Despite the latest sign that Tesco is on track to long-term forecasts, its shares are deeply discounted compared to the European sector. Even more vulnerable peers like Morrisons trade at a higher forward valuation. The impact of Brexit on Tesco, the biggest seller of goods to Britons, is the biggest concern for investors who would ordinarily be attracted by its solid financials.
Figure 1 - Tell-tale discount: Investors lower Tesco expectations
Retailer |
Price / EPS for 2019/20 |
Carrefour SA |
14.20 |
Casino Guichard Perrachon SA |
11.56 |
Ceconomy AG |
6.40 |
J Sainsbury PLC |
12.45 |
Koninklijke Ahold Delhaize NV |
13.91 |
Marks and Spencer Group PLC |
11.41 |
Metro AG |
12.74 |
Tesco PLC |
12.39 |
WM Morrison Supermarkets PLC |
15.10 |
And now, Brexit
Whilst the industry’s watchdog, the CMA, is likely to mandate fewer store disposals as a condition of approval, it is flagged concern about the impact on suppliers. This leaves Sainsbury’s and the whole sector hanging on an uncertain review, with results due within weeks. Big risks to consumer demand will follow after 29th March. A dire Christmas for retailers could be a test run for the months ahead.