Tesco’s Christmas trading: What the analysts say

“Amidst this morning’s Tesco statement are a lot of nettles being grasped, notably concerning capex, the dividend, disposals of non-core operations, the long overdue head office rationalisation, store closures, the pension scheme and an evaluation of further options to maximise shareholder value, which possibly hints at some international moves.

“By putting hours back on stores, Tesco rescued Christmas”

Bryan Roberts, Kantar Retail

“There are lots of bright spots too. By putting hours back on stores, Tesco rescued Christmas, putting in a very creditable performance with an encouraging direction of travel.

”Matt Davies is a left-field but excellent choice as new boss of the UK and we are also heartened by volume gains in fresh food over Christmas, the decent showing from c-stores and online and today’s raft of price cuts. A long way to go, but Dave Lewis is pulling the business in the right direction”. - Bryan Roberts, Kantar Retail

“Tesco has announced a raft of news (including improved UK sales at Christmas, the closure of 43 convenience stores and the dreadful HQ at Cheshunt, the passing of the final dividend, the intended sale of Dunnhumby and a new lower price campaign on branded products in the UK) and it’s hard in the time available to do it all justice.

“The shares have jumped first thing, with Tesco playing down rights issue fears and announcing the eye-catching recruitment of Halfords CEO Matt Davies as Tesco UK boss.

“The focus of the analysts meeting at 11.30am will be on the actions it is taking on its heavily-indebted balance sheet, but we can’t see anything about the expected big UK property write-downs and, handicapped by its massive over-exposure to the hypermarket business, and with the credit rating agencies breathing down its neck, we wonder whether the eventual verdict of the City on today’s Tesco news will be ‘too little, too late’.” - Nick Bubb, retail analyst

“The reaction to the statement will depend on observers’ expectations, which we think will be varied across the market. We expect a positive response to the sales figures themselves, but there may be a more mixed reaction to the crucial balance sheet plans.

“The announcement was more detailed and bolder than we had expected”

James Anstead, Barclays

“The announcement was more detailed and bolder than we had expected in some respects – especially capex and pension/HQ closure plans – but does not totally exclude the rights issue possibility. We would expect different reactions, but overall positive.” - James Anstead, Barclays

“This is a positive statement in many respects. It shows sales momentum is turning, that Dave Lewis will make bold decisions on all areas of the business, that the balance sheet is being strengthened, that management has been strengthened and that there are no sacred cows with the closure of the Cheshunt head office.

“It is hard to imagine much better news today”

David McCarthy, HSBC

“It is hard to imagine much better news today. It is true the final dividend is being cut (but that will help cash flow and balance sheet) and there is no news on major disposals but we know disposals are being worked on, and the prospect of a rights issue is receding, in our view.” - David McCarthy, HSBC

“There will perhaps be some relief from the trading numbers today given the marked improvement into the Christmas period, but investors looking for announcements of asset sales (especially of international businesses) would be disappointed.

“That said, the company was clear that these are the first steps of strengthening the balance sheet and further initiatives can be announced.

“The cut to capex was a surprise, the £1bn planned for next year is well below depreciation and there will perhaps be a concern if that is too aggressive. Dividend also eliminated, this is also more or less in-line with expectations. Overall we would expect the shares to react positively.” - Pradeep Pratti, Citi