Happy to invest but also keen to offer shareholder returns When things are going well, there invariably comes a point to consider if ''that will do''. Whilst UK food retail is not the sort of market you can ever freewheel in, there will come a point where incremental investment yields limited returns; if you''re already the cheapest full-line operator, why do more? Tesco seems very happy with its ''great momentum'' over Christmas with UK LFL 70bp ahead of consensus and it is keen to hold or grow market share. But by delivering another profit upgrade, we see clear evidence that it''s investment won''t be endless. We maintain our Outperform. Carrying trading momentum into earnings upgrades Like Sainsbury''s yesterday, Tesco''s was very happy that a combination of focus on value and innovation landed well. The consumer is cautious, but with real wage growth back, there''s ''cautious optimism''. Either way, with very limited general merchandise exposure (c7% of UK revenue ex-fuel versus c20% at Sainsbury''s) Tesco could carry decent grocery momentum into earnings upgrade momentum, something Sainsbury''s and Marks and Spencer fell short on, this week at least. From high steady free cash flow to ''cash flow +'' We and others pushed on the outlook for 2024/25 and unsurprisingly, the group wasn''t being precise. It doesn''t expect deflation, in part as with the market rational, elevated wage inflation (min wage up c10%) will find its way to the shelf-edge. After c13% growth in retail EBIT in 2023/24, Tesco will likely do a lot less in 2024/25, but with at least some earnings growth, the investment ''algorithm'' isn''t a high but steady free cash flow yield, it is a high cash flow yield plus a little growth. More modest profit growth expected next year but an increasingly credible defensive We hike our retail EBIT forecasts to sit in line with the GBP2.75bn guidance and model c3% growth in 2024/25 and 2025/26. There''s still plenty of ''cut and thrust'' in the market but Tesco seems...