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Tesco hoping to put Booker doubts to bed

Tesco is expected to underline recent progress and that legacy issues are being dealt with

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The City is looking for underlying profits of at least £1.2bn

It’s been a busy second half for Tesco PLC (LON:TSCO), which has endured pricing pressures, a big fine and an uncertain economic outlook – all while it tries to complete an acquisition.

The consensus in the City is for the supermarket giant to post an annual pre-tax profit of around £784mln on revenues of £55.7bn next week

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Even with the various issues, analysts at Macquarie think investors will be in for a pleasant surprise as it looks for underlying profits to come in ahead of City expectations of £1.2bn

“We are firm buyers of Tesco into the full-year update. We expect a beat and look for a confident outlook.”

That clashes with the latest Kantar Worldpanel UK grocery market data, which wouldn’t appear to back up that positivity.

Sales dropping off

It suggested that Tesco’s sales and market shares dropped off in the last 12 months, as German discounters Aldi and Lidl marched on.

Increasing inflation has pressurised margins for nearly all UK retailers post-Brexit, not just Tesco, so that will be in focus on Tuesday, especially given the recent stand-offs the company has had with the likes of Unilever PLC (LON:ULVR) and Heineken.

According to some in the City, inflation could well drag on the top line, although Macquarie reckons cost increases have been passed on to consumers so it shouldn’t act as too much of a headwind on margins.

At the end of March, the UK grocery leader was hit with a £129mln fine as part of the accounting scandal in 2014 when Tesco was shown to have overstated profits.

Three of the four challenges relating to the saga have now been settled, with only possible lawsuits from European-based investors now hanging over it.

Shareholders will be hoping that the issue is put to bed once and for all in the not too distant future.

Booker deal uncertainty

The retailer is also going through the process of acquiring food wholesaler Booker Group PLC (LON:BOK) for £3.7bn, which is waiting on approval from both shareholders and the Competition and Markets Authority (CMA).

There had been murmurs of discontent among some investors – notably Schroders and Artisan Partners – who have raised concerns over the price being paid.

A recent survey carried out by Bernstein seems to have put an end to those worries though, estimating that 70% of Tesco shareholders will back the deal in an upcoming vote.

Investors will be looking out for any news on further progress with the deal and/ or further benefits it now expects to realise as a result.

Recruiters and Brexit

Eslewhere on Wednesday, UK recruiter Pagegroup plc (LON:PAGE), formerly known as Michael Page International, will deliver its first quarter trading update.

Pagegroup is a bellwether for UK white collar recruitment, so what it says about the general environment now that Article 50 will be almost as closely watched as the numbers themselves.

Last month the company reported its full year results, which showed revenue and profit rose on the back of growth in its businesses in Continental Europe and Latin America.

The UK, on the other hand, suffered at the hands of Brexit as recruiters became more cautious about hiring amid all the uncertainty. It also experienced difficult trading conditions in Greater China, Brazil and the US.

Wednesday 12 April

Finals: Tesco PLC(LON:TSCO)

Interims: Carrs Group Plc (LON:CARR); WH Smith PLC (LON:SMWH)

AGM/EGM: TMT Investments (LON:TMT), Rio Tinto PLC (LON :RIO), Hunting (LON:HTG)

Trading statement: Dunelm Group PLC (LON:DNLM), PageGroup Plc (LON:PAGE), WS Atkins PLC (LON:ATK)

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