- 01 May 2007 16:26
is one of the worlds leading international retailers. Since the company first the trading name of Tesco, in the mid 1920s, the group has expanded into different formats, different markets and different sectors. The UKs leading retailer Tesco was floated on the stock exchange in 1947 and in 1995 took over rival Sainsburys position as the UK number one. The principal activity of the group is food retailing, with over 2,000 stores worldwide. Tesco has a long term strategy for growth, based on four key parts: growth in the Core UK business, to expand by growing internationally, to be as strong in non-food as in food and to follow customers into new retailing services. The company launched a home shopping service in 2000, allowing customers to order their shopping online. Tesco is now expanding its convenience stores and overseas into areas such as Taiwan, Malaysia, Poland, the US and Ireland.
Upper graph = 12 month share price with 6 month moving average
Lower graph = 12 month volume (red line = volume average).
- 01 May 2007 16:31
- 2 of 1721
Recent broker views:
shares in Tesco were firmer in early deals after UBS raised its price targets to 550 pence from 470, dealers said. UBS said it believed investors were starting to value the food retail sector using the PropCo/OpCo methodology, which involves splitting the businesses into property company (PropCo) and the underlying operating business (OpCo) and valuing them separately. It said the new valuations have been prompted by recent private equity interest and increasing property prices in the UK. It said that by using this methodology, Tesco has an estimated 22.7 bln stg of freehold assets which leaves the operating company (OpCo) trading at 10.2 bln stg which, when applying a 5% rental yield, values the business at 8 times price earnings to February 2008. It said Tescos OpCo generates a low EBIT margin of around 4 pct, but stronger profit growth of 14%.
target price increased to 500 pence from 400 pence by Credit Suisse as the broker said the groups US west-coast roll-out could mark the start of bigger expansion and sustain the groups profile, dealers said. In an upbeat note published this morning, Credit Suisse argued that although the US expansion is unlikely to transform Tescos near-term profit & loss account, it could provide numerous opportunities for growth if successful. The broker believes that sustaining the groups rapid growth profile of the last ten years for another ten now seems a realistic, rather than upbeat, scenario. Credit Suisse noted the stock boasts unique growth visibility among European food retailers.
SG Securities raised its stance on the supermarket giant to buy from hold and pegged its price target at 490 pence, saying that Tesco could benefit from a re-jigged property portfolio and sector valuation. In a note to clients, SG securities said the supermarket chain might make the most out of its property portfolio through advantageous interest rates, leveraging its British property portfolio and investing in cheap freeholds overseas. The advantages to the retailer are that it can keep a freehold level of more than 80% and retain a comfortable level of asset control, while cashing in on an excellent growth rate. The main threat, according to the brokerage, is that a bid for rival Sainsbury will fail to materialise and that valuation in the sector would thus overlook Tescos adjusted property balance. Bid or no bid, however, the property upside that Tesco can benefit from, will remain and make Tesco look very price-competitive in respect to its competitors, the brokerage added.
upgraded to add from hold by Dresdner Kleinwort with an increased target price of 460 pence, up from 425 on valuation grounds, according to dealers. In a note landing on fund managers desks today, the broker noted that Tesco shares have strongly lagged both their European and UK peers so far this year. Dresdner Kleinwort pointed out that the market is increasingly discounting a takeover of Sainsbury PLC, and as importantly, Carrefour SA moving towards a re-leveraging of its capital structure, with potentially, a reduced appetite for physical growth. The broker said in both cases the potential benefits to Tescos investment case are obvious.
- 04 May 2007 07:20
- 3 of 1721
Sunday Telegraph. 22 April
Tesco: Europe's biggest property company
Baked beans and mange tout make up a small part of what makes the supermarket tick, write James Hall and Jonathan Russell
Shoppers who think that Tesco is just a retailer, selling gallons of milk, tonnes of spuds and rails of cheap clothing to the world, should think again. Tesco may look like a supermarket group, but when Britain's biggest retailer said last week that it is sitting on property assets worth 28bn, it outed itself as Europe's biggest property company.
Profit from Tesco's property division alone last year was 139m, the same amount that some analysts expect Debenhams, the 139-store retail chain, to make this year. Under Sir Terry Leahy, its chief executive, Tesco is finding increasingly smart ways to extract value from its property goldmine. Last week it increased to 7bn from 5bn the amount of freehold assets that it will sell over the next five years to free up cash to invest in the business and return to shareholders. But selling assets is not the only way that Tesco is playing the property market. It has "pipeline" proposals to build 2,000 homes and has constructed more than 300 in the past few years. While much of this is affordable housing in mixed-use schemes, the activity shows how involved Tesco is in the property game.
Tesco is the latest retailer to capitalise on the booming demand for commercial real estate in the UK, which has enjoyed an extraordinary run. Retailers' property assets represent something of a Shangri-La: a haven of major strategic value to be explored and exploited.
There are a number of different ways that retailers are using these assets to make money. Schemes range from sale and leasebacks to securitisations to real estate investment trusts (Reits). So why is retail property so hot at the moment? How do these different arrangements work? And is the strategy being pursued by Tesco, the new property kingpin, the most sensible one? Commercial property is booming. Capital values of retail, office and industrial properties have soared by 20 per cent per year since 2004. But the most in-demand category by far has been retail sheds, which have increased in price by over 150 per cent in ten years. For optimists, the bull run is down to a "reweighting" of the asset class against bonds and equities, although pessimists take the view that too much money has been chasing too little stock, creating a bubble that will burst. Either way, commercial property is near the top of its current cycle and retailers are all looking at ways to capitalise on it.
Property investors love supermarkets. They believe that there is huge hidden value in the sector due to the low rents: most retailers pay little more than 15 per square foot. By wresting control of the property from the supermarkets, property investors believe they can increase rents and see a corresponding increase in capital value.
"The cynics' view is that there is a cartel operating in the supermarket sector keeping rents down. It is much the same thing that existed in the leisure sector some years ago where rents moved from a set fee to be based on affordability," says Paul Wolfenden, the global head of valuations at DTZ, the property consultants.
There are three main ways of extracting value from retail property. Historically the most common method has been via a sale and leaseback, under which a retailer flogs stores to a third party and rents them back. Debenhams and Boots are among chains to have used this method. As part of these deals the seller stays in the buildings, and gives the new owners guaranteed rents for years. However, critics argue that sale and leasebacks are like selling the family silver. They lead to upfront gains, but remove involvement in future upside in the property market. They also saddle the vendor with ongoing rental bills. Securitisation is regarded as more sensible. This is best described as a commercial mortgage, under which retailers still own the outlets. J Sainsbury did such a deal on 127 supermarkets last year.
The new kid on the block is the Reit, a tax-efficient investment vehicle that holds property and from which all profits are paid as dividends. Following this month's failed private equity bid for Sainsbury's, Robert Tchenguiz, the entrepreneur who owns a 5 per cent stake, is agitating for Sainsbury to split into two: a retail company and a Reit. This "Opco-Propco" structure would allow the property side of the business to be valued at a higher premium than it is currently. But Reits are riddled with problems. Regulations stipulate that the vehicle owning the property is listed, does not have any corporate shareholder owning more than 10 per cent of the company, and is not "owner-occupied". Under this structure supermarkets would lose control of their property and would also be likely to see rents increase. Among this bewildering array of options, Tesco is following a typically safe path. The 7bn of freehold assets that it could sell over the next five years will go mainly into joint ventures in which it will hold a 50 per cent stake. This means that it can retain an element of control over its assets (it will in effect be its own landlord), but also benefit from any increase in value. Tesco will retain total ownership of at least 70 per cent of its stores, so it cannot stand accused of selling the family silver. It currently owns 84 per cent of its freeholds.
Tesco's management is being deliberately cautious in riding the current high property valuations. "We have tried to illustrate to the market what the value of the portfolio is, but at the same time keep that strong spine for future years," says Andy Higginson, Tesco's finance and strategy director. Leahy says that he constantly reviews the balance between debt, equity and assets on Tesco's balance sheet, and changes it to suit market conditions.
"Andy and I think about that mix the whole time. As sources of financing go up and down we can mix them," Leahy says.Tesco's timing is interesting. Yes, market conditions are favourable. But it is these very conditions that have led to recent property-related private equity interest in Sainsbury's and Carrefour, France's largest supermarket. This suggests Tesco's action could be a pre-emptive strike against predators keen on real-estate-rich companies. Higginson parries this. "We are not particularly worried about predators. It is just important that the market understands our property's value," he says. Some critics say Tesco should sell more of its freeholds. With demand hot, retaining ownership of a relatively high 70 per cent of freeholds could be depriving shareholders of money. Sainsbury's, for example, owns only 55 per cent of its stores. "Seventy per cent is a judgment call. There is no deep economic theory or magical maths," says Higginson.
Analysts also point out that Tesco's high property valuation highlights just how undervalued the group is as a whole. Tesco's market capitalisation is 36bn. Strip away the 28bn of property, and the company is worth 8bn. This is equivalent to just nine weeks' sales. For a retailer that operates 3,250 stores in 12 countries and reported annual profit of 2.6bn last week, the valuation is ludicrously low. But the cautious approach is Tesco through and though. Many retailers have come to a sticky end after selling property and taking on too much debt. Margins in food retail peak at around 6 per cent: they are too thin to be relied on as the sole means of survival in tough times. Freeholds are a neat insurance policy. "Tesco's freeholds give the balance sheet strength and the company the capability to borrow. They provide financial security in tough times, and give Tesco control over its stores," says Clive Black, an analyst at Shore Capital. Leahy agrees: leasehold retailers go bust far more easily than freehold retailers. "Once it sells, a retailer has lost the value of its property. It is a massive decapitalisation. It might not matter in the short term, but it will be harder for them when the economic cycle turns. Retailers who have freeholds are more likely to last," he says.
With freeholds worth the combined value of Sainsbury's, Wm Morrison and Alliance Boots, Tesco should last a very long time.
- 04 May 2007 07:21
- 4 of 1721
The Times - May 4, 2007 - Bryce Elder
Tesco was up 2p at 463p. Late in the day, ABN Amro sent round a note suggesting the supermarket would not have to form a real estate investment trust to release value from its estimated 25 billion of freehold property. So long as the proceeds were reinvested, Tesco would still end up paying no tax, it reckoned. The broker set a share price target of 602p based on Tesco selling 7.6 billion of freehold property over the next four years.
- 05 Jun 2007 08:54
- 5 of 1721
The Scotsman - Tesco to take on conveyancers
TESCO, the UK's largest retailer, is reportedly planning to launch its own property conveyancing service that will challenge high street solicitors.
The supermarket group is thought to be planning to create a third-party provider of the service to add to its financial services arm, linked to Royal Bank of Scotland, which already offers insurance, credit cards and mortgage searches to customers.
The move follows the recent liberalisation of the 20 billion legal market, allowing such companies to offer legal services to the public. The move is likely to see a call-centre-type operation offering shoppers a low-cost, computerised service.
- 09 Jul 2007 09:40
- 6 of 1721
The present share price is very cheap and presents an excellent opportunity to make a good profit over the next week or so.
- 09 Jul 2007 10:25
- 7 of 1721
- 18 Jul 2007 19:03
- 8 of 1721
Something to support your buy.
Tesco Buy 06-Jul-07 218,877.39 Terry Leahy 52,739 @ 415.02p
Tesco Buy 06-Jul-07 124,090.98 David T Potts 29,900 @ 415.02p
Tesco Buy 06-Jul-07 116,919.43 Timothy J R Mason 28,172 @ 415.02p
Tesco Buy 06-Jul-07 96,844.91 Andrew Higginson 23,335 @ 415.02p
Tesco Buy 06-Jul-07 86,664.47 Philip A Clarke 20,882 @ 415.02p
I don't hold quite as many! 8-)
- 18 Jul 2007 19:55
- 9 of 1721
Off topic. Fred, due to a machinery malfunction I've lost your e-mail address. Knowing your TA enthusiasm, I have something I wondered if you might care to look at and comment on.
- 18 Jul 2007 20:48
- 10 of 1721
55011, nice to read from you. Hope all is well.
Contact me through MOneyam and I will forward my E-mail Address to you.
- 28 Sep 2007 09:08
- 11 of 1721
Tesco push the green issue further.
Our local Tesco is changing the carrier bag use from next Monday.
From that date customers will be given green type re-usable bags, made from Hessian type material. If you want a plastic carrier bag you will have to ask.
No doubt all Tesco stores will be evaluating this as presumably our Tesco is being used as a tester.
Where Tesco lead others follow.
- 25 Oct 2007 09:29
- 12 of 1721
If this does not tempt children/parents to buy/eat health food nothing will.
Tesco joins forces with Disney for kids food range
Tesco healthy eating
Tesco and Disney are to launch a line of co-branded food products featuring Disney and Disney-Pixar characters.
And looking at the products, any adverts on TV may get past the PC brigade, as healthy eating looks like being the promotional angle.
- 31 Oct 2007 15:13
- 13 of 1721
Still a worthwhile longterm hold :)
- 19 Dec 2008 16:51
- 14 of 1721
Not a popular share on this board but certainly moving in the right direction this week may be of interest to some. As Tesco takes over the World we might as well join the party unless somebody can advise why not.
- 21 Apr 2009 09:35
- 15 of 1721
No Credit Crunch in Tescoland
April 21st, 2009
As we all now seem to a greater or lesser extent to be living in Tescoland, perhaps one should take the view that if you cant beat em, join em! With large and small outlets on every corner, and now rapidly building into a global entity, Tesco (TSCO) has in many ways left its peers foundering in its wake
And today, deep into the credit crunch, the supermarket giant unveiled better-than-expected annual core pre-tax profits of GBP3.13bn, a record for a UK retailer. Although the group net debt of GBP9.6bn is higher than expected, the position has been exaggerated by forex and is offset by the nebulous list of freeholds valued at GBP30.4bn. Tesco is positive on overall outlook for the year, and has also upped the divi for happy Tescoland holders.
Shortly after the results came out this morning, a few brokers posted their views. I took this transcript from another site, so the rest is here
- 01 Jul 2009 10:37
- 16 of 1721
Tesco to bid for Northern Rock from our Government?
- 01 Jul 2009 11:07
- 17 of 1721
- 01 Jul 2009 11:12
- 18 of 1721
Tesco ambition and debt knows no bounds
- 01 Jul 2009 11:15
- 19 of 1721
ON CNBC NOW.
- 28 Sep 2009 16:24
- 20 of 1721
How many illegal immigrants does TSCO employ? Could they be fined 10000 for each one discovered?
- 29 Sep 2009 02:17
- 21 of 1721
why, do you work for them