John Cranage: Bullish Tesco takes on high street banks
Oct 7 2009 by John Cranage, Birmingham Post
Tesco’s drive toward world domination is beginning to appear unstoppable as the world’s third biggest retailer behind Wal-Mart and Carrefour reports half-year profits of £1.4 billion, up 1.5 per cent, and like-for-like sales ahead by 2.8 per cent at £20.7 billion.
But, as massive as those numbers seem, they didn’t exactly set the City alight yesterday even though they showed that at least one major British company knows how to beat the recession.
As Richard Hunter, who follows Tesco for Hargreaves Lansdown, said: “By definition Tesco comes with high expectations and these numbers have resulted in something of a hung jury.”
Partly, that’s because Tesco is fighting for growth in an increasingly saturated domestic market while spending money on spreading its wings overseas, including a foray into South Korea.
Shares gained a pretty paltry 0.7p to close on 390.7p a piece yesterday, yielding 3.1 per cent on a multiple of 13.4.
In fact, yesterday’s rise in interim profit measured before tax and one-off items was the lowest for ten years, according to Reuters, which quoted a Bank of America-Merrill Lynch analyst as describing the numbers as “solid, but not inspiring”.
Whatever view you take of Tesco as an investment punt, the company’s aggressive growth tactics generate some passionate opposition, not least because of the perception that it will never accept a planning refusal and will use its strength to outspend opponents in the law courts. The impact that its ever-bigger stores have on a local retailer who cannot compete with its buying power is another bone of contention.
The answer to that is starkly simple: if you are concerned about your neighbourhood butcher, baker or candlestick maker being forced out of business then shop there. If, however, like millions trying to make their money stretch, you’ll probably shop at Tesco – or Sainsbury’s, or Morrisons.
Also yesterday, Tesco stepped up its campaign to take on the high street banks. Its Personal Finance operation has been renamed Tesco Bank, leaving no one in any doubt as to its aims.
Not content with being a middle of the road supplier of insurance and credit cards, it is going flat out to establish itself as a “full service retail bank” offering its services instore and online.
It has spent £950 million on buying out Personal Finance’s joint venture partner, Royal Bank of Scotland.
The operation signed up 300,000 new customers over the past 12 months, thanks largely to a collapse in confidence in established high street names. If the big players see business haemorrhaging away to Tesco Bank they will have only themselves to blame.
