Tesco First Quarter Trading Statement 2022/23.

[simoan]

Is that level of yield an adequate reward for the strong and risky head-winds facing this sector?

I'm not convinced...

Cheers,

Itsallaguess

You're asking the wrong person, unfortunately. Nothing would make me ever invest in such a business, even in good times the profitability is poor! It's no wonder the share price is pretty much where it was 20 years ago. However, it's not the only sector that is going to suffer from input cost and wage inflation, and after all is said and done, people have to eat. I wouldn't put it past the government to introduce price controls on a range of basic food items which will of course hurt margins and act to reduce profit. In that scenario it's difficult to see large increases in the dividend but forecast cover is 2x so some may settle for the current yield which seems the company can easily afford.

All the best, Si

[MrFoolish]

You're asking the wrong person, unfortunately. Nothing would make me ever invest in such a business, even in good times the profitability is poor! It's no wonder the share price is pretty much where it was 20 years ago.

The FTSE 100 hasn't done much better.

[tjh290633]

Sorry Terry, but I think you've got the wrong end of the stick - the above outlook statement is forward looking (although again, any talk above of 'outperforming the market' gets me back to the best-looking dog in the ugly-dog competition...), but there are various analysts mentioning that Tesco didn't meet Q1 expectations with their RNS release yesterday, and one half of those like-for-like figures is shown in the Q1 statement linked above -

I think that the point which you are missing is that there has been a lot of price cutting to maintain market share. Consequently the turnover in Q1 is reduced, but they have held their share of the market.

The emphasis on Clubcard prices, and the 10% off 2 big shops each month retains custom. Their Price Match with Aldi also has an effect. Read what they said:

UK: Ongoing support for customers in challenging times; further improvement in market share

• Market share growth of +37bps(3), outperforming on both value and volume

• Overall distribution of Aldi Price Match and Low Everyday Prices products up c.19% YoY

• Maintaining largest improvement in quality & value perception of any food retailer in the market vs pre-pandemic

• YoY performance impacted by annualisation of lockdown last year, most notably in GM, clothing and online, partially offset by inflation

TJH

[Itsallaguess]

I think that the point which you are missing is that there has been a lot of price cutting to maintain market share.

Consequently the turnover in Q1 is reduced, but they have held their share of the market.

The emphasis on Clubcard prices, and the 10% off 2 big shops each month retains custom. Their Price Match with Aldi also has an effect.

So they've taken reduced like-for-like Q1 sales that didn't meet market expectations, and whilst doing so, they're having to carry out aggressive price matching and also having to offer other margin-eroding incentives to even do as well as they did...

Well if that's trying to sell the Tesco investment case going forwards into the sort of financial headwinds that we're entering right now, then I think the approach may need a little more work...

Cheers,

Itsallaguess

[CliffEdge]

I've never bothered before but I recently got a Tesco club card. I got a box of roses chocolates for two pounds instead of three pounds.

[idpickering]

I've never bothered before but I recently got a Tesco club card. I got a box of roses chocolates for two pounds instead of three pounds.

Thanks for sharing that with us. Enjoy.

I’ve never even seen our card as my wife deals with such things, as is very much her want, and likewise it’s veryly not mine. Lol

Ian.

[Itsallaguess]

I've never bothered before but I recently got a Tesco club card.

I got a box of roses chocolates for two pounds instead of three pounds.

Which is actually helping to highlight the point I was making earlier, about aggressive marketing that helps Tesco 'maintain market share', but which ultimately delivers very little to their actual profitability...

Cheers,

Itsallaguess

[Dod101]

Sorry Terry, but I think you've got the wrong end of the stick - the above outlook statement is forward looking (although again, any talk above of 'outperforming the market' gets me back to the best-looking dog in the ugly-dog competition...), but there are various analysts mentioning that Tesco didn't meet Q1 expectations with their RNS release yesterday, and one half of those like-for-like figures is shown in the Q1 statement linked above -

I think that the point which you are missing is that there has been a lot of price cutting to maintain market share. Consequently the turnover in Q1 is reduced, but they have held their share of the market.

The emphasis on Clubcard prices, and the 10% off 2 big shops each month retains custom. Their Price Match with Aldi also has an effect. Read what they said:

UK: Ongoing support for customers in challenging times; further improvement in market share

• Market share growth of +37bps(3), outperforming on both value and volume

• Overall distribution of Aldi Price Match and Low Everyday Prices products up c.19% YoY

• Maintaining largest improvement in quality & value perception of any food retailer in the market vs pre-pandemic

• YoY performance impacted by annualisation of lockdown last year, most notably in GM, clothing and online, partially offset by inflation

TJH

And that illustrates the point that I was making. The supermarkets are just taking market share from each other. What is the point of that? It is only profitability that matters or should matter to us. Without that there can be no dividend in the long run. Supermarkets have not been much of an investment for a long while and show no signs of becoming one any time soon.

Dod

[MDW1954]

Consensus estimates, in my view, are rarely an indicator upon which it is worth placing much reliance.

MDW1954

I take your point, but in deciding what the future may look like it's not something you can completely ignore either as the estimates are often based on information provided to those who have direct access to management, unlike us retail punters. To that end, please could you explain how you get a prospective yield for FY23 of 4.8%? That would imply a dividend increase of 10% over FY22. I believe the accuracy of this metric is kind of important for this forum! My own data source (Refinitiv) shows the consensus is not expecting much by way of a rise in the dividend. What data do you have that is better than the consensus dividend estimate?

BTW I found the trading statement hopeless. Sales are vanity, profit is sanity. And not one mention of margins or profits! Other than to state profit outlook is as previously advised, which is for a 13.7% fall in EPS.

All the best, Si

Apologies for the delay in replying -- I've been away for much of the weeked.

I regret to say that the 4.8% appears to be an error. I'm unable to replicate it. Sorry.

That said, it only requires a 1.1p increase in the dividend, which isn't a huge stretch, and the share buyback programme will help.

But... as is clear, the retail market is far from benign right now.

MDW1954

[MDW1954]

But at least today's results means it is not on the "uninvestable" list, unlike (say) GSK or TATE.

MDW1954

Why do you say GSK and TATE are uninvestable?

I've just spent a fruitless 20 minutes looking for either a post of mine to Arb, or the original TATE document from which I copied the text. Maybe someone else can find it. But the gist of it with TATE is that the company's strategy has now changed, and it is going more for growth, and being less of a dividend share. The TATE text I quoted explains it more fully than that, but that's the gist of it.

With GSK, the company is splitting in two, and the combined dividend from the two businesses will be less than GSK has historically been paying. Again, there are posts to this effect, and documents on GSK's investors' website.

In both cases, then, there's a strong argument that these two shares are no longer HYP shares.

MDW1954

Moderator Message:
EDIT: Re: TATE, the post in question is this: https://www.lemonfool.co.uk/viewtopic.php?p=503706#p503706
Read it, plus the ones that follow. --MDW1954

[Dod101]

Apart from the fact that neither Tate nor GSK has got any relevance to Tesco, I would not say that the MDW comments indicate that either share is ‘uninvestsble’ There is a lot of nonsense on these Boards.

Dod

[csearle]

There is a lot of nonsense on these Boards.

There is probably a lot of nonsense and a lot of sense spoken in general. Some of it on boards and some of it more privately. I feel that the advantage of saying things publicly on boards such as these is that healthy disagreements can be seen and explored, so adding much perspective for many to it all.

It it a testament to all contributors here that we can have these discussions in a wonderfully civilised manner regardless of our individual viewpoints.

Vivat in lemon!

Chris

[MDW1954]

Apart from the fact that neither Tate nor GSK has got any relevance to Tesco, I would not say that the MDW comments indicate that either share is ‘uninvestsble’ There is a lot of nonsense on these Boards.

Dod

Dod,

I was responding to a direct question that I had been asked by another poster. What would you rather have me do -- ignore it?

My reply made clear that my comment about "uninvestable" was in relation to income-seeking HYP investors, who have expectations of continuing and rising annual dividends.

Given that both companies have openly declared that dividends going forward are likely to be smaller than dividends today, what is it, precisely, that makes you feel that these two shares are now attractive to HYP investors?

MDW1954

[Dod101]

There is a lot of nonsense on these Boards.

There is probably a lot of nonsense and a lot of sense spoken in general. Some of it on boards and some of it more privately. I feel that the advantage of saying things publicly on boards such as these is that healthy disagreements can be seen and explored, so adding much perspective for many to it all.

It it a testament to all contributors here that we can have these discussions in a wonderfully civilised manner regardless of our individual viewpoints.

Vivat in lemon!

Chris

Yes. I can subscribe to that.

Dod

[Dod101]

Apart from the fact that neither Tate nor GSK has got any relevance to Tesco, I would not say that the MDW comments indicate that either share is ‘uninvestsble’ There is a lot of nonsense on these Boards.

Dod

Dod,

I was responding to a direct question that I had been asked by another poster. What would you rather have me do -- ignore it?

My reply made clear that my comment about "uninvestable" was in relation to income-seeking HYP investors, who have expectations of continuing and rising annual dividends.

Given that both companies have openly declared that dividends going forward are likely to be smaller than dividends today, what is it, precisely, that makes you feel that these two shares are now attractive to HYP investors?

MDW1954

I never said that they were 'now' attractive to HYP or any other investors. 'Twas you who said they were 'uninvestable'. Uninvestable to me anyway means that we cannot value the share or at least find a common level for it. Most shares are investable one way or another. Anyway, no matter, tomorrow is another day.

Dod

[MDW1954]

Uninvestable to me anyway means that we cannot value the share or at least find a common level for it. Most shares are investable one way or another.

Dod

"Uninvestable" to me, in the context of the HYP board, means that HYP investors will not want to invest in such shares, for the reasons that I've previously articulated.

I stand by my assertion.

MDW1954