A Look at Tesco: The Top British Retailer

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Similar to Wal-Mart (WMT) being the largest retailer in the USA, Tesco Plc (TSCDY) is the largest grocery and general merchandising retail chain in the UK based on both sales and profit measures.tesco

Tesco together with Asda, Morrisons and Sainsbury’s (“Big 4”) have a 75% share of the grocery market in the UK as of November, 2008 (Source: Wikipedia). In the UK, there are 2,184 Tesco stores employing 280,000 workers with a market share of 30.3%. In 2008, Tesco also became the fourth largest retailer in the world. Tesco operates in other countries such as France,Thailand, Turkey, Ireland, Hungary, the USA, etc. In the US, it runs the “Fresh&Easy” stores on the west coast.

Tesco ADR (OTC: TSCDY) trades in the OTC markets.Last year Tesco’s total revenue was $72B. The retail sector has one of the lowest profit margins when compared to other industries. However Tesco has a profit margin of 4.44% which relatively higher than other grocery retailers such as Ahold(AHONY) of the Netherlands (2.35%) and Kroger(KR) in the USA whose margin is just 1.61%.

Tesco’s current yield is 2.38% and the annual dividend growth is 12%. Total revenues has also increased consistently since 2004 at rate of 13% annually.Tesco was one of the picks mentioned in a recent MarketWatch article titled Ten investment ideas that will make you money in 2009.

One of the biggest positive factor about Tesco is its concentration on international growth especially in China and other Asian countries. The UK accounts for just 46% of total sales as shown in the chart below:

tesco sales

Sales growth in 2008 were as follows:
Asia – 27.2%
Europe – 23.9%
UK – 6.7%

Chart – International Sales and Number of Stores:

Tesco Stores

Source: Tesco PLC Annual Report and Financial Statements 2008

Overall as a top company in a defensive sector, Tesco is one of the few attractive companies in the the UK economy which continues to deteriorate. For investors who are looking for a strong multi-national company in these recessionary times, Tesco is one option to consider.

It should be noted that Asda, the 2nd largest retailer in the UK, is owned by Walmart.

Disclosure: None

Knowledge is Power: George Soros and Meltdown Edition

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1.George Soros: Britain may have to seek IMF Rescue...George Soros, the man who broke the Bank, sees a global meltdown.

2. The Inter-American Development Bank could easily double its annual lending, given the global financial crisis, Luis Alberto Moreno, the bank’s president, said ahead of an expected call on Sunday on the bank’s shareholders to grant it its ninth capital increase since its inception 50 years ago. IADB confident on increased lending

3.Mining investment in Chile and Peru is expected to recover this year as global financial turbulence eases and metals prices start to climb.Investment in world’s largest copper mining countries to pick up again this year

4.Unlike in the previous crises, governments across the region are highly pro-active in overcoming the downturn as they unveil stimulus packages – one estimate puts their pledges at close to US$700 billion – to keep their economies going. At the same time, the central banks are aggressively cutting interest rates, although in several countries there is little room left for rate reductions.US$700 billion and counting …

5.Accidents can happen Nasty accidents can happen when the US government pumps into the economy extra funds to half of the value of what the country makes in a year. Among them, mere fear of deflation can turn into the real horror of runaway inflation.

Knowledge is Power: Wage Deflation Edition

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1.Australia’s banking sector is being tipped to emerge stronger than in recent years. Runaway wreck stalling; time for the clean-up

2.  Stocks that Matter: BP Continuing our series looking at the most popular stocks in the portfolios of UK Unit Trusts and OEICs, we turn our attention to BP.

3.Wage Deflation Sets In– From MISH’S Global Economic Trend Analysis

4.http://a123.g.akamai.net/f/123/12465/1d/www.montrealgazette.com/business/broke_getty.jpgConsumer bankruptcies in Canada spiked sharply in January, the beginning of what credit experts warn could be a wave of bankruptcies this year that are the inevitable result of rapidly rising unemployment. More Canadian go bust

5. Commentary: Those in the financial echo chamber still don’t get it – Memo to Wall Street: America hates you

China Railroad ADR: Guangshen Railway Co

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Guangshen Railway Co (GSH) is the lone foreign railroad listed in the New York Stock Exchange other than the Canadian railroads.

From the Wikipedia:

“Guangshen Railway Company Limited operator of Guangshen Railway, the 152-kilometre railway link between Guangzhou and Shenzhen in Guangdong, China. The company is engaged in railway passenger and freight transportation businesses between Shenzhen and Pingshi and certain long-distance passenger transportation services. It also cooperates with MTR Corporation Limited in Hong Kong in operating the Guangdong Through Train passenger service.”

Shenzen was the first Special Economic Zone that was established by China. With the establishment of many export-oriented factories and hi-tech companies, Shenzen ultimately became very successful in economic growth.

GSH has a market cap of just $489M. The current dividend yield is 3.52%. Last year the company had a revenue of $1.7B. After trading at a high of $30 early last year, the stock fell in sync with the overall markets. Today the stock closed at $17.10.

There have been news reports that China’s stimulus plan is working.However GSH will get more business only when the international export sector improves. It is definitely worth keeping an eye on this railroad stock from China.

Five Canadian Companies From Global 100 List 2009

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During the World Economic Forum in Davos, Switzerland in January, the Global 100 Most Sustainable Corporations for 2009 was announced by Corporate Knights Inc., a Canadian media company and Innovest Strategic Value Advisors, a New York-based investment advisory firm.

These 100 companies from 15 countries “were evaluated according to how
effectively they manage environmental, social and governance risks and opportunities,
relative to their industry peers.” Nearly half of the constituents in this list have been in business for over 100 years. Since 2005, these 100 corporations have outperformed the MSCI World Index by 480 basis points per annum till the end of 2008.

Five Canadian companies were represented in the Global 100 list. The following is a brief overview about them:

1. Encana Corp.(ECA) is an oil and natural gas producer and marketer. Encana has an yield of 3.54% and had a revenue of $30B last year. Annual dividend growth is 51% in the last 5 years. ECA is one of the few dividend paying comapnies in the oil and gas industry.

2. The most profitable bank in Canada, Royal Bank Of Canada(RY) pays a dividend of 5.44%. Average annual growth is about 6%.

3.Telus Corp(TU) is a telecom provider with a current market cap of $3.9B and an yield  of 5.4%. With an annual revenue growth of just 6% in the past, this is not a high growth company.

4.Toronto-Dominion Bank(TD) is one of Canada’s Big 5 banks with a large presence in the US. TD has a dividend yield of 5.39%. TD and Royal Bank, just like other banks in the world, have fallen heavily since last year. Also they have been affected due to large their exposure to US markets.

5.The energy infrastructure company Transcanada Corp.(TRP) focuses on pipeline and energy in the natural gas industry.Last year TransCanada had a revenue of $7B. The current yield is 4.76%.

Disclosure: Long TD, RY