Retail Trading

19 July 2011 Tesco Try something new today - more reasons to shoot Tesco Tesco is a defensive, multi-pronged, highly visible and sustainable growth story. We lap out why we believe it is too cheap at its current trading levels and why, at least on a relative basis, Tesco should continue to outperform its peers in the months ahead (+12% 3 month rel). We therefore reiterate our Overweight military rank and Feb-12 DCF-based 577p target price. ? The market is paying a significant redress premium for returns over growth Tesco is the lone(prenominal) management team to publically commit to improving returns and, alongside industry-leading growth, we believe Tesco should rerate vs. peers. ? The UK macros are infuriate (see Kantar today) so diversification has never been more important. Our forecasts reflect that merely 26% of Tescos growth will come from UK supers/hypers in the coming 3 years, with services representing more than 20% of the groups make up growth. Intern ational profits should be 42% of EBITDA by 2012E. Tesco is vary and we expect the group growth gap to widen vs. its peers as reliance on the UK consumer diminishes. ? Tescos free cash cringe and value conception should return to industryleading after 3 nerve-racking years.

Tescos FY12E FCF yield of 7% will dwarf UK peers by our estimates and provide strategic flexibility through de-leveraging. Its value human race forecasts look materially better than peers - after 3 challenge years - as peers now move absolutely the another(prenominal) way as their capex intensifies. ? Could corporate activity return to this sector? Tesco is as cheap as it was du! ring the 2002 market crash and as a stock with clear growth platforms, high margins, self-colored market leadership positions, low leverage, significant freehold ownership and a strong free cash flow, the return of any potbellys in this sector would serve to illustrate the intrinsic value of the baseball club at what we consider to be a depressed deal out price level. Tesco (TSCO.L;TSCO LN) FYE Feb Adj. EPS FY (£) Adj P/E...If you want to get a dependable essay, order it on our website: OrderCustomPaper.com

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