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Tesco Debt decreased on 3.3% while Revenue increased slightly on 1.3%

08 Apr 2020 • About Tesco ($TSCO) • By InTwits

Tesco reported FY2020 financial results today. Here are the key drivers of the company's long term financial model:
  • Tesco has low CAPEX intensity: 5 year average CAPEX/Revenue was 1.9%. At the same time it's a lot of higher than industry average of 9.6%.
  • CAPEX is quite volatile: £0m in FY2020, £1m in FY2019, £0m in FY2018, £0m in FY2017, £0m in FY2016
  • The company has business model with low profitability: ROIC is 8.0%
  • It operates with high leverage: Net Debt/EBITDA is 2.9x while industry average is 0.9x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability


Tesco's Revenue increased slightly on 1.3%. EBITDA Margin showed almost no change in FY2020. EBITDA Margin followed a growing trend at 0.87 pp per annum in the last 5 years.

Gross Margin showed almost no change in FY2020. Gross Margin followed a growing trend at 0.58 pp per annum in the last 5 years. SG&A as a % of Revenue showed almost no change in FY2020.

Net Income margin showed almost no change in FY2020.

Investments (CAPEX, working capital and M&A)


Tesco's CAPEX/Revenue was 1.5% in FY2020. The company's CAPEX/Revenue decreased slightly on 0.61 pp from 2.2% in FY2017 to 1.5% in FY2020. It's average level of CAPEX/Revenue for the last three years was 1.9%. During the last 5 years CAPEX as a % of Revenue topped in FY2018 at 2.5% and was declining since that time.

Return on investment


The company operates at low ROIC (8.0%) and ROE (7.3%). ROIC decreased on 2.2 pp from 10.3% to 8.0% in FY2020. ROE decreased on 3.4 pp from 10.6% to 7.3% in FY2020.

Leverage (Debt)


Debt level is 2.9x Net Debt / EBITDA and 3.6x Debt / EBITDA. Net Debt / EBITDA dropped on 0.2x from 3.1x to 2.9x in FY2020. Debt decreased on 3.3% while cash jumped on 16.9%.

Tesco has no short term refinancing risk: cash is higher than short term debt (163.2%).

Valuation and dividends


Tesco's trades at EV/EBITDA 7.8x and P/E 23.5x.

Management team


Tesco's CFO Alan J H Stewart has spent 6 years with the company.

Financial and operational results


FY ended 29 Feb 2020

Tesco ($TSCO) key annual financial indicators

mln. £201620172018201920202020/2019
P&L
Revenue53,93355,91757,49363,91164,7601.3%
Gross Profit2,8442,9023,3524,6964,580-2.5%
SG&A1,8141,9951,6332,0472,0620.7%
EBITDA2,4062,3213,1344,6994,675-0.5%
Net Income138-401,2081,272971-23.7%
Balance Sheet
Cash3,0823,8214,0592,9163,40816.9%
Short Term Debt2,8262,5601,4792,2092,088-5.5%
Long Term Debt10,7119,4337,14215,43914,973-3.0%
Cash flow
Capex8711,2051,4401,1011,003-8.9%
Ratios
Revenue growth-5.3%3.7%2.8%11.2%1.3%
EBITDA growth-157.3%-3.5%35.0%49.9%-0.5%
Gross Margin5.3%5.2%5.8%7.3%7.1%-0.3%
EBITDA Margin4.5%4.2%5.5%7.4%7.2%-0.1%
SG&A, % of revenue3.4%3.6%2.8%3.2%3.2%-0.0%
Net Income Margin0.3%-0.1%2.1%2.0%1.5%-0.5%
CAPEX, % of revenue1.6%2.2%2.5%1.7%1.5%-0.2%
ROIC5.0%4.9%9.6%10.3%8.0%-2.2%
ROE1.8%-0.5%14.3%10.6%7.3%-3.4%
Net Debt/EBITDA4.3x3.5x1.5x3.1x2.9x-0.2x

Peers in Food & Drug Retailers


Below we provide Tesco benchmarking against other companies in Food & Drug Retailers industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %

Top  FY2016 FY2017 FY2018 FY2019 FY2020
Magnit PJSC ($MGNT)12.5%6.4%8.2%10.6%-
Ocado Group ($OCDO)14.8%14.4%9.9%9.9%-
 
Median (2 companies)10.3%14.4%8.2%10.3%-
Tesco ($TSCO)-3.7%2.8%11.2%1.3%


Top companies by Gross margin, %

Top  FY2016 FY2017 FY2018 FY2019 FY2020
Ocado Group ($OCDO)34.2%34.0%34.2%33.7%-
 
Median (1 company)25.9%23.9%34.2%33.7%-
Tesco ($TSCO)5.3%5.2%5.8%7.3%7.1%


Top companies by EBITDA margin, %

Top  FY2016 FY2017 FY2018 FY2019 FY2020
Ocado Group ($OCDO)6.3%5.1%3.6%2.6%-
 
Median (1 company)6.2%5.2%3.6%2.6%-
Tesco ($TSCO)4.5%4.2%5.5%7.4%7.2%


Top companies by CAPEX/Revenue, %

Top  FY2016 FY2017 FY2018 FY2019 FY2020
Ocado Group ($OCDO)6.7%9.0%7.1%10.0%-
 
Median (1 company)4.3%6.1%4.2%10.0%-
Tesco ($TSCO)1.6%2.2%2.5%1.7%1.5%


Top companies by ROIC, %

Top  FY2016 FY2017 FY2018 FY2019 FY2020
Ocado Group ($OCDO)4.4%0.7%-4.3%-14.4%-
Magnit PJSC ($MGNT)25.1%13.6%8.0%--
 
Median (2 companies)9.5%12.6%-4.3%-14.4%-
Tesco ($TSCO)5.0%4.9%9.6%10.3%8.0%


Top companies by Net Debt / EBITDA

Top  FY2016 FY2017 FY2018 FY2019 FY2020
Ocado Group ($OCDO)2.0x3.0x-0.9x-3.1x-
 
Median (1 company)1.1x1.5x2.4x-3.1x-
Tesco ($TSCO)4.3x3.5x1.5x3.1x2.9x