Tesco is one of the holdings in my 12 stocks for 10 years portfolio (currently returning 450 basis point above S&P 500 annually). I agree with this well documented post – Tesco: Consistent Earnings Growth at Attractive Price
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Tesco has leading market share positions in Hungary (#1), Thailand (#1), Ireland (#2), S. Korea (#2), Malaysia (#2), Slovakia (#3), Poland (#4) and Czech Republic (#4).
The company entered China several years ago and plans to open more hypermarkets and shopping centers over the next decade. The Chinese retail market remains very fragmented and the top three players each control less than 1% market share.
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Tesco generated £5 billion in operating cash flow last year, benefiting from improvement in working capital efficiency and good inventory management. Its capital expenditures were £4.7 billion last year (£2.6 billion in UK and £2.1 billion in international). The company expects its capital expenditures to decline to £3.5 billion this year through spending less on mixed use development land and purchasing fewer existing stores from UK competitors.
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Tesco ended the year with £9.6 billion in net debt, up £3.4 billion from the prior year… Nevertheless, its interest coverage ratio was 8.9x last year and does not appear too aggressive.
A big part of my reason for buying Tesco is their management teams commitment to lean thinking (Toyota Production System) management methods. I still worry they will not continue to adopt these methods more thoroughly but I believe superior management methods are one reason their performance has been good in the past and should improve even more if they continue to apply those methods more.
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The think that worries me about Tesco is I am becoming less and less convinced they are committed to lean management principles. Instead they seem to just be practicing the same lame management that so many companies employ. They can still be successful that way but the lost value to shareholders is great and makes me very close to deciding to eliminate my investment…