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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Tesco shares still bearish, but could takeover talks spark an upswing?

The Tesco share price can’t regain momentum after falling sharply in June. The company’s quarterly report showed a downturn in sales and shares have remained bearish, but could a takeover of Morrisons spark an industry upswing?

  • Tesco shares are down almost 1% since 1 June.
  • Six-month bearish trend pushes Tesco share price down by 24%.
  • Can industry changes help or will a slowdown in sales and supplies hamper Tesco?
  • Ready to trade the Tesco share price? Open an account today

Tesco shares opened at 223p on 30 June, down almost 1% from the 224.95p valuation they held at the start of the month. The latest bearish trend is a marked change from January 2021 when shares were down but beginning to recover from 2020’s downswing due to Covid-19, resulting in a 24% decrease in share price. Additionally, from a high of 312.11p on 5 February, the Tesco share price was trading as low as 221.75p when the company released its quarterly report on 18 June.

Is Tesco bouncing back from pandemic lows?

The report, although better than analysts’ expectations, was worse than the previous quarter. Total group sales hit £13.3 billion for the 13 weeks to 29 May 2021. That’s a 1% year-on-year increase. Within the results, retail sales in the UK increased 0.5% year-on-year to £10 billion. Analysts had predicted a 1% loss for the quarter. However, the result was down on the 8.8% Tesco achieved in the previous reporting period.

The Tesco share price reflects this change in fortunes. Tesco shares dipped to 221.75p on 18 June, the same day the quarterly results were published. They’ve recovered slightly in recent days but remain bearish over a six-month period. A potential food shortage over the summer could keep the Tesco share price low for the time being. The onset of Brexit has increased the red tape surrounding border crossings. There are also concerns over deliveries.

Why could deliveries hurt Tesco shares?

Chief Executive of Road Haulage Association Richard Burnett has said there are ongoing issues with restocking supplies and perishables due to shipping delays. Contributing to the problem is a lack of Eastern European drivers. Estimates suggest haulage companies currently need to fill 100,000 vacancies. This is expected to disrupt supply chains across all UK supermarkets, including Tesco.

Lower revenue and supply issues aside, Tesco shares were given a brief lift last week off the back of a takeover bid for Morrisons. US private equity firm CD&R is rumoured to be interested in the retailer. It’s since emerged that other rival firms may be in the frame. A bidding war for Morrisons could have positive repercussions for the industry as a whole.

While there is no indication that Tesco is the subject of a takeover bid, interest from overseas investment firms could boost investor confidence. Indeed, if one or more parties lose out on Morrisons, Tesco could be a viable alternative, Andrew Porteous, a wall street analyst at HSBC, has noted that ‘Tesco offers the most compelling opportunity from here’. This raises questions of whether this may have a positive impact on the Tesco share price and bring it back to its former pre-scandal success. However, the current trend remains bearish amid a slowdown in recent sales.

Could industry changes help Tesco shares change course?

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1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.

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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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