Tesco offloads stake in China JV for £275m

The supermarket chain on Tuesday said the sale would help its “further simplify and focus the business on its core operations” and the cash used for general corporate purposes.

Gain land was set up in 2014 and combined Tesco's 131 outlets in the country with CRH's almost 3,000 stores, called Vanguard. The transaction will complete on February 28 and there were no conditions to closing or regulatory approvals required, it added.

Analysts at Shore Capital said the disposal "is not wholly surprising to our minds, given increased focus within the business and whilst relatively small beer in the big scheme of things, something we welcome". The broker maintained a 'buy' recommendation on the stock.

"The exit from China, where Tesco took a major step back in 2014 with the creation of Gain Land after the abandonment of once grand plans around real estate and retailing, represents another step in the geographic retrenchment of the Group and so now more of a focus upon capital discipline and free cash generation rather than growth."

"The exit may not be the last such move in Asia, as we continue to await the outcome of the potential disposal process in Malaysia and Thailand, which would carry a much more substantial pay-out (around £7bn - £8bn gross perhaps), potential regulatory matters to sort out and then board consideration as to how much and on what the sale will mean for Tesco’s lenders, pension trustees, landlords and shareholders."

With Thailand in particular sold, Tesco would be losing perhaps its most apparent growth piston, and so we continue to believe that this trophy asset should be sold for a corresponding price to what now appears to be one of three local parties.

The broker said it now saw Tesco as a "cash compounder, that can deliver sound compound EPS growth, a 2.0 times covered ordinary dividend paid from free cash flows that is growing in-line with earnings alongside wider activities that can sustain competitiveness, fund complementary bolt-on acquisitions and potential additional shareholder friendly activities such as a share buy-back or special distribution".