Morningstar | Tesco's CMD Offers a Glimpse Into the Grocer's Future But No Formal Guidance Given
Tesco hosted its capital markets day, or CMD, on June 18 and shared some of its "untapped value opportunities". Although presentations were focused on Tesco's longer-term growth and margin opportunities, management didn't give a formal guidance, except for the GBP 2.5 billion revenue aspiration for Booker, which management reiterated. Given this mostly in-line CMD, we maintain our FVE of GBP 253 per share and no-moat rating.On top-line growth, Tesco offered more detail about the drivers of the GBP 2.5 billion revenue growth opportunity for Booker, with the most significant being those arising from a larger group and further development of Tesco bulk packs and top-up. In addition, Tesco talked extensively about the potential to introduce Clubcard Plus, which would have several benefits on top of the existing Clubcard and possibly a subscription with favorable member pricing. Finally, Tesco briefly discussed the potential to add more convenience stores in Thailand and the U.K. in the medium term (750 stores in addition to about 1,600 currently in Thailand and the development of "Tesco Finest" in the UK).
On cost savings, Tesco avoided specific targets but touched on multiple areas of cost-cutting potential with a more than GBP 2 billion overall opportunity implied in areas such as Goods Not for Resale, store optimisations, data analytics tools and checkouts among others. However, Tesco didn't provide any details about the investment plans required to achieve those savings and the timing of those plans.
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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