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1. Company Snapshot

1.a. Company Description

Tesco PLC, together with its subsidiaries, engages in retailing and retail banking activities.It provides food products through approximately 4,752 stores in the United Kingdom, Republic of Ireland, the Czech Republic, Slovakia, and Hungary, as well as through online.The company is also involved in the food and drink wholesaling activities.


In addition, it offers banking and insurance services in the United Kingdom.Further, the company operates a network of one stop convenience stores; and provides data science, technology, software, and consultancy services.Tesco PLC was founded in 1919 and is headquartered in Welwyn Garden City, the United Kingdom.

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1.b. Last Insights on TSCO

Tesco's recent momentum is driven by its strong Q3 earnings, with like-for-like sales growth of 2.9% and a 3.7% increase in UK sales. The company's investment in "value, quality, and service" has resonated with customers, leading to a higher market share of 28.7%. Additionally, Tesco's expansion into convenience stores, including the acquisition of Amazon Fresh sites, is expected to further boost sales. The company's partnership with Tooru PLC, which has seen success with its OAF brand in Tesco stores, also presents opportunities for growth. According to JPMorgan, Tesco's fair value estimate remains steady at £4.74, with a slightly higher discount rate of 8.19% applied to its largely unchanged long-term revenue growth of 2.87%.

1.c. Company Highlights

2. Tesco's Earnings: Market Share Wins and Cash Flow Strength

Last year, Tesco delivered a robust earnings picture, underscoring its dominance in the UK and Irish grocery markets. The group posted 4.3% constant‑rate sales growth, 3.5% like‑for‑like lift, and a headline EPS of 29p—up 6% YoY. Adjusted operating profit hit £3.15 billion, while free cash flow surged 12% to £1.96 billion. Shareholders benefited from a 9.7p final dividend and a 750 m£ buyback, pushing the dividend to 14.5p and net debt/EBITDA to 2.1x. According to the earnings call transcript, the firm highlighted that its free cash flow of £1.96 billion was up 12% YoY, reinforcing its cash‑generating prowess.[1]

Publication Date: Apr -18

📋 Highlights
  • Market Share Growth: Tesco achieved a 28.5% share in the UK and 24.2% in Ireland, the highest in a decade.
  • Financial Performance: Group sales rose 4.3% (like-for-like +3.5%), with adjusted operating profit at £3.15 billion (up 0.6%).
  • Dividend & Shareholder Returns: Full-year dividend increased 5.8% to 14.5p, and £2.4 billion was returned via dividends and buybacks.
  • Pricing & Product Strategy: Launched 3,000 everyday low prices, 10,000 Clubcard prices, and 600 Aldi Price Match lines to boost value perception.
  • Sustainability & Cost Savings: Targeted £500 million in savings and a 68% reduction in Scope 1/2 emissions versus 2015 baseline.

Financial Performance

Revenue climbed 4.3% at constant exchange rates, driven by a 3.5% like‑for‑like rise and a 28.5% UK market share—its highest in a decade. Operating margin improved modestly, reflecting cost‑control initiatives and higher volume of value‑priced items. EPS of 29p beat consensus by 0.1p, supported by a 0.6% constant‑rate operating profit lift.

Price and Value Strategy

Tesco’s “Price, Quality, Service” mantra paid off. The retailer expanded its everyday low price (ELP) portfolio to 3,000 items, Clubcard‑price lines to 10,000, and Aldi‑Price‑Match to 600 products. These moves underpinned the 28.5% UK share and a 24.2% Irish share, while the Finest range is on track to surpass £3 billion in sales.

Clubcard & Data Edge

With 24 million households active on Clubcard, Tesco’s dunnhumby analytics engine fuels targeted offers and inventory decisions. AI‑driven tools, including a virtual assistant and personalized offers, aim to deepen customer engagement and lift conversion rates across food and non‑food verticals.

Sustainability & ESG

The Planet Plan targets 68% Scope 1‑2 emissions cut vs. 2015, while the company seeks £500 million of savings through waste reduction and supply‑chain efficiencies. ESG initiatives are woven into the value‑chain, supporting brand loyalty and long‑term resilience.

Future Outlook & Guidance

Guidance remains upbeat: adjusted operating profit of £3‑3.3 billion and free cash flow of £1.5‑2 billion for the year ahead. Tesco foresees a mid‑ to top‑end upside if trading mirrors current momentum, with a 100 m£ working‑capital inflow expected. ESG and AI investments are positioned to sustain margin expansion.

Valuation Snapshot

On the back of solid earnings, Tesco trades at a P/E of 17.24 and a P/B of 2.69—well within the industry median—while its dividend yield sits at 2.94%. The EV/EBITDA of 9.24 and free‑cash‑flow yield of 8.68% suggest a balanced valuation, with room for upside if market share gains continue.

3. NewsRoom

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Green investment fund to shut amid net zero backlash

Apr -09

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Evolving Narrative For Tesco (LSE:TSCO) As Analysts Weigh Upside Against Execution Risks

Apr -08

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Oven Pride firm McBride sees ‘first signs’ of supply shortages due to Iran war

Apr -02

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Asda boss Allan Leighton says ‘plenty to do’ in turnaround as sales fall

Mar -27

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Tesco and Sainsbury’s non-loyalty brand prices more expensive than Waitrose

Mar -27

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Directorate Change

Mar -26

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APN Resources H1 Earnings Call Highlights

Mar -23

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Former labourer to make £400m from Huel sale

Mar -23

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (2.80%)

6. Segments

Retailing and Associated Activities

Expected Growth: 3.0%

Being the core business, it has the potential for steady growth through diversified retail channels and associated activities, slightly outperforming the global average growth hypothesis.

Insurance and Money Services

Expected Growth: 2.5%

Operating in a competitive financial services market, the growth might be slightly constrained. However, being part of Tesco's ecosystem, it still maintains a reasonable growth rate, albeit slightly below the global hypothesis.

Banking Operations - Discontinued Operations

Expected Growth: 0.0%

As the operations are being discontinued, there will be no new growth, and the segment is expected to wind down, hence a 0% growth rate.

7. Detailed Products

Groceries

Tesco offers a wide range of fresh produce, meat, dairy products, bakery, and other food items for daily consumption.

General Merchandise

Tesco sells a variety of non-food items such as clothing, homeware, electronics, and health and beauty products.

Fuel

Tesco operates petrol stations across the UK, offering fuel for vehicles.

Tesco Bank

Tesco Bank provides a range of financial services including credit cards, loans, savings accounts, and insurance products.

Tesco Mobile

Tesco Mobile offers mobile phone contracts, handsets, and accessories.

Tesco Home Services

Tesco provides home services such as broadband, TV, and phone packages.

Tesco Opticians

Tesco Opticians offers eye care services, glasses, and contact lenses.

Tesco Pharmacy

Tesco Pharmacy provides health and wellbeing services, including prescription collection and health checks.

8. Tesco PLC's Porter Forces

Forces Ranking

Threat Of Substitutes

Tesco faces moderate threat from substitutes such as online grocery shopping, discount stores, and local markets. While these alternatives are available, they do not pose a significant threat to Tesco's market share.

Bargaining Power Of Customers

Tesco's customers have high bargaining power due to the availability of alternative retailers and the ease of switching. This forces Tesco to maintain competitive prices and invest in customer loyalty programs.

Bargaining Power Of Suppliers

Tesco's suppliers have low bargaining power due to the company's large scale and market dominance. This allows Tesco to negotiate favorable prices and terms with its suppliers.

Threat Of New Entrants

The threat of new entrants is low in the UK grocery market due to high barriers to entry, including significant capital requirements and established relationships with suppliers. New entrants would struggle to compete with Tesco's scale and market presence.

Intensity Of Rivalry

The UK grocery market is highly competitive, with several major players vying for market share. Tesco faces intense rivalry from competitors such as Sainsbury's, Asda, and Morrisons, which drives prices down and forces investment in marketing and promotions.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 40.07%
Debt Cost 6.52%
Equity Weight 59.93%
Equity Cost 6.52%
WACC 6.52%
Leverage 66.86%

11. Quality Control: Tesco PLC passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Imperial Brands

A-Score: 7.5/10

Value: 5.6

Growth: 5.0

Quality: 6.4

Yield: 9.4

Momentum: 9.0

Volatility: 9.7

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Ahold Delhaize

A-Score: 6.9/10

Value: 7.4

Growth: 5.8

Quality: 5.3

Yield: 6.2

Momentum: 6.5

Volatility: 10.0

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Tesco

A-Score: 6.6/10

Value: 5.4

Growth: 5.9

Quality: 3.3

Yield: 8.1

Momentum: 7.5

Volatility: 9.3

1-Year Total Return ->

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Essity

A-Score: 5.5/10

Value: 4.8

Growth: 5.6

Quality: 5.7

Yield: 5.6

Momentum: 1.0

Volatility: 10.0

1-Year Total Return ->

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Coca-Cola Europacific Partners

A-Score: 5.4/10

Value: 3.5

Growth: 6.0

Quality: 5.0

Yield: 6.2

Momentum: 6.5

Volatility: 5.0

1-Year Total Return ->

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Colruyt

A-Score: 5.0/10

Value: 6.7

Growth: 4.6

Quality: 4.2

Yield: 5.6

Momentum: 1.0

Volatility: 7.7

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

4.92$

Current Price

4.92$

Potential

-0.00%

Expected Cash-Flows