ShoreCap reiterates 'buy' on Tesco, sees scope for special returns

Analysts at ShoreCap reiterated their 'buy' recommendation for shares of Tesco ahead of the grocer's half-year numbers due out on Wednesday.

Clive Black and Darren Shirley were forecasting a rise of between 2.0% and 2.5% in the group's like-for-like sales, "good progress" in Ireland and an "improving trend" in Thailand.

Poland on the other hand was expected to have been challenging.

Pre-tax profits meanwhile were pegged at £868.0m (consensus: £811.0m) for earnings per share of 6.8p and up by 35% versus the previous year.

The latter, Black and Shirley said, implied upward pressure on the expectations for the full-year tally.

Significantly, core margins were expected to improve by between 55 to 60 basis points to 2.6% and th dividend cover to fall from four to three times' earnings per share.

They were also above the consensus in their expectations for Tesco's fiscal year 2019 pre-tax profits, anticipating £1,903m versus market consensus at £1,872m.

The two analysts also spied scope for special returns over the medium-term, which together with a price-to-earnings multiple of 16.2 and an EV/EBITDA multiple of 7.5 and a dividend yield of 2.1% led them to reiterate their 'buy'stance.

"With sound sales growth, robust and ongoing margin rebuilding in the core UK aided by structural efficiency work, still judicious capital expenditure and Booker's growing contribution, we expect strong cash generation and de-leveraging from Tesco."