Tesco (TSCO LN) £210.00

Tesco reports 1H results in the UK before the market opens this evening amid a challenging backdrop for Supermarkets. As we saw from our own consumer staples companies, inflation was a key issue in terms of their own operations but also their customer’s spending habits. While discount retailers are benefitting from a broader trend of shoppers switching from big brands to supermarket own-label goods to save money, we still think challenges such as food inflation, volume pressure and higher expenses will probably roll into FY23 and this has us concerned about their margins and thus earnings in the near term. Revenue of £31.98bn and operating profit of £1.35bn is expected for the half, with Tesco having previously flagged their intention to maintain competitive pricing and volumes over and above margins.