Buying Tesco plc on Booker news could make you a millionaire in retirement
The outlook for the Tesco(LSE: TSCO) share price may have received a major boost on Tuesday. The Competition and Markets Authority (CMA) announced that it has given provisional unconditional clearance to the merger with Booker. This could create a dominant player in the food sector and may lead to a higher earnings growth rate for the combined entity. There may also be significant synergies from the deal.
As such, Tesco could now be an even more attractive investment opportunity for the long run. Of course, it's not the only retailer which may be able to help you make a million in retirement. Reporting on Tuesday was another stock which appears to offer high growth at a reasonable price.
The company in question is B&M(LSE: BME), the multi-price value retailer. Its interim results showed a rise in revenue of 21.7%, with like-for-like (LFL) revenues rising by 7.5%. This helped adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) to increase by 19.8%, while profit before tax rose by 17.8%.
During the period, there were 20 new store openings in the UK including three relocations. This means the company is on track to open gross 50 new stores in the current financial year. The company's German business Jawoll opened seven new stores and is on track to open 11 new stores this year.
The company has also purchased land in the UK which will be used for a new Southern distribution centre from 2019. Alongside this, discount convenience retailer Heron Foods was acquired in August and it could provide a further catalyst for the company's bottom line.
Looking ahead, B&M is forecast to record a rise in its bottom line of 21% in the current year, followed by further growth of 18% next year. This puts it on a price-to-earnings growth (PEG) ratio of 1, which suggests that it could offer share price growth potential. With consumers seeing their disposable incomes come under pressure in real term, its value-based business model could become more popular on a relative basis.
Despite the uncertainty facing the UK retail sector, Tesco also has high growth potential. Excluding the impact of the Booker acquisition, it is expected to post a rise in its bottom line of 51% this year, followed by growth of 26% next year. Its PEG ratio of 0.5 is relatively low and shows that it offers a wide margin of safety.
Tesco has been able to generate efficiencies in recent years through a disciplined strategy. It is therefore well-placed to counter any threat from discount retailers should inflation continue to rise and consumer confidence remain at a low ebb. With the addition of Booker to its business, it may offer more resilient growth due to a dominant position within the food services and retail segments. As such, now could be the perfect time to buy it alongside B&M for the long term.
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Peter Stephens owns shares in Tesco. The Motley Fool UK has no position in any of the shares mentioned. 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.