Tesco in quiet expansion mode. Should you buy into its growth?

Tesco (TSCO) chief executive Dave Lewis has decided to leave the group in the coming year. His resignation took some by surprise and overshadowed the group’s interim results.

But he will leave the group in a rude health. In today’s statement, he said that ‘we have now delivered every element of the turnaround plan and from this position of strength, the transformation of our business continues at pace.

Interesting take from Tesco’s statement include:

  • Group 1H sales at £28,296m, with headline operating profit is at £1,406m
  • Retail operating free cash flow increased by £417m year-on-year to £814m, “primarily reflecting a strong increase in cash profitability
  • Interim dividend up 58.7% yoy to 2.65p
  • Thailand: Plans to open 750 Express stores over the next three years
  • UK: Plans to open Express 150 stores over the next three years
  • New Clubcard Plus in 2019

What is striking is the Tesco intends to grow massively in Thailand and UK urban store format. While this may sound risky, it is interesting to contrast Tesco’s expansion with many other retrenching retailers. Sainsbury, for example, is earmarking 100 stores for closures.

In today’s statement, it is clear that Tesco is not only holding its ground in the retail sector but is quietly attempting to grow its market share. The £3.7b acquisition of Booker is a good example. Dave Lewis has good a good job in stabilising the ship after the accounting scandal.

Meanwhile, Tesco’s long-term price chart is clearly establishing a firm base which suggests lots of buying on setbacks. There is technical support at around 200p, which may support an advance into the April peak at 250-260p.

Tesco shares is up 1.5% in morning trades.

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