If Tesco bought every business that was ever suggested as an acquisition target, there would be no time to actually run its existing operations. But that doesn't stop the ideas coming.
The supermarket group has already said it is not interested in buying Northern Rock et al, preferring to concentrate on developing its own financial services business.
Now comes a revival of long standing speculation - going back many years - that it could be interested in Dutch supermarket group Ahold. Analysts at ING have just issued a note entitled Buying Ahold would actually make sense for Tesco. They said:
Ahold's perceived undervaluation could lure predators. We believe Tesco could finance such a deal and realise most synergies [which we conservatively estimate at £493m]. At a potential €12.8 takeover price, Tesco's 2011 profit before tax and earnings per share could rise by more than 31% and 14%.
[There is] compelling strategic logic for a deal with Ahold. The US market is too big for Tesco to ignore, yet any attempt to increase the scale of Fresh & Easy could prove very risky. Ahold should be viewed as a one-off opportunity to acquire an undervalued asset at a low point in the US consumer cycle.
ING also lifted its target price for Tesco, ahead of a retailing services seminar on 19 November. It said:
Trading on a single-digit PER for 2011, this looks to be a good opportunity to gain further exposure to what should be viewed as a core long-term holding.
At the same time Oriel Securities was also positive on Tesco, raising its recommendation from hold to buy. But all this has done little for the supermarket's share price, which has dipped 1.15p to 406.2p.
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