Tesco’s grand gesture on business rates disguises an ulterior motive

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Tesco PLC (LON:TSCO) got many public plaudits for being the first to say it was going to pay its business rates relief back to the government.


The market leader would have been pretty confident that its main rivals would feel forced to follow suit.


READ: Morrisons and Sainsbury’s follow the leader in waiving business rates relief


But the Welwyn Garden City-headquartered group has an ulterior motive: a whopping GBP5bn capital return that it has promised shareholders as a result of the GBP8.2bn sale of its Thai and Malaysian businesses, which are nearing completion.


“Tesco can now pay its Asian special dividend without incurring any flack, whilst impeding its competitors’ financial progress,” said Clive Black, analyst at Shore Capital.


He noted that Morrisons has “all but abandoned” a special distribution he forecast at 10p for the current year, going for a 4p catch-up instead, whilst Sainsbury’s has announced the extension of its debt reduction targets by one-year to 2023.


Black said: “We shall watch with interest now to see if the private UK supermarkets follow suit, because if not, then Tesco’s cunning plan may induce a variable competitive impact.”


On Morrisons, for which Shore Cap is house broker, Black said, as he was surprised by this decision, as he was with Tesco, especially coming ahead of the key Christmas trading period.


“We know, given the reaction of investors to us today, that many shareholders will be disappointed, to put it politely. Indeed, there is a question emerging on many investors’ minds in terms to where shareholders sit as stakeholders to PLC boards.”


The analyst acknowledged that some shareholders of all three companies will welcome the decision from a reputational standpoint.

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