Upgrading to Buy: structural advantages, rising returns

Research evidence excerpt

Upgrading to Buy: structural advantages, rising returns

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Tesco

Upgrading to Buy: structural advantages,

rising returns

Rating Change: BUY | PO: 540.00 GBp | Price: 477.40 GBp

The market is missing the ROIC story 23 July 2026

We upgrade Tesco to Buy and raise our PO to 540p. Investor focus remains on weaker Equity

UK demand and tougher trading comparisons, but we believe the key story is improving

returns. Tesco generates a 10.8% ROIC versus an 8.5% cost of capital, with further

Key Changesimprovement ahead. The market continues to value Tesco as a mature food retailer

rather than a business creating sustainable economic value. (GBp) Previous Current

Inv. Opinion A-2-7 A-1-7

Share gains should remain structural Inv. Rating NEUTRAL BUY

The key debate is whether Tesco can continue gaining share. We believe it can. UK Price Obj. 490.00 540.00

grocery is increasingly fragmented and further consolidation appears unlikely. With 2027E Rev (£m) 74,836.7 75,448.1

c.28.5% share, superior scale and stronger execution, Tesco remains best positioned to 2028E Rev (£m) 76,766.8 77,665.5

capture share from structurally weaker competitors. 2029E Rev (£m) 78,289.3 79,772.9

Forecasts move, conviction increases 2027E EPS 29.70 30.11

2028E EPS 31.82 33.27

We raise our forecasts, with the larger upgrades concentrated in FY28E and FY29E as

Tesco's structural advantages increasingly translate into higher earnings and returns. We 2029E EPS 33.84 36.42

increase FY27E EPS by 1.4%, FY28E by 4.6% and FY29E by 7.6%. The revisions reflect 2027E DPS 14.84 14.99

greater confidence in Tesco's ability to sustain market share gains, improve asset

productivity and drive higher returns without requiring a change in industry profitability. Xavier Le Mene >> Research Analyst

MLI (UK)