Shares in Tesco (LON:TSCO) have climbed higher in London this morning, as the blue-chip grocer updated on the impact of the IFRS 16 accounting standard. The new rules, which are effective for all accounting periods beginning on or after January 1, 2019, are set to result in better operating profit for Britain’s biggest grocer, but also in bigger debt.
As of 09:38 GMT, Tesco’s share price had added 1.19 percent to 220.50p. The stock is outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.22 percent higher at 7,212.67 points.
Group updates on IFRS 16 impact
Tesco updated analysts and investors on the new IFRS 16 accounting rules, noting that the new standard had no economic impact on the group, nor on the company’s cash flow. The grocer, however, expects impact on profit and debt. To illustrate that, Tesco used its most recently reported half-year results, noting that its operating profit would have increased by £188 million to £1.12 billion, with the rent removed and only part-replaced by depreciation.
The grocer’s total indebtedness, however, would have increased by £3.3 billion to £15.8 billion due to lease extensions and contingent commitments being included and lease-specific discount rates being applied. Profit before tax and diluted earnings per share would both have decreased, by £101 million and 0.91p, respectively.
Analysts on blue-chip supermarket
The 15 analysts offering 12-month price targets for Tesco for the Financial Times have a median target of 275.00p on the shares, with a high estimate of 305.00p and a low estimate of 200.00p. According to MarketBeat, the blue-chip group currently boasts a consensus ‘buy’ rating and an average price target of 267.85p.
Earlier this week, Shore Capital reaffirmed the company as a ‘buy,’ flagging scope for ‘pleasant surprises’ as the blue-chip supermarket sets the scene for a special dividend.
Tsveta van Son is part of Invezz’s journalist team. She has a BA degree in European Studies and a MA degree in Nordic Studies from Sofia University and has also attended the University of Iceland. While she covers a variety of investment news, she is particularly interested in developments in the field of renewable energy.