MIDAS SHARING TIPS: Tesco is one for your shopping cart as cost fears ease

Every little bit helps and to some it seems like Tesco has been splurging on the extra pennies on produce prices in our supermarkets over the last year.

The retailer’s half-year results, published on Wednesday, showed a 14 percent increase in adjusted profit.

This led to rumors that the supermarket was profiting from the cost of living crisis, but boss Ken Murphy denies this. He says the supermarket gains market share by luring customers away from competitors by helping them with their costs.

Murphy says sales are improving at “both ends of the shopping basket”, meaning we’re snapping up cheap own brands and indulging in the Finest range as an alternative to an expensive night out.

Tesco checkouts report impressive figures. Sales rose 9 percent and Tesco Bank also did well thanks to higher interest rates and strong credit card use. After profits rose 25 percent, the bank gave cash back to its parent company through a special dividend.

Every little bit helps: Tesco checkouts report impressive figures

Excluding the bank, full-year profit forecast is between £2.6bn and £2.7bn, compared with previous estimates of £2.5bn. Shares have risen 39 per cent to £2.78 in 12 months (although up a more modest 29 per cent compared to five years ago), supported by a share buyback program and belief in Tesco’s ability to manage its supply chain and its To use size to negotiate with suppliers and benefit from loyalty with its Clubcard system.

Analysts welcomed the numbers. Martin Maloney of stockbroker Killik said share buybacks and higher dividends would improve investor returns as the company generated more cash than forecast. While the interim dividend was held as expected (Tesco’s policy is to set the interim payment at 35 per cent of the previous year’s full annual dividend), more is expected.

And despite the recent share rise, Tesco shares are still cheaper than Finest’s price. Historically, the company’s value has been 14 times its forecast earnings for the next fiscal year. Currently this value is closer to 11.

While Tesco has paid to stay competitive – with an Aldi price match strategy and cheaper Clubcard prices for loyal customers – there are signs that cost pressures are easing.

Murphy said prices for pasta, oil and dairy products have fallen, although some other items are rising, and higher oil prices and the minimum wage bill are adding to inflationary pressures.

Still, Murphy says customers are “optimistic” and eager to enjoy Christmas. He makes sure he buys more turkeys.

Midas judgment: Tesco shareholders can afford the odd turkey this Christmas, especially if they bought it a year ago. There is more good news as pressure on consumers eases. Keep your trolley with an expected dividend yield of 4.5 percent.

Traded on: Main market Ticker: TSCO Contact: tescoplc.com or 0800 591688