Might a highly levered ASDA be an opportunity too good to miss? For some time, our thesis on Tesco was that it was moving into a stable margin, cash generative, dare we say dull phase. But circumstances change. COVID-19 is still a material uncertainty and seems likely to disrupt the new financial year - we trim forecasts as it is likely to be a net negative for earnings. But rather than being a ''cash compounder'' and returning funds, might Tesco find a better short-term use for some of its excess capital? Having argued there''s not much price elasticity in the market, a soon to be levered ASDA may be an opportunity too good to miss. ASDA won''t just roll over but it is already under pressure The first thing we''d say is that under new management, ASDA isn''t about to simply roll over. But the reason ASDA was sold for a low price (c10x EV/EBIT) is, we think, that it is tightly squeezed between discounters on one hand and a strong group of mainstream competitors at the other end. We think the main reason people go to ASDA is either there isn''t an Aldi or Lidl nearby (or if there is, it''s very busy) or for cheap brands. Tesco''s Clubcard Prices (brands at discounts) already seem to be undermining the latter point so Tesco could do a little more, particularly with supplier support? Could Tesco be forgiven for again deferring cash return? Does a new management team get credit for returning cash an old team generated? On the one hand it reinforces the sense of continuity and confidence in the future but it is also an admission other options are limited. Tesco has seemed close to returning cash before, only to disappoint when goal posts were removed so it needs to tread a fine line. But in a scenario where it perhaps turns up the margin investment dial a touch and gets a decent return, investors should be forgiving. Having pencilled in a buyback for the new financial year, we now remove it Having pencilled in a GBP500m buyback for 2021/22, we cut it...