In 2021 the Tesco (LSE: TSCO) share price managed to grow, despite the company having its fair share of drama. The shares ended the year 23% higher than their first 2021 trading day and here I’m going to explain why that may have been the case.
Aisles and tribulations
Tesco managed to keep its stores open throughout 2021 and this meant that it had a very strong first half. However, that’s the ‘first half’ from a financial perspective (that is, the period from March to August). The actual first six months of 2021 were riddled with issues from the perspective of the outside world. October would reveal a very healthy picture for the company yet before then, investors were spooked by all manner of unflattering news.
In February, Tesco approved a £5bn special dividend payment after disposing of its Asia business. This was accompanied by a share consolidation in which it issued 15 new shares for every 19 existing ordinary shares. The market didn’t seem to like this as the Tesco share price dropped immediately. After this, came news of supply chain issues and driver shortages. There was the Suez Canal blockage in March and Brexit-related restrictions at ports of entry throughout the year.
The Tesco share price therefore consistently underperformed between mid-February and late August. September brought some reprieve with the stock beginning to march steadily upward, but the real turnaround came in the next month.
The comeback
As mentioned, October brought news of what was a very strong first half. Revenues were up 5.9% compared to the first six months of 2020, reaching a total of £30.4bn. This translated to £1.3bn in operating profit, a 30% increase compared to the same period in the prior year. Tesco reduced its net debt by £1.7bn and then announced a share repurchase programme of £500m. These were all positive signs that increased investor confidence. The Tesco share price began to shoot upwards at the beginning of October in light of the news. It was pretty much an upwards trajectory from there until the stock reached its annual peak at 291.25p on 30 December.
The rally was impressive and all the more so given the fact that there had been so much negative news about Tesco in the preceding eight months. The same week that the half-year earnings came out, it also made headlines on news that it had to pay £193m in settlement of its accounting scandal that happened back in 2014. It didn’t matter. Such was the impression that the earnings report made, the Tesco share price simply marched on and upwards.
Looking ahead
2021 was definitely a rocky year but Tesco managed to grow. The boost in the Tesco share price during the last three months of the year seems to have been a fair reward for a strong first half. Tesco has revised its earnings expectations upwards and a strong financial year beckons if those final results are as expected come this March.
Stephen Bhasera has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
