Supermarket giant Tesco appears to have righted the ship after a prolonged period of over-expansion, unwise diversification and, some would say, hubris.
The return to what passes as normal service in the cut-throat supermarket world will be marked by the return of dividend payments when Tesco announces full-year results on Wednesday.
In a February update that included the widely-applauded appointment of Booker boss Charles Wilson as chief executive of Tesco’s retail and wholesale operations in the British Isles, the company indicated it would propose a final dividend of 2p for the year to the end of February.
It also suggested earnings before interest and tax (Ebit) would be at least £1.575bn. UBS is forecasting Ebit of £1.654bn, which it says is around 4% above the consensus forecast.
UBS has pencilled in Ebit of £1.02bn for the UK and the Republic of Ireland; £455mln for international retail and £175mln for the banking operations.
The UK margin “should be unencumbered by the offset of supply chain inflation” that held back progress during the first half of the financial year.
“Tesco has consistently been the fastest-growing Big-4 grocer and market share declines are reversing. We think cost reduction, mix and operating re-leverage should enable it to hit the 3.5-4.0% mid-term Ebit target,” UBS said.
With the acquisition of Booker now rubber-stamped, analysts will be looking for commentary regarding the integration of the cash-and-carry outfit, and the £200mln of revenue and cost synergies that were targeted at the time of the original announcement.
Berenberg has upgraded its rating for Tesco to ‘buy’ from ‘hold’ due to sector conditions improving, inflation headwinds easing and competitive pressures subsiding, and they expect the results to be a “positive catalyst”.
ASOS building scale to drive profitability
Elsewhere in the retail sector, online fashion giant ASOS’s strong sales growth is expected to have continued.
The Aim-listed firm’s UK retail sales jumped 23% in the four months to the end of December, while international posted an even punchier 32% growth.
Historically, the group has suffered from growing pains, as increasing sales have outstripped its ability to fulfil them, and as a result, investment in infrastructure has stepped up – expected to be at the upper end of the £200mln-£220mln range this year.
That investment could hold back profits this year, but in the longer term, building scale is key to driving profitability.
UK jobs market is a drag for PageGroup
The tough UK labour market has weighed on white-collar recruitment firm PageGroup.
PageGroup reported a 3.8% drop in UK net fee income in 2017 and acknowledged that the market would continue to face challenges in 2018.
However, growth in its overseas businesses helped the group deliver a 9.8% increase in total gross profit last year.
Analysts at Kepler Cheuvreux said the company remains its favourite stock in the sector and expect first quarter like-for-like net fee income growth of 13.8%. The broker sees a robust performance across international markets mitigating an expected 2.8% decline in the UK in the quarter.
“Due to its superior margin and cash return profile, we believe this stock should trade at a premium to peers,” Kepler said, reiterating a ‘buy’ rating on the stock.
Few surprises expected from McCarthy & Stone
Forward sales, including legal completions, in the first half of the current financial year, were up around 16% year-on-year at £487mln.
Half-year revenue is expected to clock in at around £240mln, which is a measly increase of just £2mln considering the average selling price was up 14% year-on-year to £296,000 from £260,000.
Significant announcements expected
Trading update: Pagegroup PLC (LON:PAGE)
Economic data: UK trade; UK construction output; US CPI; US FOMC minutes; US Treasury Budget