Dividend return and credit rating hint bolster Tesco's recovery

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It made operating profit before one off items of 759 million pounds ($1 billion) for the six months to August 26 - ahead of analysts' forecasts.

Tesco's share price was subdued yesterday, shedding 0.27 percent to close at 186.65, underperforming the broader United Kingdom market, with the benchmark FTSE 100 index ending the session in positive territory.

The stock was trading at 230 pence when Lewis joined in September 2014.

Mr Lewis said the group was as "shocked as anybody" by the undercover media investigation, but it would keep the brand, which he insisted had a quality specification unique to Tesco.

"It's a significant milestone in the recovery of the business and one which demonstrates the confidence we and the board have in our plans", he told reporters. Sales increased 3.3 percent to 25.2 billion pounds.

Shares in the supermarket chain opened some 2% higher on Wednesday morning, while rivals Sainsburys and Morrisons saw their shares fall roughly 1%.

United Kingdom like-for-like sales in the second quarter lifted 2.1%, although this was down slightly on the 2.3% recorded in the previous three months.

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Cost savings helped to push up the operating margin, to 2.7% from 2.2% a year ago, enabling it to reiterate its medium target for a 3.5% to 4.0% margin.

Looking ahead, the company said it is making good progress towards the medium-term ambitions shared in October 2016 and remain firmly on track to reduce costs by 1.5 billion pounds, generate 9 billion pounds of retail cash from operations and improve operating margins to between 3.5% and 4.0% by 2019/20.

The pension deficit was also halved to £2.4bn from £5.5bn in February, and the half triennial pension review was concluded with annual contributions increasing by £15m to £285m from April 2018.

Credit Suisse has sounded a downbeat note on Tesco (LON:TSCO), arguing that Britain's biggest grocer is most at risk from further growth of discounters.

Regarding its proposed 3.7 billion pounds merger with wholesaler Booker, the company said the merger is now undergoing an in-depth "Phase 2" investigation by the Competition and Markets Authority or CMA.

The Booker deal is now being probed by Britain's competition regulator. Media reports suggest that the Competition and Markets Authority (CMA) is expected to give its provisional findings by next month and a final decision by December.

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