Shore Capital expects sharp profit decline at Tesco this week

14th Apr 2014 11:14

'Sell' shares of Tesco ahead of the supermarket giant's annual results on Wednesday, according to Shore Capital, which expects a sharp fall in profits.The broker expects Tesco to report a 19% decline in earnings in the year ended February 2014 and estimates an unchanged full-year dividend payout of 14.76p per share."We approach the 2013/14F preliminary results with considerable concern for Tesco's shareholders, which must and should be a material discomfort to the Chairman and Chief Executive of the group," said analysts Clive Black and Darren Shirley. "The current rate of sales contraction in the UK leads us to be worried about the robustness of our 2014/15 forecasts even before we reach the first-quarter update."Black and Shirley raised issues with recent pricing initiatives at the grocery chain, such as £200m of price cuts and 'Fuel Save', which "do not yet seem to be resonating" with customers. Meanwhile, they said that Tesco's price comparison tool 'Price Promise' "just keeps telling customers how expensive Tesco is over its Big Four opponents". It also does not cover the discounters Aldi and Lidl and so appears "misaligned" with the UK market."Finally, we remain unimpressed by a lack of succession planning with respect to the Chief Financial Officer position at Tesco. As such, we reiterate our view that the Chairman should be reappraising the composition of Tesco's board as presently constituted."The broker pointed out that Tesco's net asset value (NAV) per share is at a 31% discount to its current share price, while sector peers WM Morrison and J Sainsbury already trade at or around their NAV.The stock was up 0.7% at 283p by 11:35 on Monday.BC