Tesco shares surge on buyback and upbeat outlook
The group has seen profits soar
Tesco attracted a wave of investor buying after the supermarket chain raised its targets and said it would be launching a share buyback.
Group sales including fuel grew 5.9% to £30.4bn in the 26 weeks to 28 August as pre-tax profit increased doubled (+107%) to £1.1bn and adjusted operating profit rose 41% to £1.45bn.
The figures reflected sustained strong UK sales, a reduction in COVID-19 related costs in the retail businesses, and a return to profitability in Edinburgh-based Tesco Bank.
These benefits were partially offset by the year-on-year effect of £(249)m UK Government business rates relief included in the prior year.
The adjusted retail operating profit for the year is now expected to be between £2.5bn and £2.6bn.
Tesco said it would maintain the interim dividend at 3.2p per share.
The company announced the start of a share buyback programme, with the first tranche of £500m in shares to be repurchased by no later than October 2022.
Tesco ended the best performer in the FTSE 100, its shares up 5.9% or 15.05p at 267.82p,
Ken Murphy, group chief executive, said: “We’ve had a strong six months, sales and profit have grown ahead of expectations, and we’ve outperformed the market.”
Edinburgh-based Tesco Bank turned last year’s £155m operating loss into an adjusted operating profit of £72m, including a £12m contribution from Tesco Underwriting, which is fully consolidated following its acquisition in May.
The significant year-on-year change was due to last year’s increase in the provision for potential bad debts driven by the expected macro-economic impact of COVID-19.
The bank’s balance sheet remains strong and we continue to have sufficient capital and liquidity to absorb changes in both regulatory and funding requirements.