(Alliance News) - Tesco, the UK's largest supermarket chain, on Wednesday boosted its full-year profit guidance, kept its interim dividend steady, and revealed plans for a share buyback.
Revenue in the half-year that ended August 28 rose to GBP30.42 billion from GBP28.72 billion year-on-year. Tesco highlighted retail like-for-like sales growth of 2.3% from a year before, and growth of 8.4% when compared with two years ago, a pre-pandemic period.
Adjusted retail operating profit rose to GBP1.39 billion from GBP1.19 billion a year before. Pretax profit soared to GBP1.14 billion from GBP551.0 million.
"We've had a strong six months; sales and profit have grown ahead of expectations, and we've outperformed the market," said Chief Executive Ken Murphy.
The interim performance led the grocer to upgrade its outlook. Tesco now expects full-year adjusted retail operating profit between GBP2.5 billion and GBP2.6 billion. This would be higher than the GBP1.99 billion achieved last year, as well as above the GBP2.33 billion posted for the pandemic-free 2020 financial year.
As well as upping guidance, the supermarket chain unveiled an ongoing share buyback programme, worth GBP500 million in its first tranche which will be carried out until October next year.
The interim dividend was held steady at 3.20p.
"I'm really pleased with our progress as we increased customer satisfaction and grew market share leading to a strong financial performance. With various different challenges currently affecting the industry, the resilience of our supply chain and the depth of our supplier partnerships has once again been shown to be a key asset," said CEO Murphy.
Ross Hindle, an analyst at Third Bridge, noted that Tesco sales excluding fuel and VAT were up 2.6% on a year before, saying this beat market consensus.
"Now the Morrisons auction is complete, the supermarket industry is rife with rumours that Tesco or Sainsbury's is next in line for a takeover bid," Hindle said. "Industry insiders say Tesco is less attractive than Sainsbury's because it lacks an extensive property portfolio, however it does offer exciting digital expansion plans, with its online infrastructure superior to its big 4 competitors."
Hindle 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."
Tesco shares up 3.5% early Wednesday. Rival J Sainsbury was up 0.8%.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: up 0.2% at 7,023.51
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Hang Seng: down 0.4% at 24,009.57
Nikkei 225: closed down 1.1% at 27,528.87
DJIA: closed up 311.75 points, or 0.9%, at 34,314.67
S&P 500: closed up 45.26 points, or 1.1%, at 4,345.72
Nasdaq Composite: closed up 178.35 points, or 1.3%, at 14,433.83
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EUR: down at USD1.1581 (USD1.1600)
GBP: down at USD1.3610 (USD1.3630)
USD: up at JPY111.67 (JPY111.50)
Gold: firm at USD1,753.86 per ounce (USD1,753.55)
Oil (Brent): up at USD83.03 a barrel (USD82.87)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Wednesday's Key Economic Events still to come
China Golden Week continues. Financial markets closed in Shanghai; open in Hong Kong.
UK PM Boris Johnson addresses Conservative Party conference in Manchester
0930 BST UK construction purchasing managers's index
1100 BST Ireland monthly unemployment
1100 CEST EU retail trade
0700 EDT US MBA weekly mortgage applications survey
0815 EDT US ADP national employment report
1030 EDT US EIA weekly petroleum status report
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UK Prime Minister Boris Johnson will declare he has the "guts" to reshape the British economy and solve major domestic problems on the same day as his administration was criticised for cutting the incomes of millions receiving benefits. In his keynote Conservative Party conference speech, Johnson will attempt to define his "levelling-up" agenda, arguing that by boosting "left behind" parts of the country it will ease pressure on the "overheating" south-east of England. It comes as reports suggest the party leader is only weeks away from signing-off on a minimum wage rise as he looks to lead from the front in establishing higher pay in society. The Times said the lowest earners on the so-called national living wage – the minimum wage paid to those over the age of 23 – could receive about GBP9.42 an hour, an increase of more than 5%.
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Chinese diplomats have informed G20 officials that President Xi Jinping does not currently plan to attend a G20 summit in Italy this month in person, financial wire Bloomberg reported. Chinese envoys said at a preparatory meeting in Florence last month that Xi might not be able to attend and referred to China's Covid-19 protocols, which can include quarantine for returning travellers, as a reason Xi did not intend to go to Rome. Bloomberg cited several unnamed sources it said were familiar with the matter, who according to the report said there had been no communication on Xi's attendance since, and Italy, which is hosting the G-20 summit had yet to receive an official response. Xi's potential trip to Italy has been in question for a long time. The Chinese leader has not left his country since mid-January 2020. He has also not received any state guests for a year and a half. If Xi does not go to Rome, it means a planned first in-person meeting with US President Joe Biden will not take place.
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BROKER RATING CHANGES
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EXANE BNP RAISES RIO TINTO TO 'OUTPERFORM' (NEUTRAL) - PRICE TARGET 5,630 (6,500) PENCE
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BERNSTEIN RAISES ROLLS-ROYCE TO 'MARKET-PERFORM' (UNDERPERFORM)
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UBS RAISES HSBC TO 'BUY' (NEUTRAL)
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COMPANIES - FTSE 100
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Tobacco firm Imperial Brands said it is trading in line with expectations. For the financial year that ended September 30, Imperial Brands said net revenue is expected to have grow around 1% on an organic, constant currency basis, driven by continued strong pricing in tobacco. Adjusted organic operating profit growth is expected to be in line with guidance of low to mid-single digit constant currency growth, reflecting "significantly reduced" losses in Next Generation Products - such as heated tobacco and vape offerings - and increased Distribution profit. "The tobacco business has performed well although adjusted operating profit will be slightly lower than last year, as previously guided, as a result of the planned increased investment to support our strategic plan as well as lower stock revenue/profit in Australia (around GBP90 million) and US state litigation settlement costs (around GBP50 million)," Imperial explained.
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COMPANIES - FTSE 250
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Tui said it has seen a bounce in holiday bookings, as Germany and Netherlands lead the way, with the UK playing catch-up but getting a boost more recently as travel curbs have been relaxed. In addition, the tour operator announced plans to go cap in hand to investors once again, this time raising EUR1.1 billion through a fully underwritten capital increase with subscription rights. Tui will offer investors 523.5 million new shares. They will be handed out at a ratio of 10 new shares for every 21 existing shares already held. The new stock will be priced at EUR2.15 each, which Tui explained is a 35% discount to the theoretical ex-rights price. Tui shares closed 1.9% lower at 326.80 pence, about EUR3.84, each in London on Tuesday. The stock is up 14% so far this year, however. Shares were down 0.8% early Wednesday at 324.30p. The money raised will go towards paying back all drawings under its loan facility with German state-owned development bank KfW. Turning to recent trading, Tui said overall bookings for its summer 2021 programme, which runs from July to October, totalled 5.2 million, a 1.1 million increase since an update in August. Tui ended its financial year on September 30.
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Recruitment firm PageGroup lifted its outlook again following growth in the third quarter. For the three months to the end of September, gross profit jumped 65% year-on-year to GBP228.1 million. Compared to 2019, profit was 13% ahead. Gross profit per fee earner was up 21% on 2019. "Given the magnitude of the impact of Covid-19 on 2020, we are continuing to compare our results to 2019, our record gross profit year," said Chief Executive Steve Ingham. Despite uncertainty ahead, driven by Covid-19 and supply chain disruption, the FTSE 250-listed firm said its performance in the third quarter has boosted confidence for the full-year. It now expects annual operating profit in the region of GBP155 million, having previously been seen in a range of GBP125 million to GBP135 million.
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COMPANIES - MAIN MARKET AND AIM
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Car dealer Lookers said it now expects full-year underlying pretax profit to be "materially ahead" of its previous forecasts given a strong third quarter showing. "Trading in Q3 remained strong and above the board's expectations driven by new vehicle market outperformance, excellent new and used vehicle margins and continued tight cost and working capital control," the motor retail and aftersales service company said. The chip shortage continues to put pressure on the supply and availability of new vehicles, Lookers said, leading to robust used vehicle demand as a result. While like-for-like used vehicle sales were down 17% in the quarter against strong year-ago comparatives, this was more than offset by "unprecedented margin retention".
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COMPANIES - GLOBAL
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Hitachi said its majority-owned power grids business has landed a deal to help build an electricity grid link between Saudi Arabia and Egypt. Hitachi ABB Power Grids - in which Hitachi holds just over an 80% stake and Zurich-based industrial conglomerate ABB the remainder - is part of a consortium that has been awarded the contract. The pact with Saudi Electricity and Egyptian Electricity Transmission is worth "several hundreds of millions of US dollars", Tokyo-based Hitachi said. Plans will see the consortium build the first ever large-scale high-voltage direct current interconnection between the Middle East and North Africa. Egypt and Saudi Arabia will be able to exchange up to 3,000 megawatts of electricity, with an aim to generate a large portion of that through renewable sources in the future.
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Wednesday's Shareholder Meetings
Goodwin PLC - AGM
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By Tom Waite; thomaslwaite@alliancenews.com
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