Half-year results from Tesco PLC (LSE:TSCO) on Wednesday should provide a more balanced idea of the state of play in the supermarket sector after the past week saw fellow ‘big six’ supermarket rival Morrisons blame a profits slump on subdued consumers and unprecedented inflationary pressures.
This ramped up uncertainty around the sector and the wider economy, which has far from abated after the government’s misfiring 'mini budget'.
However, analysts are fairly confident in Tesco’s ability to ride out the UK consumer storm.
Shore Cap analyst Clive Black has forecast a first-half profit of £948mln, with just shy of £2bn for the full year, which would represent a decline on a year ago (read more).
In its first-quarter update, Tesco kept its profit and cash guidance unchanged, expecting underlying operating profit in the realm of £2.5bn to £2.8bn assuming a return to normal consumer behaviour.
The share price has tumbled so far this year, like most of its FTSE peers, down 30% to 203p so a reassuring update could prove a point of difference.
Shareholder returns will also be on the radar of many investors, with a £1.05bn buyback pledged to be completed by April, with £300mln completed at last count, while the last dividend hike at the full-year results was a whopping 19%.
Are car dealers still on the up?
Elsewhere, Vertu recent told the market that its first-half results will be good but it kept full year forecasts unchanged, suggesting the car dealer expects a much tougher second half.
New car profit is rising it said, but the bumper demand for used cars is starting to tail off, especially with household incomes under pressure.
The group has a backlog of 13,000 orders for new cars but volumes have dipped due to supply chain disruption and semiconductor shortages.
Car dealerships are seeing a bit of bid activity – see Pendragon in the past month –so Vertu with its 160 outlets might feature at some point given the sector’s traditionally low valuations.
Broker Liberum said recently it expects that supply/demand dynamics are likely to remain favourable even as macro pressures build and kept a 100p target price against 41p in the market.
Service sector PMIs
Final reads of service sector PMIs for the US, US and across Europe are likely to reveal subdued activity throughout.
In the UK, the flash number for September fell to 49.2 from 50.9 in August, a number that indicates contraction. The composite measure, which includes manufacturing as well, is forecast at 48.4.
Significant announcements on Wednesday
Finals: Netcall PLC (AIM:NET)
Interims: Tesco PLC, Vertu Motors (AIM:VTU) PLC
AGMs: Omega Diagnostics Group PLC (AIM:ODX), Topps Tiles PLC (LSE:TPT)
Economic announcements: PMI Services (UK), PMI Composite (UK), MBA Mortgage Applications (US), Balance of Trade (US), PMI Composite (US), PMI Services (US), ISM Prices Paid (US), ISM Services (US), Crude Oil Inventories (US)