Tesco ‘set to outperform’ as short-term concerns fade

Analyst Chris Hogbin said the underperformance was driven by several key concerns but argues that over the long term they are less important than they appear now.

Such issues include the effect of space growth on industry returns. Hogbin thought worries were overstated because Tesco’s expansion target is only marginally ahead of last year, and the UK remains “significantly understored”.

Internationally, returns will improve as Tesco builds scale. Hogbin said while the timing of Tesco’s US debut was “undoubtedly poor” and the business is still “sub-scale”, the Fresh & Easy store-model “still fills an unmet need”.

He said that the “orderly handover” from incumbent chief executive Sir Terry Leahy to Phil Clarke “suggests a well thought out and managed succession plan”. Accompanying organisational changes would, he said, “allow the new chief executive to more easily balance time and focus across the businesses and for Tesco to increasingly leverage its global scale”.