Tesco share price: Retailer may embark on rights issue

Tesco’s share price shed 2.7 percent yesterday, less than a week before Britain’s largest supermarket chain publishes its full-year results. The group will update the market on April 22 and investors brace themselves for an anticipated pre-tax loss of £2.5 billion — the worst performance in Tesco’s 96-year history — due to charges relating to property writedowns, which could amount to between £3 billion and £4 billion.

There has been some renewed speculation that the retailer may take some opportunistic action to strengthen its balance sheet. According to Shore Capital analysts, there is an increasing probability for the company to decide on a rights issue in the near future. A report in The Telegraph yesterday suggested that this would be a better option than Tesco’s disposal approach, initiated by the company’s new CEO Dave Lewis.
Dunnhumby, the data business behind Tesco’s Clubcard loyalty scheme, is already on the blocks, and City sources have suggested that Tesco could also spin off its £9 billion Asian business, Tesco Bank, as well as its eastern European business in Poland and the Czech Republic. “Of course, the arguments for keeping these assets would be pointless if there was no alternative but a firesale of assets, but there is,” said Graham Ruddick from The Telegraph.
The FTSE 100-listed company has seen its shares rise around 30 percent in the year to date, rebounding from a slump in September, when the retailer revealed it had overstated profits by £263 million. With investors’ confidence underpinned by Lewis’ revival efforts, asking shareholders for funds has emerged as a likely alternative to asset disposals.
“Raising money through a rights issue – which would probably need to be worth more than £1 billion – would obviously be dilutive for shareholders. But Tesco risks doing more damage over the long-term by selling off businesses that offer potential for growth and can balance the company against a flatlining UK market,” Ruddick’s editorial further noted.
Tesco’s share price has been trading in negative territory so far today. By 09:56 BST, the stock had fallen 0.68 percent to 239.41p.
As of 10:38 BST, Friday, 17 April, Tesco PLC share price is 237.10p.

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