Tesco PLC (LSE:TSCO) is "an attractive prospect for investors again", analysts said in the wake of better-than-expected first-half results.
Full-year forecasts have been upgraded, while investors are to be rewarded with a £500mln share buyback.
On Tuesday, the group settled the outstanding shareholder claims from the 2014 accounting scandal, effectively clearing the decks for a fresh start.
“After ten years of accounting scandals, failed ventures abroad, and record losses, it feels strange to say that Tesco is actually starting to look like an attractive prospect for investors again,” said David Kimberly, market analyst for the share trading platform Freetrade.
“The sale of its stores in South-East Asia seems to have been something of a turning point for the supermarket chain.
“Able to pay out a handsome dividend to shareholders, Tesco followed that disposal up with solid results and showed it’s capable of fighting off competition from the German discounters.
“Today’s confirmation that the group will start a £500mln share buyback programme is likely to further whet the appetite of prospective investors in the company.”
For the first six months of its trading year, Tesco's revenues were £30.4bn, up 5.9%, resulting in a 28% increase in operating profits to £1.3bn. It lifted its target for adjusted full-year profits to between £2.5bn and £2.6bn.
With the £7bn private equity battle for Morrisons concluded in favour of Clayton Dubilier & Rice, whose bid team included former Tesco chief executive Terry Leahy, all eyes are on the UK food retail sector.
Sainsbury looks the likely next target for a money-bags predator as its property portfolio is more extensive than Tesco’s.
However, the UK’s largest retailer has its attractions too, with “exciting digital expansion plans, with its online infrastructure superior to its big four competitors”, according to Ross Hindle, an analyst at the research house Third Bridge.
READ: Why a bid for Tesco is 'not out of the question'
He also believes that Tesco may have benefited from Morrisons’ bid focus.
“Tesco has capitalised on the acquisition distraction at Morrisons, grabbing 20 basis points of market share,” he added.
“With cost inflation pressures mushrooming, Tesco finds itself increasingly squeezed towards a price reaction.
“So far Tesco has largely absorbed rising costs, but as these pressures mount the supermarket can be expected to raise prices to defend margins.
“For now, Tesco is holding on to its Aldi price-match strategy; however, our experts question how sustainable this will be given the UK’s inflationary headwinds and point to a resurgence from the discounters.”
The shares opened the session 4% higher.