British supermarkets are seeing a surge in interest and market activity. Powered by Morrison News of the acquisition, most grocery shares have risen in the last three months. In the improvement of the sector, the market leader Tesco (LSE: TSCO) is set to release its interim results on Wednesday. I expect the price of Tesco shares to rise after the results.
Tesco share price overview
Tesco’s response to the supermarket feeding frenzy has weakened. Shares of the supermarket giant have risen 9.1% in the last six months. At the same time, Morrison’s shares have risen 55% and ScienceburyIts shares rose 19%. Is this a cause for concern for Tesco shareholders? I don’t think so.
Morrison’s story marks the end of a b b billion deal with US companies Clayton, Dublier and Rice. There are also potential bid estimates for Sciencebury. While a nice jump in Tesco share price could have been a welcome relief, I don’t see it as a big indicator of future performance. The company, valued at more than B24bn, looks too big for a takeover. It fits well with my investment strategy. I don’t like to speculate on foreign investment but focus on stable growth every year.
Where Tesco won
In 2021, Tesco’s market share rose half a percent to 2.3%. I think it’s very impressive because it’s the only one among the Big Four grocers to do it. Its biggest market rivals, Sciencebury and Morrison, have both lost to Aldi and Liddell.
Asian sells its Asian operations for 5bn triggers a special dividend. More importantly, it allows the supermarket to significantly reduce its debt and strengthen its pension scheme. Analysts predict a 1.5 1.5 billion increase in Tesco’s free cash flow and remain positive about the company’s future profits.
Its online sales have risen to an incredible 77% (thanks to the epidemic) to £ 6.3bn which is 12.5% of total supermarket sales in 2020. Profit last year.
Barriers for Tesco
There is no denying that Tesco is fighting hard to retain the sales it gained during the epidemic. Sales for the first quarter (Q1) 2021 (for 13 weeks ending May 29, 2021) increased 0.5% over the previous quarter. However, they were below the 14.3% peak seen in March 2021. This steep fall in April / May shows how sales have been steadily declining since bars and restaurants reopened.
The biggest concern for large supermarket chains is the fear of being reduced by razor-thin margins and discount retailers. Aldi and Liddell are pushing for a larger share of Tesco’s market share. Aldi plans to invest 1.3bn in the UK to open 1,200 stores over the next two years. They currently have 920 stores in the UK.
Tesco share price verdict
Considering the potential for a significant increase in free cash flow, I think traders can expect a positive response to the interim report. But, in the current market weather, it is almost impossible to predict. However, the fundamentals of the group remain promising. I will be closely monitoring the price of Tesco shares this week to judge the market response before considering investing.
Suraj Radhakrishnan has no position in any of the mentioned shares. Motley Flower UK recommends Morrison and Tesco. The opinions expressed in the companies mentioned in this article may differ from those of the authors and therefore the official recommendations we make on our subscription services such as Share Advisors, Hidden Winners and Pro. Here at The Motley Flower we believe that considering a variety of insights makes us a better investor.