Beat and raise driven by execution across multiple long term initiatives Tesco''s 1H26 results were ahead of consensus at the EBIT line (+1.5% YoY, +5% vs company compiled cons) and FY26 EBIT guidance (now GBP 2.9 - 3.1bn) +5% at the midpoint, both above buyside expectations. Although the guidance midpoint implies EBIT -10% in 2H we see this as a necessary re-iteration of Tesco''s capacity to defend its price competitiveness if necessary, with our FY26 forecast moving to GBP 3.15bn (from 3.1bn) still capturing greater price investment in 2H vs 1H. Our forecasts are underpinned by management''s comments on the breadth of their investments beyond price (quality, innovation, availability, online, retail media) - a compelling reminder of how hard won Tesco''s UK market position has been, and how defensible we believe it has become. Coming through 2025 unscathed underlines re-rating potential When Asda announced its price investments we suggested that the combination of Asda''s aggression and a challenging UK cost environment in 2025 could be what Tesco needed to prove that it had transformed itself into a structural winner in a market that itself had transformed into a less self-destructive environment. While 1.5% EBIT growth is hardly spectacular, 7% EPS growth in a very challenging market underlines our belief that Tesco is well set up to deliver sustainable low DD% EPS growth from FY27e. Though some of this is already reflected in the re-rating YTD (now on 15x 12mn fwd earnings vs 13x at end 2024 and 5 yr avg. of 12.6x, Factset), with a strong private label and data advantage, we see top and bottom line drivers, as well as earnings stability, supporting further re-rating from here (Tesco traded on c17x PE 2003-12 when EPS growth averaged 10%). Target price to 500p on greater UK profit drop through, longer term growth We increase our FY26-28e EPS estimates 1-2% reflecting higher UK profit drop through than we had previously modelled. Our TP moves to 500p...