Tesco share price: what to expect from annual results

Tesco has seen a solid recovery in sales growth in recent months, while the share price has rebounded from its 2018 lows.

When is Tesco’s earnings date?

Tesco announces earnings for its 2019 financial year (FY) on 10 April 2019.

Tesco’s results preview: what does the City expect?

Tesco is expected to report earnings per share (EPS) of 14.1p, up 18.6% over the year, while net income is expected to be 56.2% higher at £1.34 billion. Revenue is forecast to rise 11.6% to £64.18 billion.

Tesco’s push to see margins recover has been relatively successful, with the earnings margin goal of 3.5%-4% by 2020 now in sight. This year is expected to see the figure rise to 3.2%, so barring a sudden surprise the direction is clear. The cost-cutting drive of the last few years has done its work, aiding the volume revival that has seen Tesco recover some of its poise as one of the key UK supermarkets.

Sales in the run-up to Christmas rose to 2.2% on a like-for-like basis, with a 3.8% rise in clothing sales driving this increase. Crucially, many of the synergies expected from the Booker merger are now being delivered. This merger has gone well, and should see further growth for the newly-acquired Booker division.

Tesco remains the UK’s largest supermarket, but Asda is now its chief competitor, after the budget supermarket leapfrogged Sainsbury's in the latest set of Kantar data. The trend of more affluent households visiting Asda is one that Tesco will need to keep an eye on, since it needs to retain its competitive price offering in order to avoid losing ground to Asda, let alone the German discounters. Aldi and Lidl once again saw healthy growth in the year to 24 March, with 13 million households visiting Aldi at least once a week, more than those visiting Morrisons. Again, this is a trend that needs monitoring by the likes of Tesco. There seems to be no stopping the German discounters, which will mean continual evolution for Tesco and indeed the rest of the big four as well.

Tesco’s EPS have grown by around 20% per year over the last few years, so this rate of growth is expected to slow. Nonetheless, with FY 2018 seeing the highest sales at its Christmas period since 2009, there is a sense that the firm has turned a corner, and has put the tough years behind it.

At 13.6 times forward earnings, the shares trade comfortably below their five-year average of 17.3, and while the forward price-to-earnings (P/E) is not the low 11 seen at the end of last year, the current valuation is not particularly demanding. A forecast price-to-book value is also a reasonable level, and again below the five-year average of 1.9.

How to trade Tesco’s annual results

The average move on results day for Tesco is 4.5%, according to Bloomberg data. Current options pricing for Tesco suggests a 4.8% move is likely.

Volatility in Tesco shares reached a peak from October 2018 to January 2019, when the 14-day average true range stayed solidly in the 5.5p–6p range, or around 2.8% of the share price. Since then however volatility has declined, with the average true range (ATR) falling to around 4p by the beginning of April, which suggests an average daily move of 1.7%.

Tesco’s share price: technical analysis

The sharp decline in Tesco shares in 2018 saw the price fall by almost 30% from its August peak. However, in common with the broader market the share price recovered from the end of December, and rallied from a low around 190p. It has pushed higher since then and recent hit a new high for the year at 238p.

One point of concern for the moment is the emergence of a possible bearish wedge, with rising trendline support from the December low countered by the slower pace of new highs, creating resistance around 240p. A beak below 228p would mark a bearish development, and would open the way to the 215p-220p support zone that held in January and February.

A recovery above 240p clears the way to 249p, and from there on to 260p. Given that Tesco once traded 400p per share, the firm has a long way to go. The crisis of 2013 to 2014 has now passed but its effects are still felt.

Conclusion: Tesco's brighter future

A lot of hard work has gone into making Tesco into the leaner firm it is today. Years of overreach and international expansion combined with complacency in its key home market, resulting in a crisis that resulted in the share price declining by more than 50%. Since then, hard decisions have been taken and years of strong earnings growth has been the result. There is still a lot of work to done, and the big four supermarkets are still working out how to arrest the rise of Aldi and Lidl, but with a good recovery in the share price and solid fundamentals, Tesco may be an interesting one to watch in the years to come.

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