One Reason Why I Would Buy Tesco PLC Today

Today I am looking at why I believe Tesco‘s (LSE: TSCO) ventures abroad could provide the perfect remedy to escalating troubles at home.

Asian odyssey set to deliver delicious growth

Although the rise of the UK’s grocery discounters are becoming increasingly problematic for established sector giants such as Tesco, I believe that a more disciplined approach in high-growth overseas markets promises to deliver succulent long-term returns for the Cheshunt business.

The supermarket has been severely burned through its previous foreign invasions, most notably its abandoned Fresh & Easy venture in the TescoUS last year and its withdrawal from Japan in 2012. But the announcement of two potentially game-changing deals in Asia in recent months could mark a sea change in the firm’s success abroad.

As part of its approach to pursue disciplined international growth”, Tesco has said that it intends to continue to allocate capital to the markets where we see the most potential for growth… notably Korea, Malaysia and Thailand”.

But for me, exciting new ventures in the region’s economic powerhouses of China and India bode particularly well for future earnings. Last month Tesco finalised a deal to integrate its 134 stores in China with those of giant local chain Vanguard, which operates nearly 3,000 outlets in the country. The accord creates the biggest retailer in seven of China’s eight most populous and richest provinces.

And Tesco followed this up by signing up to a 50% stake in Trent Hypermarket, operator of 12 Star Bazaar outlets in the south and west of India. The supermarket already has wholesale, franchise and technical agreements in place with Trent, so the move marks the next logical step in Tesco’s expansion into the country.

Tesco’s fresh strategy in China and India are by no means a magic wand, however, and investors should expect further troubles from foreign shores in the near-term. Although international sales punched a 0.5% advance during March-May at constant currencies, the effect of heavy foreign currency weakness forced revenues 8% lower.

Still, Tesco announced that like-for-like sales in Asia had improved during the first quarter, while underlying sales across the Czech Republic, Poland, Hungary and Turkey had also crept up during the period. Europe has been a particular bugbear for the supermarket, so this news — combined with signs of improvement in the highly competitive Irish market — is clearly a promising omen.

Unlike in previous years, Tesco is taking a much more focused approach to expansion into foreign markets, tapping into strong local knowledge rather than waving around its gigantic wallet to achieve success. And I believe that this fresh approach to new geographies represents a significant long-term earnings lever.

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Royston does not own shares in Tesco. The Motley Fool owns shares in Tesco.