Negative LFL, online, cash return disappointing... what''s to like? LOTS!
With even Tesco encouraging customers to get back to the pub, it seems the peak sales uplift from COVID-19 has passed. Attention shifts to the longer-term consequences and how the sector trades as we move through negative LFL. On the latter point, we won''t hide our nerves but we''re happier to start at the low multiples that Tesco trades on. On the former, online is the obvious point and we think Tesco has a good story (strong locations, data analytics to help gross margin). It can also more broadly capitalise on strong customer metrics. The story just calls for some (more) patience.
Could Tesco have a VW moment?
An investor asked us today, can Tesco be like one of the conventional car manufacturers? Having been pounded by a view that electric vehicles were the future, it turns out the incumbents are the market leaders and the likes of VW are up 60% in 3 months. Could we apply the same to online grocery? When the likes of Gorillas or Getir are raising funds at very high valuations, why doesn''t Tesco (and others) get more credit? We maintain our view that the online story isn''t a black and white ''it loses money'' and Tesco has a better story to tell than most. It just needs to tell it.
Disappointed again on cash flow guidance
With a new CFO waiting in the wings, perhaps we shouldn''t have expected much commentary on cash generation and use. Even so, we are disappointed the company wouldn''t even sanction our medium term estimate of GBP1.5bn of free cash flow on the call. We think though the market is rational and we have confidence in the forecast offering strong down side protection we think.
Asking for a little more patience but still think it can come together
The shares today have to process subdued guidance (retail EBIT flattish in 2021/22 versus 2019/20) but we think Tesco is likely keen to under-promise and over-deliver, particularly with a new CEO. The bank...
