DCF

Question 1

Revenue growth

Answer 1

Broker consensus growth estimates, Tapered growth down to the PGR of 1% by 2035

Question 2

EBITDA

Answer 2

Have assumed a flat margin of EBITDA of 5.4%

Question 3

Bridge

Answer 3

Subtracted leases from the bridge

Question 4

How have we adjusted for Pre ifrs16?

3

Answer 4

Taken right of use depreciation (principle) and lease interest rate and subtracted as an operating expense like it was pre IFRS16.

Subtracted leases from our net debt in the bridge

Question 5

Premium

Answer 5

DCF at 7.9% WACC and 1.5% PGR gives a price of £3.61, 9% premium to spot

Question 6

Why have you used 1.5% PGR

Answer 6

Very mature company, broker consensus around 1.5%, tough to innovate in the grocery market in order to maintain growth alongside GDP

Question 7

Why have you used an entry multiple or 9.6x?

Answer 7

…

Question 8

Minimum cash balance 1% of revenue, why?

Answer 8

High maintenance and staff costs

Question 9

Why have you used this debt / total capitalisation structure

Answer 9

This is Tescos actual structure, and dint think comparing to peers made sense as they’re highly levered and Tesco have actively tried to bring their net debt EBITDA ratio down, 2.6x to 2.2x in 2024

Question 10

Al hold delhaize / Profi

Answer 10

Romanian grocer

Question 11

Carrefour / Cora & Match

Answer 11

North and Eastern region of France, where Carrefour had little presence,

Question 12

Co-Op PFS / Asda

Answer 12

Asda buy Co ops forecourt petrol stations with shops attached

Question 13

Asda / Sainsburys

Answer 13

Blocked by CMA due to expectation of higher prices, reductions in quality,

Would have created a market share of 32%, not much other than Tesco’s

Question 14

Aldi / Leader Price

Answer 14

French supermarket brand, consolidated into Aldi stores

Question 15

Asda / TDR

Answer 15

Walmart sold their stake, bought for £6.7bn in 1999. Kept 10%

Remaining 90 split between ISSA brothers and TDR, one of the brothers now sold his 22.5% stake this year to bring TDRs total to 67.5%

Question 16

Is there potential for a large buyer to come in like a US one?

Answer 16

Walmart unlikely as already failed in UK, bought Asda for £6.7bn in 1999 and sold 90% for £6.8bn in 2018

Target CEO said in the last year that they have no international expansions plans

Carrefour failed in the UK in the 70s