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Stock Watch

What’s in store for the Tesco share price?

CMC Markets

Since the end of October, the Tesco share price has staged something of a recovery, jumping from lows of 203p to around the 240p mark. Shareholders will be hoping that this trend continues as the supermarket giant looks to put a rollercoaster 2020 behind it.

With rival chains Morrisons and Sainsbury’s posting positive results in early 2021, hopes are high that Tesco’s numbers over the festive season will be similarly strong, potentially further boosting Tesco's share price.

Challenges ahead for Tesco share price

2020 may be over, but its issues have carried over into the new year. Despite the positive movement in the Tesco share price in recent weeks, Britain’s largest supermarket chain still faces significant challenges.

Covid-19 continued to pose new hurdles in December, as almost 3,000 lorries found themselves stranded in Kent before Christmas. A new strain led France to place heavy restrictions on its borders, causing issues with the supply chain. This, combined with the new government lockdown in the UK, saw Tesco place purchasing limits on some items. Eggs, rice and toilet rolls were restricted to three per customer, a similar move to the one made during the earlier lockdowns.

The company has already spent £500m on attempting to mitigate the impact of Covid-19, and the chain took on 11,000 temporary staff for the festive season. That new cost will be reflected in the Q3 numbers.

The UK Brexit deal went some way to quelling further concerns around the supply chain that had an impact on the Tesco share price, with chairman John Allan claiming that changes in costs would “hardly be felt in terms of the prices consumers are paying.” The group welcomed the zero-tariff on goods aspect of the deal, with Allan adding that it was “certainly better than having no deal.”

Tesco share price to build on positive end to 2020

When Tesco posted its first-half numbers in October, the results were positive. In that six-month period, group sales increased by 6.6% to £26.7bn. The operating profit before exceptional items dropped by over 15% to £1.037bn, but the company predicts that the annual result should be around the same level as last year’s reading. Like-for-like sales in the UK increased by 7.6%.

The interim dividend was lifted by 20% to 3.2p, and that helped Tesco stand out in a difficult environment. The move attracted some criticism, given the tax relief Tesco had accepted from the government. However, this did lead to Tesco deciding to repay the £585m in business rate subsidies it received in full. Initially the group saw the relief as a “game changer”, but decided to pay back the amount after business proved "resilient".

Banking division to cost Tesco again?

At the last results, Tesco’s banking division weighed heavy on the group. Lower income and a jump in bad debt provisions led to the subsidiary posting an operating loss of £155m. Despite this underperformance, newly-installed CEO Ken Murphy has said that Tesco has “no plans” to sell the bank.

As part of its wider restructuring plans, Tesco completed the sale of its businesses in Thailand and Malaysia for £8bn, so it can concentrate on a number of core markets instead.

Tesco will announce Q3 results on Thursday 14 January at 7am. What will the latest numbers mean for the Tesco share price?