” he said.
“This progress should cheer investors, proving the bear case of a stalled recovery wrong. Dave may be able to pull some rabbits out of his hat: partners signed up to take excess space, some early wins in international or something we haven’t thought of.”
Morning update
It’s been a good morning so far for investors in Tesco with shares one of the FTSE 100’s biggest risers (up 3.4% to 186p), ahead of the interim results on Wednesday and despite the expectations of plunging profits. The stock is now up more than 11% in the past five trading days following on from the lift that the Sainsbury’s positive Q2 gave the sector last week.
Sainsbury’s (SBRY) is also up 2.2% to 265p, along with Morrisons (MRW), up 1.9% to 165.2p, on what is proving to be a positive morning for the sector.
City Diary
There isn’t a great amount lined up on the Stock Exchange this week. However, there is the interim Tesco results (see above) on Wednesday. Greggs (GRG) is also set to issue a trading update tomorrow and Marston’s will put out a statement on Thursday. Outside of company results there is the latest BRC shop prices index on Wednesday.
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