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Morrison falls out of the FTSE & Corp tax hiked in 2023 in today's budget. On the other hand, what a time to get into Tesco. Don’t forget that Morries II’s - that have a Retail based investment presence would prefer Tsco to others at £2.19, especially the potential yield. This demand is compounded by the fact that existing TSCO II’s have had their holdings cut by 4/19 or 21% and are sitting on cash, waiting for this to bottom, encouraging the shorting no doubt.
What I don’t understand is the enterprise Market Cap post SD. Previous £23.6bn was calculated after the inclusion of £4bn pension deficit, pre-disposal, with 9.74bn shares in issue, or £2.41 SP. The distribution was a negative £5bn – cash out, but no account has been taken for the elimination of the £4bn deficit, especially with 60k staff leaving the business with the disposal, so the net reduction is my mind DYOR is (£1bn), or £22.6bn with 7.732m shares in issue = £2.92, after the results highlight the massive positive impact of this transformational transaction upon the balance sheet. So at 7732m share in issue at £2.19 value TSCo at £16.9bn – what a bargin! Especially in consideration that the removal of the requirement to fund pensions for some years - frees up cash for further share buy backs on top of the divi, accelerating investors returns. IMO DYOR. I’ve topped up and will again when it hits £2.10 – no worries. GLA
Agree the valuation is mystifying regards SP levels. My concern is that on this and other BB's, many seem happy when shares fall and so buy-in levels are attractive, but at some point, the likes of TSCO MUST see a sustained increase, we cant always have sustained falls for buy in, there no value in that as the price will settle lower than a genuine Market Cap valuation and shares will stay depressed. I sold JET2 near its 1500p top and put into TSCO for the SD as a quick buck, but didnt happen as the SP continues to languish circa 220-225p, 6p above my buy in. Personally I would like to see a SP rise rather than ongoing spiral, as i dont want to buy more and want to see a profit on whats already in the pot.....
BaysilHope,
I'm not sure I can follow or agree with your analysis. You say:-
"...What I don’t understand is the enterprise Market Cap post SD. Previous £23.6bn was calculated after the inclusion of £4bn pension deficit, pre-disposal, with 9.74bn shares in issue, or £2.41 SP. The distribution was a negative £5bn – cash out, but no account has been taken for the elimination of the £4bn deficit, especially with 60k staff leaving the business with the disposal, so the net reduction is my mind DYOR is (£1bn), or £22.6bn with 7.732m shares in issue = £2.92, after the results highlight the massive positive impact of this transformational transaction upon the balance sheet. So at 7732m share in issue at £2.19 value TSCo at £16.9bn – what a bargin! Especially in consideration that the removal of the requirement to fund pensions for some years - frees up cash for further share buy backs on top of the divi, accelerating investors returns...".
You seem to have credited the balance sheet with £4bn elimination of the pension deficit (turning your £5bn outgoings to net £1bn reduction), but don't seem to have included the fact that £2.5bn was paid out to achieve that (or contribute, along with other measures, to achieving it). So surely by your figures, the overall net reduction should be £3.5bn, not £1bn, taking calculated market cap down to £20.1bn, not £22.6bn. A considerable difference!
Mike.
Hi Mike,
Thanks for your reply, in answer to your point, as an old bean counter I - IMO I would look at the double entry relating to the £2.5bn bank payment, firstly reduces cash on the Balance Sheet, secondly it reduces the pension deficit liability on the Balance Sheet , the cash does not leave the Tesco entity unlike the SD, where the cash physically leaves the Tesco entity as a distribution. The £2.5bn cash now sits in the pension fund yes, not available for Tesco to use, but does positively eliminate the Pension deficit liability in the Balance Sheet - improving Net Assets (Note 18 or 20 I believe). IMO this fact is no appreciated in the Mkt cap calcs , its a redirection of profit earned on disposal within the business entity and should get full tax allowance (if I'm correct) set off any profit on disposal for Asia sale. . Hope that helps. GL. On another point of distributions, what I like is the increase in the final divi to 7.8p on 7.732m shares costs less than the 6.5p? on 9.78bn old cap. Smart move.
Hi Mike,
Thanks for your reply, in answer to your point, as an old bean counter I - IMO I would look at the double entry relating to the £2.5bn bank payment, firstly reduces cash on the Balance Sheet, secondly it reduces the pension deficit liability on the Balance Sheet , the cash does not leave the Tesco entity unlike the SD, where the cash physically leaves the Tesco entity as a distribution. The £2.5bn cash now sits in the pension fund yes, not available for Tesco to use, but does positively eliminate the Pension deficit liability in the Balance Sheet - improving Net Assets (Note 18 or 20 I believe). IMO this fact is no appreciated in the Mkt cap calcs , its a redirection of profit earned on disposal within the business entity and should get full tax allowance (if I'm correct) set off any profit on disposal for Asia sale. . Hope that helps. GL. On another point of distributions, what I like is the increase in the final divi to 7.8p on 7.732m shares costs less than the 6.5p? on 9.78bn old cap. Smart move.
Hi BaysilHope,
Thanks for taking the time to reply. Although I'm *not* a trained accountant, I can certainly see the sense in what you say. The potential tax allowance, also, is something to bear in mind. And of course the fact that whatever total dividend "pot" can be afforded now gets divided between very significantly less shares, not just as a once-off but going all the way into the future (unless they change their capital structure). There are a number of factors that (somewhat surprisingly) the market doesn't seem to be pricing-in at the moment, which, as a long-term holder, are good news. I look forward to seeing the full-year result results in April, when hopefully for the first time we'll be able to see a "clean" balance-sheet reflecting all the recent changes. Of course the slight cloud to this silver lining will now be the increase in corporation tax announced yesterday (but probably to an extent anticipated).
All the best,
Mike.