Sentiment-adjusted scenario analysis with BUY recommendation, 12-month target price 342p
Built with Python · matplotlib · pandas · numpy
BUY | Target Price: 342p | Upside: +10% | UCL COMP0164 Digital Finance, December 2025
Tesco (LSE: TSCO) is undergoing a structural re-rating that the market has not fully priced in. The disposal of Tesco Bank transforms the Group into a pure-play, cash-generative retailer with higher earnings visibility. Despite a superior ROE of 14.0% and Adjusted Operating Margin recovery to 4.5%, Tesco trades at 11.5x Forward P/E — a discount to its historic average of 12.7x. We identify a clear sentiment arbitrage opportunity.
| Section | Key Finding |
|---|---|
| Business Model | Multi-format retailer with Clubcard data moat; Tesco Bank disposal reduces financial beta |
| Macro Analysis | Real wage growth (+0.8%) turning from headwind to tailwind; BoE rate cuts reducing WACC |
| Industry Structure | 27.7% market share; scale moat funding Aldi Price Match without margin destruction |
| Financial Trends | Operating margin recovered to 4.5% (FY25) from trough of 3.8% (FY23); FCF £1.75bn |
| DuPont Analysis | Asset turnover surged to 1.80x post-Bank disposal; ROE normalised to 14.0% |
| Valuation | Forward P/E 11.5x vs historic avg 12.7x; EV/EBITDA discount to global staples peers |
| Scenario | Probability | EPS | P/E | Target Price | Upside |
|---|---|---|---|---|---|
| Bear Case — Sentiment Capitulation | 20% | 26.0p | 10.5x | 273p | -12% |
| Base Case — Defensive Stability | 60% | 27.6p | 12.5x | 345p | +11% |
| Bull Case — Confidence Convergence | 20% | 28.6p | 14.0x | 400p | +29% |
Sentiment calibration: CNN Fear & Greed Index 40 (Fear); AAII Bullish Sentiment 44.3%.
The script generates 8 publication-quality charts:
| Figure | Description |
|---|---|
| Fig 1 | Revenue segmentation by segment (FY2025) |
| Fig 2 | UK food inflation vs Tesco operating margin (FY21–FY25) |
| Fig 3 | BoE base rate vs Tesco net finance costs — strategic deleveraging |
| Fig 4 | Operating margin comparison: Tesco vs Sainsbury's scale moat |
| Fig 4b | 3-year relative share price performance vs peers and FTSE 100 |
| Fig 5 | Revenue growth and margin recovery trajectory |
| Fig 6 | DuPont drivers — asset turnover and net margin |
| Fig 7 | 12-month price target scenarios |
pip install matplotlib pandas numpy
python tesco_analysis.pyCharts are saved as high-resolution PNGs (300 DPI) in the working directory.
- Tesco PLC Annual Reports (FY21–FY25)
- Office for National Statistics — CPI, GDP, wage growth
- Bank of England — Base rate history
- Kantar — UK grocery market share data
- Refinitiv — Peer valuation multiples
- CNN Fear & Greed Index; AAII Sentiment Survey
- Python — pandas, numpy, matplotlib
- Charting — dual-axis plots, annotated trend lines, scenario bar charts
- Style — Tesco brand colours (#00539F, #EE3124), seaborn whitegrid theme
Developed for COMP0164 Digital Finance, MSc Financial Technology, University College London (December 2025).