Tesco's chief executive, Sir Terry Leahy, will this week bow to City pressure and commit to overhauling the supermarket giant's property portfolio, in a move that could see up to £1bn returned to shareholders.
Sir Terry is expected to confirm at Tuesday's full-year results, where profits are set to exceed £2bn, that the group is looking to carry out joint venture deals with property companies. A form of sale and leaseback, the deals will allow the chain to release value from its largely freehold portfolio, a proportion of which could find its way back to shareholders.
The group has carried out joint ventures before, most recently with property group Topland and Consensus, which is owned by Vincent Tchenguiz. The deals allowed Tesco to raise £650m and £366m respectively.
It is thought that future deals could include international property for the first time. "As in the UK, the property market in some of the countries has been extremely strong in the last 10 years," said Shore Capital analyst Clive Black. "Tesco has some fantastic assets."
The City is concerned that Tesco is not using its balance sheet efficiently and there is growing pressure to return cash to shareholders. Analysts believe between £500m and £1bn could be raised, but there is no guarantee all the cash will be returned. The group is continuing to expand overseas; it is one of four bidders for French rival Carrefour's South Korean arm and is also investing in the US.
"There's no doubt they will talk about the balance sheet and that will get a positive response," said one shareholder. "But whether it will be enough to pacify the market, who knows?"
"[The market] wants something massive and that's not going to happen," said Jonathan Pritchard, analyst at Oriel Securities. "Terry Leahy is not the sort of guy who is happy to write out cheques to shareholders."Reuse content