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Booker Group rising ahead of earnings

Last year Booker Group registered an 8.6% increase in full-year pre-tax profits to £150.8 million and revenue rose by 0.5% to £4.99 billion.

Sales of tobacco products increased by 2.2% while, non-tobacco sales were up by 6.3%.

The total dividend last year was 4.6p, which is up 25% on the previous year. The dividend yield is 2.7%, and that compares with Associated British Food’s dividend yield of 1.15%, and Tesco’s 0.54%.

Booker Group has had a good start to this financial year, and it stated it is on track to achieve its full-year target despite the ‘challenging environment’.  The British consumer is being squeezed by rising inflation and lacklustre wage growth, and in turn has become savvier.

The company will announce their first-half numbers on Thursday 12th of October. Analysts are expecting Booker Group to post first-half revenue of £2.594 billion, which would be an increase of 2.7% on last year’s numbers. Earnings per share (EPS) are anticipated to be 4.23p, and that would be an improvement of 11.3% on the year.  Investment banks are divided in their outlook for the company, and out of the 6 ratings attached to the stock, 3 are buys, one is a hold and two are sells. The average price target is 207p, which is the current price. 

The proposed merger between Tesco and Booker Group has been referred to the Competition and Markets Authority (CMA). Since Booker Group runs convenience shops like Budgens and Londis, and acts as a wholesaler to other convenience stores, it could lead to anti-competitive tactics. A decision from the CMA is expected in December. Tesco argue it would be good for the consumer as it would increase their product range, and the cost savings would be passed on to the shopper. While the outlets that buy from Booker Group face less favourable terms.

A consortium of the seven biggest British wholesalers wrote to the CMA urging them to oppose the deal. The group includes names like Spar and Bestway, and they accounts for 60% of the UK wholesale market. A lobby that size could be influential in the regulators decision. 

Not everyone is happy with the proposed tie-up. Schroders and Artisan – who are large shareholders in Tesco, feel the deal could take attention away from Tesco’s turnaround plan. Tesco reinstated its dividend recently, which is a step in the right direction but the supermarket giant does have a long way to fully restore investor confidence.

Brooker has outperformed companies broadly in the same retail sector, and that is reflected in their share price movement since 2014. The company could benefit from a tie-up with Tesco, but it has been motoring along nicely on its own.

Shares in Booker Group has been rising since late 2014 and if the positive run continues, it could target 218.5p. Pullbacks in the stock could find support at 200p or 190p.  

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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