First Read: Tesco PLC "Q1 26/27 good start to the year" (Buy) Mahamkali

Research evidence excerpt

First Read: Tesco PLC "Q1 26/27 good start to the year" (Buy) Mahamkali

Forecast returns

Forecast price appreciation 17.9%

Forecast dividend yield 3.6%

Forecast stock return 21.4%

Market return assumption 9.1%

Forecast excess return 12.4%

Company Description

Tesco is the largest grocery retailer in the UK and the third biggest globally. It generates the

vast majority of its operating profit from UK and RoI retail, with a single digit contribution

from international retail, and the remainder from Tesco Bank. In January 2017, it acquired

Booker Group, the UK's leading food wholesaler, opening up potential growth avenues in

convenience retailing and food out-of-home markets.

Valuation Method and Risk Statement

We value Tesco using a DCF model. The main risk facing the European grocers is a price war, in

our view. The probability of a price war rises when major imbalances between supply and

demand exist. Consumers' tastes and preferences can also shift. For instance, they may

become more accepting of price focused operators carrying only limited ranges. Other risks

include exposure to currency fluctuations (mainly relating to translation) changes in industry

consumption growth (for instance driven by real wage growth) as well as agricultural cost

inflation which the grocers are unable to pass through to consumers. Regulatory risks are

normally low but there have been instances where regulators act to protect small suppliers,

for instance, by reducing payment terms. Tesco has announced a misstatement of profit in

prior years. Though the group has taken steps to mitigate the risks of future misstatement,

we cannot exclude the possibility of further problems in the future.

First Read: Tesco PLC 18 June 2026 ab 2