In this task, I have £15,000 to invest in a publicly listed company and will monitor the performance of my investment. I will be analysing the progress of my share and at the end will be deciding whether I would like to keep or sell my share. The FTSE 100 is the share index of one hundred companies with the highest market capitalisation and are listed on the stock exchange.
I will be conducting my Stock Market report using Tesco. This is because Tesco is a ‘british multinational grocery and general merchandise retailer’ (Wikipedia,2018)and is one of the biggest supermarkets in the UK. The reason why I have chosen Tesco over it’s competitors like Sainsbury’s and Asda is because Tesco ‘is the best performing big supermarket in the latest sales figures'(Gwynn,2017). It has been quoted that Tesco had an ‘increase of 2.2% in sales figures'(Gwynn,2017) compared to Sainsbury’s of 1.2% and Asda of 0.1%. At the end of 2017, Tesco had made a profit before tax of 562 million in which they have blown away its competitors.
(Tesco Plc,2017)The companies I considered were Asda, Sainsbury’s and Morrison, however Tesco caught my eye as they completely blown away their competitors this year. Tesco is a organisation which focuses on customer needs and understand’s that customers needs are ever changing therefore they always adapt to them and shows why they are at the top. This makes customers want to visit more often and as a result boost’s Tesco’s sales figures. These excellent sales figures would give me a good return on my investment.The Porter’s Five Forces model was used to ‘analyse an industry’s attractiveness and likely profitability’ (Neilan,2018). Porter said businesses like to keep a watch on their competitors.
The five forces are: ‘competitive rivalry, supplier power. buyer power, threat of substitution and threat of new entry’. ‘According to Porter, these Five Forces are the key sources of competitive pressure within an industry.’ (Neilan,2018). Tesco are always keeping an eye out on their competition and know that they can win over customers by providing the best service. Tesco has phenomenal sales figures and are always beating their competitors and are the best supermarket for value for money.PoliticalTesco’s has stores in twelve different countries across Asia and Europe.
The advantage of branching out makes more people aware of the organisation however political factors such as tax rates and legislation could have a huge impact on their performance. In 2011, ‘the government had increased the VAT rate from 17.5% to 20% in order to boost tax revenues to cut its deficit’ (BBC,2011). The increase in VAT meant that consumer spending drastically decreased. This had an effect on Tesco as it’s a general merchandise retailer, it affected their revenue. Because Tesco’s sales are their main source of income, it had a huge effect on their profit figures.EconomicalEconomical factors are one of the main concerns for Tesco because they are likely to influence things like profits and costs.
It is really important that Tesco are aware of any changes made so that it does not affect them. Regardless of Tesco branching out to different countries, they are very dependant on their UK Market and have a ‘market share of 27.9% to the total market’ (Neilan,2018). One of Tesco’s key strategies is branching out to different countries and has worked out very well for them. If a recession hits the UK, consumers have a decline in disposable income. This gives them less to spend and have to buy cheap alternative products. Tesco went the step further in advertising its value goods rather than the branded goods in times like this.
This method is effective as it will still stimulate revenue. SocialIt is said that ‘customer’s opinion of an organisation can change quickly due to changes in price and quality of the company’s product’ (Kotler and Armstrong, 2010, p. 163-165). This shows how important it is that Tesco make sure their products are good quality and that their prices are justifiable.
In 2013, Tesco was accused of using horse meat in their products. This affected the reputation of the business and customers had started to shop elsewhere. This resulted in the decline of sales and profit.
Some customers prefer to bulk shop more often due to social changes and find it more convenient to do so. Because customers are becoming more aware of health issues, their diet’s is constantly changing. The way Tesco’s is tackling this is by adapting to these constant changes by offering healthier alternatives such as organic products. TechnologicalTechnology is ever evolving and you can never be up to date with it. Technology has bought lots of opportunities for Tesco. One of the main being their online shopping for home delivery. This method is much more convenient for some customers as some people prefer to shop within the comfort of their own home. Another opportunity is the self service checkouts which have reduced the ques significantly and provides ease for customers.
Tesco need to make sure that these services are used properly and accordingly to the customers wants and needs and are aware of the technology used as they can create something much better in the future. The graph below shows the comparison between the Share Index of Tesco and FTSE 100. You can see from the graph that the share index prices are always fluctuating. This is due to the supply and demand level. Sometimes the demand may be very high, compared to other times where it may not be as high. Tesco is a big supermarket retailer therefore their needs always change as they need to adapt to what their customers want.
During the Christmas period, more stock will be required as it is a very busy time of the year.On 13th October, the closing share price was 186.00, but a week later it had increased to 188.90. This could be because of many reasons however I believe this could be due to the increase in demand for stock.
When demand increases for a stock, it’s share price will also increase. The stock price may have increased due to the Halloween period as Tesco would need to stock up more than usual. This would not necessarily mean stocking up on food, but other items which may be Halloween related. This would result in their stock levels increasing which will also increase the share price.The week of 27th October, the share price had decreased to 185.50. This may be due to several reasons however I believe that it may have dropped on this particular occasion due to the demand being low on certain products e.g.
Halloween costumes. As Tesco’s share price had fallen, they would need to sell additional shares of stock in order to raise the same amount of money. We learn here that when the stock prices decreases, it gets difficult to get back on track.To conclude this report, Tesco is one of the biggest supermarkets in the UK which is why they are in the FTSE 100. They have been allegations made about Tesco e.g horse meat scandal however they always find a way to become better and reach the top.
Tesco has a very high capital structure which they can use to their advantage to perform better however they need to make sure that there is demand from customers. I will be keeping my share and continue to invest in Tesco, as Tesco have been really consistent in their approach of providing customers with the best service and always generating phenomenal revenue. Regardless of the share prices fluctuating, I am continuing to get a good share return by investing in Tesco hence why I would like to keep my share.