After profit warnings galore and a revelation of dodgy accounting, in its interim results, announced on 23 October, Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) said: “there are a number of uncertainties which limit visibility of future performance … we are not providing full year profit guidance”.
Nevertheless, the company has just published updated analyst forecasts on its corporate website. And they make for grim reading …
Earnings
The table below, which puts analyst consensus earnings forecasts into a historical context, shows just how much the City experts have revised down their estimates over the last couple of years:
| Financial Year |
Underlying diluted EPS (p) | ||
|---|---|---|---|
| Forecast Nov. 2012 |
Forecast Nov. 2013 |
Forecast Nov 2014 |
|
| 2014/15 | 38.48 | 32.71 | 15.95 |
| 2015/16 | — | 34.68 | 14.14 |
| 2016/17 | — | — | 15.86 |
We’re now looking at underlying EPS at 15.95p for Tesco’s financial year to February 2015, falling to 14.14p the following year.
At a current share price of 182p, consensus EPS of 14.14p gives us a P/E of 12.9. The most bullish estimate has earnings bottoming out this year at 18.55p (P/E 9.8), while the most bearish has the trough coming next year at 7.62p (P/E 23.9).
That bear forecast for 2015/16 is particularly grim, given that Tesco did EPS of 7.71p in the first half alone of the current year, and looks a bit too pessimistic to me. Still, it shows the extreme range of what City experts see as credible outcomes at this time of unprecedented uncertainty for the company.
Dividend
Tesco paid an annual dividend of 14.76p for each of the last three years. Earlier this year, analysts were expecting a fourth payout at the same level. However, in August Tesco said it would be slashing its interim dividend by 75% to 1.16p. But said nothing about its intentions for the final dividend.
Analysts were initially divided about whether Tesco would maintain the final dividend at last year’s 10.13p (giving a total payout this year of 11.29p), or cut the final at the same 75% rate as the interim (giving a total payout of 3.69p).
However, the latest forecast show a marked deterioration in dividend expectations. No analyst is now forecasting Tesco to maintain the final dividend at last year’s level, while the most pessimistic forecast is for no final dividend at all.
If you’re thinking of investing in Tesco at today’s 182p share price, the forecasts suggest a best-case yield of 4.8%, a worst-case yield of 0.6%, and a consensus of 2.2%.
With earnings and dividend forecasts still trending down, and with widely differing analyst views in the absence of guidance from the company, it’s a difficult call for investors right now. Personally, I look for a good margin of safety in these situations, and for me Tesco’s tangible net asset value of around 160p a share is a decent marker for a buy price.