You don’t need me to tell you that Tesco (LSE: TSCO) is having a tough time at the moment.
But you must be wondering whether upcoming interim results, due on Thursday 23 October, will bring a bit of rare sunshine or will continue the relentless storms.
Overshadowed
Whatever the figures, they’ll be overshadowed by the most recent developments in the company’s accounting debacle. On Wednesday, we heard that three more Tesco executives have been suspended as the investigation into the mis-statement of its profits proceeds — taking the number suspended up to eight.
For some reason, Tesco had been recording some income early, while at the same time delaying the recording of costs — and if that was an honest mistake, it sounds like a seriously incompetent one.
At the time of its last trading update in August, Tesco had told us it expected trading profit for the year ending February 2015 to be in the range of £2.4bn to £2.5bn, with a figure of around £1.1bn for the six months to August.
But since then we’ve heard about that incorrect accounting, and the company tells us to expect around £250m less than that, so we should be seeing first-half trading profit of around £850m — unless there are any more shockers yet to be revealed.
Downgrades
Analysts have already downgraded their full-year forecasts, with a current consensus of 19.5p in earnings per share (EPS), down from 22.2p a month ago. The full-year dividend prediction has similarly fallen, from 8p per share to 6p.
The share price has been punished, sitting at 174p as I write, and with the accounting uncertainty it’s not too surprising to see most brokers sitting on a Hold stance while we wait to hear more details.
Recent analysts’ price targets have, however, been lowered — currently we’re looking at targets around the current 174p level, down from the 185p to 220p range of just a couple of weeks ago.
I have Tesco in the Fool’s Beginners’ Portfolio, so what do I think of it as an investment right now?
On the fence
Well, even with the latest lowered forecasts, the shares are on a forward P/E of 9 for this year, rising a little to 9.6 for next as a further small drop in EPS is expected. With the shenanigans going on I wouldn’t be buying Tesco shares right now, but then at such low P/E valuations I wouldn’t be selling either. So it’s a Hold for me, too.