Ongoing recovery fails to spark big Tesco share price rise in 2017

Supermarket puts accounting scandal behind and moves to acquire wholesaler Booker

Ongoing recovery fails to spark big Tesco share price rise in 2017

Shares in Tesco (LON:TSCO) look on track to end the year little changed, underperforming the benchmark FTSE 100 index, with the supermarket continuing with its efforts to put behind the accounting scandal which rocked the company more than three years ago. Tesco’s share price, however, is nevertheless set to outperform peers J Sainsbury (LON:SBRY) and Wm Morrison Supermarkets (LON:MRW), with investors cheering progress despite caution over the grocer’s surprise move to acquire wholesaler Booker Group (LON:BOK).

Recovery continues

Tesco, which plunged into the worst crisis in its history with the 2014 accounting scandal, has managed to cement its recovery this year, posting steady rises in sales and profits under chief executive Dave Lewis, who took the helm at Britain’s biggest grocer shortly before the scandal broke out. In October, the company restored its dividend in a sign of confidence in its own prospects.

Britain’s biggest grocer has also managed to further deal with consequences of the scandal entering into a deferred prosecution agreement with the Serious Fraud Office, agreeing to a £129-million fine over the accounting black hole. Remainders of the crisis, however, remain with former Tesco executives standing trial, accused of fraud and false accounting.

Booker tie-up

Tesco also managed to stay firmly in the news spotlight this year with something other than the accounting scandal, namely its surprise deal to acquire wholesaler Booker Group following years of trimming non-core operations. The blue-chip grocer’s move caused mixed feelings, with Hargreaves Lansdown’s analyst Laith Khalaf commenting that the deal seemed to be walking the “fine line between genius and lunacy”.

While some top investors have argued that the tie-up will distract Tesco from its turnaround, the supermarket expects a run-rate of at least £200 million of pre-tax synergies per annum by the end of the third year following completion, as well as cost synergies of at least £175 million. With the merger expected to wrap up next year following the Competition and Markets Authority’s approval, 2018 is likely to deliver some indication whether Dave Lewis’ bet on Booker was indeed genius or lunacy. 

As of 14:22 GMT, Friday, 22 December, Tesco PLC share price is 206.75p.

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