My grandfather was not a financial genius. A family man with little interest in worldly goods, he bought one stock in his lifetime: Tesco.
My mother inherited her share in the early 1990s and still owns the shares to this day.
At the time, Tesco shares were below 70p. Today they cost £3.09, so Mum has done well and she has also received many dividends.
In charge: Tesco CEO Ken Murphy
But, like many other long-term holders, he remembers the height of Tesco’s share price in 2007, when the stock hit a high of £4.90, and wonders: will those glory days ever return?
Recent stock market performance has been promising. Shares are up 50 percent since September 2022, boosted by rising sales, rising profits and CEO Ken Murphy’s growing confidence.
Earlier this month, Murphy stated that Tesco is not only taking share from its rivals, but that customers are shopping more frequently and buying more products when they do.
Independent data from grocery guru Kantar proves Murphy’s point.
Tesco accounts for almost 28 per cent of the UK food retail market, well ahead of Sainsbury’s at 15 per cent, and comfortably ahead of all other pretenders including Aldi and Lidl.
Scale brings opportunities. The bigger Tesco becomes, the more influence Murphy has with suppliers, allowing him to keep prices low and profits high.
Clubcard is also an invaluable resource. With nearly three decades of service, the card identifies what shoppers like so Murphy can tailor his offering and send special promotions to individual customers.
At the top: Tesco accounts for almost 28% of the UK food retail market.
Tesco Finest brings extra shine, as customers enjoy dishes such as bourbon pulled beef and Sicilian tarts.
Warmer weather and euros add an extra boost, driving purchases of sausages, beer and bottles of soda.
Confidence is on the rise. Brokers expect sales of more than £69bn for the year to February 2025, with profits close to £2.4bn and a dividend of 13.1p.
Steady growth is expected next year: revenues topping £70bn, profits topping £2.5bn and an increase in the dividend to 14.2p.
The group also launched a new company, Tesco Marketplace, a sort of Amazon wannabe, where customers can buy everything from garden furniture to personal blenders and puppy strollers, in addition to the weekly grocery store.
And earlier this year, Murphy sold Tesco Bank to Barclays for around £700m, promising to use the money to buy back shares, a move designed to boost the share price.
Murphy may be justifiably proud of recent achievements, but looking back a little further, the picture is considerably more mixed.
Rising inflation and the cost of living crisis took their toll on Tesco, sending the shares tumbling to just £2.05 pounds in September 2022.
Shareholders with long memories can also trace Tesco’s slow demise after the financial crisis, culminating in the 2014 accounting scandal, which saw the group slide into losses and be investigated by the Serious Fraud Office.
Fortunately, those dark days are behind us and the future looks much brighter under Murphy.
Having joined in 2020, the Irishman has earned respect in the City for his work to date and his plans for the business. A recent £10m pay package sent some quarters into a tizzy, but few would deny that it is delivering value to investors, customers and employees alike.
Midas Verdict: tesco stock We’ve had a good run of late but, at £3.09, there should be plenty more growth to come.
Economic conditions are improving, Murphy is ambitious, and customers are responding with their wallets. Existing shareholders should stay put. New investors could even buy some and hope the stock moves toward those halcyon days of 2007.
Powerful machine keeps shelves full
Planning to throw some Tesco steaks on the grill this weekend? Most likely they come from Hilton Food Group.
Hilton has supplied cuts of red meat to Tesco for 30 years and the relationship is stronger than ever. Initially focused on beef and lamb in the UK, Hilton now works with Tesco in Ireland and also in Central Europe and its range spans from prime steaks to mince, fish cakes, steaks and many sophisticated ready meals.
Strong link: Hilton has supplied red meat cuts to Tesco for 30 years
Tesco accounts for around a quarter of Hilton’s revenue, but the group has spent the last two decades acquiring big-name customers abroad, adding new products and leading technology and innovation.
Robots are now used to cut and package meat. Data specialists turn consumer preferences into tasty recipes. High-speed water jets cut the salmon into small, neat portions. Even fish cakes are made by machines.
Reliability, efficiency, and smart ideas helped Hilton achieve consistent growth for years.
In 2022, however, soaring inflation and energy prices hit Hilton hard, particularly its nascent fishing business. Two profit warnings followed and the shares fell from £12.42 to £5.40 in a matter of months.
Steve Murrells was parachuted in as an adviser and became chief executive in July 2023. Head of the co-op since 2012, Murrells is credited with turning that business from a side business into one of Britain’s best-loved grocers. He now he’s rolling up his sleeves at Hilton.
The fishing business is firing on all cylinders after a review of production in Grimsby. Profits rose 20 per cent to £66m in 2023 and brokers expect continued growth this year, with profits of £78m and a 6 per cent rise in the dividend to 33.8p.
Murrells is also ambitious and hopes to win more business with Tesco and long-term partners, while also adding new customers.
Midas Verdict: Midas first looked at Hilton Food Group in 2008, when the shares cost just £1.70.
Today, Hilton Food Group Stock It’s £8.99, a strong recovery from those 2022 lows, but still some way off its peak. That should change. Murrells learned his trade from legendary Tesco boss Sir Terry Leahy, and Hilton shareholders should benefit.
Burn’s Pockets of Potential
Coral Products is a small plastics company based in Haydock, Merseyside.
But the company has some high-profile clients, including Tesco, BT and the Ministry of Defence.
Coral supplies Tesco with films to keep bread and buns fresh, and chief executive Lance Burn is keen to expand the relationship.
Last week, Tesco shoppers were in Haydock, checking out new Coral products, such as salad bags and nut bags, which have in the past come from India. Merseyside is much closer to home, an obvious advantage.
Burn is new to Coral. Fresh from giftware group IG Design, he arrived in January and was forced to issue a profit warning three weeks later.
Since then he has worked hard, simplifying the group into two divisions. Flexible plastics include food packaging and biodegradable pint glasses, popular at football matches.
Rigid products are more industrial, from pipes for telecommunications cables to recycled platforms for barracks.
Burn’s strategy is starting to pay off.
A trading update this month was encouraging and brokers expect decent growth in sales and profits for the year to next April, along with a dividend of at least 0.5p.
Midas Verdict: Coral products has had a rough patch on the stock market, falling almost 20 per cent last year alone, to 13p. Burn is determined to get this British manufacturer back on its feet, the first signs are promising and the stock should react. Buy.
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