Tesco PLC (LSE:TSCO) remains on Shore Capital’s Buy list with analysts describing the UK supermarket operator as a “consummate cash compounder” heading into its interim results next month.
Despite pressures from rising UK food inflation, competition from Asda and ongoing government cost headwinds, the broker believes Tesco’s defensive investment strategy has supported relative price positioning and underpinned market share gains.
Shore Cap analyst Clive Black noted Tesco earlier this year took a cautious stance, but he reckons there's potential for more positivity.
"H1 looks a little butter side up for Tesco UK, to us, meaning the lower end of its £2.7-3bn group EBIT guide may be edged up, albeit we keep our lower consensus end FY forecasts intact, awaiting clarity on the festive trading period," Black said.
"We see scope in time to be raising our very cautious H2 expectations, liking the cash-compounding Tesco investment thesis."
Shore Capital expects like-for-like sales growth of around 5% for the UK in the first half, with group EBIT forecast at £1.6 billion, down 3.3% year-on-year.
The investment case rests on the group’s robust free cash flow, significant buybacks and a strong asset-backed balance sheet.