Only the second part of the assignment needs to be done which is the final individual share portfolio review. The company is Tesco. The WritePass Journal

Only the second part of the assignment needs to be done which is the final individual share portfolio review. The company is Tesco. Introduction Only the second part of the assignment needs to be done which is the final individual share portfolio review. The company is Tesco. Christmas trading. Furthermore, the above could dampen CAPEX plans for the coming years. Rise of Discounters As mentioned, the recent Kantar Worlpanel (2014) report cemented the rise of Aldi and Lidl; however recent reports from Tesco have attempted to downplay the threat, with little success. The CEO referred to them as ‘niche’ players, (Tesco, 2013). However, these players control 45% of the affluent German market and are market leaders in several other large countries. We would not compare the effectiveness and the threat posed by Aldi in 2014 with that posed by Kwik Safe (disappeared) in the 1990s. It is not an informative chart in our view. CAPEX remains strong CAPEX guidance was cut to a maximum of  £2.5bn per annum, in line with market expectations. Tesco plans to cut new space additions in the UK to 700,000 sq ft in 2014/15 from 1.4mn in 2013/14. CAPEX is shifting from new space to maintenance. Having invested  £400mn in the UK Refresh programme in 2013/14, the company plans to invest  £500mn per annum in each of the next three years. This is close to  £2bn in total to complete the programme. The priority for next year is re-modelling the Extra format where the sales performance is the weakest, (Tesco, 2013). Online growth Mixed A lot of focus, as expected, has been put on the increasing movement online. With Morrison’s considering and online platform, while Waitrose moves in with more products and free delivery. Tesco announced it will reduce the fee it charges for home delivery and click collect. While it is good that the company aims to be competitive, excessive cuts in the delivery charge would reduce margins and also incentivise the customer to order smaller quantities more frequently, making the economics a lot less attractive. The delivery charge is a tool used to distribute demand among the different time slots and days of the week. Tesco unveiled  £127Million of trading profit from online grocery ( £2.5bn sales), (Tesco, 2013), suggesting a 5% margin. According to the company, all direct costs are fully charged, that is the cost of the pickers and the delivery, (Tesco, 2013). This would not include things such as store depreciation, store energy costs, rates etc. Given this, on estimated 25Million annual orders of  £100 each, the delivery fee ( £4-5 per order) would account for the great majority of profit. If this delivery fee is substantially cut, so will the profit obtained. Share Performance Graph – Share Price Performance of Selected Companies – 6-Month. Data obtained from Bloomberg (2014) [Online]. Focusing on share performance (Graph 1), over the previous 6-months, Tesco Plc is down by 18.3%, however performance is still between than W.M. Morrison and J Sainsbury, whose shares have fell by 24.2% and 19.9% respectively. Given this; the grocery sector has been a weak performer on the market, given that the FTSE 100 has risen by 2% over the same period. Weakness in the sector was seen on the 12th March (circled), after the market release from Kantar Worldpanel (2014). According to Kantar Worldpanel (2014), Tescos market share dropped to 28.7% in the 12 weeks ended March 2. That compares to 29.6% a year ago and is the lowest level since late 2004. Adding to the company’s woes, Tescos sales were down 0.6 percent in the three-month period. The main issue for investors was the movement of these sales to discounters Aldi and Lidl, plus upmarket grocer Waitrose. Morrison’s also loosened further to a share of 11.1% from 11.8% a year earlier, while ASDA, a subsidiary of Wal-Mart Stores eased to 17.5%, a 0.3 point fall Y-O-Y. Sainsbury’s was the only grocer among Britains ‘big four’ to hold on to its market share in the period, reaming at 17%, (Kantar Worldpanel, 2014). The report noted that the big-four where competing more for a shrinking ‘middle-ground’ as consumers move to either discounters or upmarket retailers – over the past 3-years, Waitrose, Aldi and Lidl have taken a combined 3.5 points from competition, equating to  £4.4Billion in sales per year, (Kantar Worldpanel, 2014). Taking an international look, while Wal-Mart did record a small drop on the 12th March, over the 6-month period its shares are up 3%, given its exposure to the U.S economy, which has been performing strongly, supported by consumer spending. Summary While the recovery in the UK economy will present opportunities for Tesco Plc, given its exposure to consumer spending through an extensive product offering, major headwinds remain as the continued expansion of discounters pose a real threat, contrary to the thoughts of Tesco management. Furthermore the price-wars between major retailers commence once again for the shrinking middle-ground of the market, margins are expected to be hit. This has the potential to derail Tesco’s expansion plans, which will impact on future performance given aggressive competition. References BBC Business (2014) [Online]: Morrison’s restructuring sparks fears of new price war, UK, BBC News. Bloomberg (2014) [Online]: Share Price Data, Available at bloomberg.com/markets/, Accessed 27/03/2014. Financial Times (2014) [Online]: Tesco Plc, Available at http://markets.ft.com/research/Markets/Tearsheets/Summary?s=TSCO:LSE, Accessed 27/03/2014. Fitch Rating (2014): Morrison’s price cuts to pressure Tesco; margins at risk, UK, Fitch Ratings Agency. Kantar Worldpanel (2014): Unprecedented change in grocery retailing, UK, Kantar Worldpanel. Tesco (2013): Annual Review 2013, UK, Tesco Plc.