Contrary to it bullish claims Tesco Plc’s (LON:TSCO) core business is not back on track, not yet.
That’s the view of Credit Suisse analysts, who say that Tesco’s structural problems underlie the euphoria around the headlines of the supermarket’s first half results.
Analyst Stewart McGuire, whose 130p price target suggests nearly 40% downside the current price of 210p, highlights that all of Tesco’s operating profit came thanks to cost savings initiatives.
Moreover, he says that in Tesco’s largest stores, which account for about 50% of all its retail space, like-for-like sales are still materially negative once online sales are excluded from the first half numbers.
McGuire reckons cost saving will remain key to any upside for the share.
“Tesco revealed a three-year, £1.5bn cost savings program, which would represent a 2.7% increase in group margin at current trading levels,” he said in a note.
“The company has scheduled a capital markets day on November 16; until then, we remain sceptical of reaching such lofty targets.”
The analyst also noted that forecast earnings improvement would be substantially offset by the impacts of higher debt resulting from the supermarket’s pension liabilities.