Beginners’ Portfolio: Tesco PLC Helps Us To A 50% Gain!

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The Beginners’ Portfolio is a virtual portfolio, which is run as if based on real money with all costs, spreads and dividends accounted for.

It’s a little while since we’ve caught up with news and taken a look at our portfolio valuation, so let’s start with a quick look at how much cash we’d have in the kitty if we sold up, before we take a look at the latest from Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US).

As of 11 October, the portfolio has broken the 50% profit mark:

Company Shares Buy Cost Bid Proceeds Change %
Vodafone 289 168.5p £499.51 218.7p £622.04 £122.53 24.5%
Tesco 159 305.5p £498.23 357.9p £559.06 £60.83 12.2%
GSK 34 1,440.5p £502.22 1,554p £518.36 £16.14 3.2%
Persimmon 79 617.9p £500.55 1,195p £934.05 £433.50 86.6%
Blinkx 1,319 36.9p £499.68 151.8p £1,992.24 £1,492.56 298.7%
BP 112 434.5p £499.01 437.8p £480.34 -£18.67 -3.7%
Rio Tinto 16 3,048.4p £500.18 3,043p £476.88 -£23.30 -4.7%
BAE 146 332.3p £497.59 437.6p £628.90 £131.31 26.4%
Apple 2 $458.4 £605.98 $487.2 £591.50 -£14.48 -2.4%
Aviva 146 321.4p £499.71 427.0p £613.42 £115.71 23.2%
Dividends         £281.08 £281.08  
Total     £5,100.66   £7,697.87 £2,597.21 50.9%

That includes the latest dividends — £7.36 from a 4.63p-per-share interim payment from Tesco, and £8.18 from Aviva‘s 5.6p interim.

One interesting thing to note is that our investment in Apple has fallen into loss, purely because of exchange rate movements — which is one extra source of risk when buying non-UK shares.

I’ll catch up on the rest next week, but for today, here’s what’s been happening at Tesco:

Britain’s top supermarket

tescoFirstly, we passed Tesco’s ex-dividend date on 9 October, so that gets us the interim payment I’ve already mentioned — the cash isn’t actually paid on ex-dividend date, but as that’s the guarantee then it’s the most convenient date to use for our accounting.

More importantly, we had the actual first-half figures on 2 October, and they were a bit downbeat. For the 26 weeks to 24 August, trading profit fell 8% from £1,718m to £1,588m.

Europe was tough, with a 68% fall, and profit from Asian markets dropped 7% after opening hours were hit by new Korean regulatory restrictions.

But the UK was robust, with sales excluding petrol up 1.7%, like-for-like food up 1% in the second quarter, and margins stable. Clothing sales in Q2 were up 8.6%, and online sales picked up very nicely — up 13% in the UK and 54% overseas.

The share price took a bit of a dip as a result, but with a P/E of 11 based on full-year forecasts and a dividend yield of better than 4% expected, I still see today’s price of 359p as undervalued.

China looking good

Developments in China, which has the potential to be a lucrative market, are going well as Tesco’s deal with China Resources Enterprise (CRE) progresses. The two firms have entered into definitive agreements for a merger of their retail operations in the country.

The joint venture, in which Tesco will have a 20% stake, will have sales approaching £10bn and will be China’s biggest multi-format retailer.

I find this development pretty exciting, and it shows Tesco learning how best to approach individual markets. Going it alone in China was not working, but the next approach holds great potential.

Overall, then, I still rate Tesco as a ‘Buy’ and I’m happy to hold.

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> Alan does not own any shares mentioned in this article. The Motley Fool owns shares in Tesco and Apple.