Research Update: Outlook On Tesco Revised To Positive On Earnings Growth And Stronger Credit Metrics; 'BB+/B' Ratings Affirmed

Tesco PLC's operating results have improved consistently in recent quarters, including a 25% increase in full-year retail earnings in the financial year to Feb. 23, 2019 (FY2019). We forecast earnings growth and cash generation to fuel a further improvement in Tesco's credit metrics, while hefty operating leases and increasing dividend payments will curb the pace of this progress. We are therefore revising our outlook on Tesco to positive from stable and affirming our 'BB+' long- and 'B' short-term issuer credit ratings. The positive outlook reflects our view that the group will sustain its improving performance, underpinned by key initiatives including streamlining its product mix and increasing operational efficiency. We anticipate that the group will continue using excess cash to pay

...- Tesco PLC's operating results have improved consistently in recent quarters, including a 25% increase in full-year retail earnings in the financial year to Feb. 23, 2019 (FY2019). - We forecast earnings growth and cash generation to fuel a further improvement in Tesco's credit metrics, while hefty operating leases and increasing dividend payments will curb the pace of this progress. - We are therefore revising our outlook on Tesco to positive from stable and affirming our '##+' long- and 'B' short-term issuer credit ratings. - The positive outlook reflects our view that the group will sustain its improving performance, underpinned by key initiatives including streamlining its product mix and increasing operational efficiency. We anticipate that the group will continue using excess cash to pay down debt and maintain funds from operations (FFO) to debt of at least 20%--including the impact of IFRS 16--over the next two years....

Research Update