Global growth in the bag

Published on Wednesday 3 October 2007 01:11

TESCO 463p +27.5p

BSKYB 687.5p +3.5p

TESCO'S 2,000 British stores make about 80 per cent of the group's profits, but it is obvious that virtual saturation point will increasingly close in on its home turf, and most future expansion will be overseas.

Although the group's UK sales are about three times those made abroad, the growth rates in its interim results are a clear straw in the wind for the way things are going.

Tesco saw sales growth internationally of 22 per cent, compared with a bit over 5 per cent in its core British market.

Having made a good fist of the likes of Thailand and Korea on the Pacific Rim, and Poland, Hungary and Turkey in Europe, the group is now taking its food retailing expertise to the US and China. India is also being looked at farther down the line.

Sir Terry Leahy's success in exporting the business gives the lie to the oft-repeated claim that retailing doesn't travel well to other countries, usually backed up with references to the likes of Marks & Spencer and Dixons.

The trick appears to be to really plug into the local culture, and fine-tweak the changes in the operation to appeal to a different society.

Detail and patience appear to be the hallmarks of Tesco's success abroad. Leahy, in particular, gives the impression of not just being a chief executive interested in the big picture, but someone who revels in the mind-numbing detail of a big supermarket group's business.

Not so much a case of the devil being in the detail, but the retail being in the detail.

IT FEELS about right: that's the Competition Commission saying BSkyB's near-18 per cent stake in rival ITV threatens competition in Britain's television market.

The problem is not in the satellite broadcaster having any sort of say in day-to-day operations at ITV. That just would not happen.

It is more that James Murdoch, with that kind of stake, would be able to exert influence on a rival's broader business strategy, and block anything that ITV wanted to do that might threaten BSkyB's interests.

A pay-TV operator is always going to be wary of the competition it faces from the incumbent free-to-air operators, and so commonsense said BSkyB taking this stake - to block a merger with Sir Richard Branson's Virgin Media - would arouse controversy.

The commission can now order Sky to sell its entire stake in ITV, sell down to less than 15 per cent, sell down below 10 per cent or accept an undertaking from the satellite broadcaster to circumscribe its voting rights at ITV.

The commission has shown common sense, but you have to admire Murdoch, a real chip off the old block, Rupert Murdoch, for the chutzpah in even thinking he could get away with it.

WE HAVE had the subprime storm out of America, we have had the credit crunch in financial markets, we have had a string of interest rate rises over the past year ... and still the Footsie is up nearly 5 per cent on where it began 2007.

Sure, as we enter the final trading quarter of the year, the index currently looks unlikely to register the gains of 2006 - 10 per cent - or 2005 - 16 per cent. But the Footsie's resilience amid a string of negatives for sentiment is still interesting.

As Howard Archer, chief UK economist at Global Insight, says in a new note, it might just be down to pure corporate profitability. Archer says that despite the unhelpful backdrop, corporate profits were buoyant in the second quarter of 2007. This was also borne out by the CBI/PricewaterhouseCooper financial services survey last week.

Archer says the total net rate of return rose to a record high of 15.7 per cent in Q2 from 15.1 per cent in Q1 and an average 14.6 per cent in 2006.

If that is the case, it certainly would not be the first time that the stock market largely ignored macro-economic factors to focus on individual company and sector earnings.

It is true that certain substantial sectors have missed out on this resilient buoyancy, such as banks, property, housebuilders and retailers.

However, for many of Britain's corporates this may not be the absolute best of times in terms of earnings, but it is certainly far from the worst.

As a result should we be buying or selling in this current market?

I think, in broad terms, selectively buying, but on individual companies rather than broad-based market optimism.