BNPP Exane View:
Tesco hosted an analyst breakfast post 1H26 results. The themes were consistent with those highlighted in our post results review last night, with success attributed to long term investments made across a range of strategies beyond purely price. Management struck a confident tone into Xmas and we remain positive on the stock:
Key points in addition to yesterday''s note:
On the UK consumer: Tesco are working hard to compete at the entry level, with lower income groups under pressure. They see the combination to Everyday Low Price (2-2.5k products), Aldi Price Match (7-800 products) and Clubcard Prices (10k products) as key to this. This was also an important reason they did not want to let Asda get any advantage on them on price. They would not be drawn on the Budget, but highlighted their own ability to respond to external challenges. Mgmt. expect a strong Xmas for the UK and themselves.
On cashflow: mgmt. highlighted that the medium term guide of GBP 1.4 to 1.8bn was given with a normalised capex, cash tax and working capital range in mind, which we are now at. While there was no indication that the guidance could be taken up soon, mgmt. did flag that the guidance does not stop them delivering above the range if they can.
On buybacks: the underlying GBP 750mn was described a good ongoing level for now. As with the conference call yesterday, there was no indication that we were approaching a valuation at which Tesco does not want to buy back stock.
UK market share: as with all Tesco results, they expect market share gains to slow at some point, with 10-15bps of gains a good medium term ambition.
On FY27: management would not be drawn, but did say they are determined to grow profit every year.
On GLP1s: Tesco cannot identify a material impact on their numbers from GLP1 usage. While perhaps it could be reflected in the very strong fresh sales, they are not seeing much of a fall off in alcohol or treat categories. For those...
