Tesco share price: 3 things to watch out for in its half-year results

The supermarket chain has seen its shares rally more than 25% since January, but will its latest set of results give investors reason to drive further gains?

Tesco will unveil its half-year results on Wednesday, with the supermarket chain expected to deliver a respectable set figures against the backdrop of ongoing political and economic uncertainty due to Brexit.

IG looks at the key things to look out for ahead of its results.

Tesco's revenues expected to remain flat

Tesco is expected to report earnings of 7.5p a share, representing a 17.2% year-on-year, while revenues are forecast to remain flat compared with the same period last year at £31.7 billion.

The supermarket is also forecast to generate pre-tax profit of £944 million over its first six months of trading.

Will Tesco’s stock see fresh gains?

Since January, Tesco has seen its share price rally by more than 25%, up from 191p at the start of the year to trade at 242p a share as of 16:15 GMT on Monday.

Investors and analysts are relatively optimistic about the stock, with Tesco boasting a price-to-earnings ratio of 18x. This month, Deutsche Bank reiterated its buy rating for the stock and raised its target price from 285p to 295p a share.

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Brexit uncertainty remains a challenge for UK supermarkets

Brexit continues to weigh down the British supermarket’s share price, with there still no clarity how, when or even if the UK will leave the EU on October 31.

However, a no-deal exit seems increasingly unlikely now that parliament has passed the Benn amendment forcing the government to request an extension from Brussels if a withdrawal agreement is not reached.

If another extension is granted it will kick the proverbial can down the road until January, leaving Tesco push back Brexit preparations once again.

‘It is this fear that is holding back Tesco shares, which have otherwise done quite well so far this year, gaining 20% versus around 9% for the FTSE 100,’ Senior analyst at IG Chris Beauchamp said.

‘Certainly, with Tesco trading at 13.5 times forward earnings, well below its five-year average of 17.6 and one of the cheapest valuations in over five years, there is plenty of room for increased growth and a re-rating in the shares,’ he added.

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