Morningstar | Tesco's 1Q Broadly in Line With U.K. Excluding Booker Mixed; Shares Fairly Valued
No-moat Tesco reported its first-quarter trading update for the 13 weeks ended 25 May 2019, with the U.K. and the Republic of Ireland (including Booker) like-for-like sales up 0.8% (versus 1.4% in our model for the year) and Booker up 3.1% (versus 2.5% in our model for the full year). This is broadly in line with our long-term expectations. Management reiterated guidance on synergies and medium-term margin targets. Given this in-line print, we maintain our GBX 253 fair value estimate for Tesco.In the U.K., Tesco said it grew ahead of the market (excluding discounters Aldi and Lidl) on a volume-and-value basis because the "Exclusive at Tesco" product range increased sales by more than 10%. In online, grocery sales were up 7%, with more customers opting to use click-and-collect services (over 10%). Booker continued to grow despite strong comps with sales, excluding tobacco, up 4.2%.
In Asia and Central Europe, top-line growth was mixed, with Central Europe down 7.9% (the effect of 4% store closures and 2% drag from cooler weather) and Asia up 2.6% versus our negative 5.8% and 1.5% annual expectations. Tesco also said it gained market share in Thailand, driven by strong growth in Bangkok.
The company will be hosting a capital markets day on 18 June to share some of its "untapped value opportunities".
Tesco is a retailer. Co. and its subsidiaries are engaged in retailing and associated activities in the U.K. and Republic of Ireland; and Czech Republic, Hungary, Poland, Slovakia, Malaysia, and Thailand. Co. provides retail banking and insurance services through Tesco Bank in the U.K. Co. sells and services of motor and home insurance policies underwritten by Tesco Underwriting Limited, or in a minority of cases by a third-party underwriter. As of Feb 25 2017, Co. had a total of 6,809 stores worldwide, including 256 franchised stores.
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