When the market''s optimism has gone, ours ticks up Price competition and high expectations are probably the two biggest enemies of the listed food retailers. With Tesco''s free cash flow yield at c.8%, it''s hard to argue that investors have high expectations for the business. We ponder then why the shares are down on a trading beat. Perhaps it was the lack of earnings guidance upgrade (flat retail EBIT versus 2019/20), perhaps it is fears of cost inflation or maybe the ''whisper'' was higher? Regardless, low expectations are often an opportunity and we think Tesco''s H1 results (6 October) could be the potential catalyst. Inflation is a worry for some but we and Tesco seem more relaxed At present we see two big short-term questions for Tesco; how does the industry manage cost inflation and what is the right capital framework. It''s ironic that in some cases (Kroger yesterday for instance) management teams seem keen to actively embrace the prospect of inflation (it keeps the PandL ticking over) whereas in others, the market worries about passing it through (UK food retail). We''re minded to look at inflation as more of a neutral - what Kroger misses for instance is its cost inflation before it hopefully hits the shelf-edge. The tone from Tesco however sounds relaxed. H1 results; a clearer capital framework and potential for an earnings upgrade We stick firmly to our view that the target for a capital framework is in many respects academic; whether it''s 2.5x adjusted net debt / EBITDA or 3.0x, the cash won''t just disappear (it''s in the share price or in your pocket). Consistency however is key and it has been lacking. We expect to hear a more definitive message at the H1 results by which point some of the macro uncertainty should have revealed itself more. Given the latter is the principal reason for the cautious guidance, we could get an earnings upgrade too, helping finally put a bit of positive momentum into consensus. Small tweaks to forecasts,...