Tesco – What Supply Crisis?

Tesco – What Supply Crisis?
3844328 / Pixabay

Trading in the last six months has been better than expected, with group sales excluding fuel rising 3% to £27. 3bn, ignoring the effect of exchange rates. Tesco PLC (LON:TSCO) said the pandemic is still driving a higher volume of sales. Underlying operating profit rose 41% to £1.5bn.

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Q3 2021 hedge fund letters, conferences and more

DG Value: Targeting Overlooked Opportunities In The Middle Market

Yarra Square Investing Greenhaven Road CapitalFounded in 2007 by Dov Gertzulin, DG Value is a value-focused investment firm. The firm runs two primary investment strategies, the diversified DG Value Funds and the concentrated DG Concentrated strategy. Q3 2021 hedge fund letters, conferences and more The flagship DG Value Fund was launched in 2007, specializing in middle-market distressed situations and event-driven Read More

Full year underlying retail operating profit guidance has been upgraded, and is now expected to come in between £2.5bn and £2.6bn. A £500m share buyback was also announced.

The shares rose 3.9% following the announcement.

Tesco Is Weathering The Supply Chain Crisis Better Than Others

Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown

“Tesco’s enormous scale means it’s weathering the supply chain crisis better than others- it’s times like these when being the biggest fish in the pond really counts. The mature, deeply rooted nature of its supply relationships have been a key tool in allowing Tesco to keep its shelves well stocked, and outshining competitors in the process. The size of Tesco’s distribution network also can’t be overstated, which again gives the group the flexibility to deliver the goods at scale.

Sales have also been boosted by staycation trends, which is a tailwind likely to reduce but not fall back all the way over the medium term. Tesco has curated an impressive customer base, helped by its ongoing efforts to appear good value. Its aim is to reduce prices across key items, but also maintain an image of better quality. It’s this mix that is helping with an all-round improved value perception – it’s not just about sticking the cheapest price on goods.

Online sales are an enormous opportunity. Tesco has taken the baton handed to it by the pandemic and is sprinting towards impressive results. While we have every faith the group can prevail, if demand patterns don’t shakeout exactly as planned, the increased infrastructure to support digital domination will become a drag on profits. A large-scale share buyback indicates Tesco’s confident on its outlook and ability to keep heady levels of cash flowing through the business.”

About Hargreaves Lansdown

Over 1.64 million clients trust us with £135.5 billion (as at 30 June 2021), making us the UK’s largest digital wealth management service. More than 98% of client activity is done through our digital channels and over 600,000 access our mobile app each month.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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