Story
Tesco Reportedly Explores Sale of Central and Eastern European Operations
Summary
Tesco is exploring a potential sale of its Central and Eastern European business, a division with £4.6 billion in sales, according to a Financial Times report. Analysts at Morgan Stanley have outlined the unit's financial performance and potential valuation based on recent sector transactions.
Tesco (LSE:TSCO) is reportedly exploring a sale of its operations in Central and Eastern Europe, according to a July 8th report from the Financial Times. The British supermarket group has not issued a comment on the matter.
Financial Profile of the CEE Division
Analysts at Morgan Stanley noted that the division, while significant in scale, is a relatively small contributor to group profit. The operations generate £4.6 billion in annual sales but only £115 million in earnings before interest and taxes (EBIT), representing 6.3% and 3.6% of the group's total, respectively.
The business spans three countries, with sales distributed roughly equally:
- Hungary: £1.62 billion
- Czechia: £1.56 billion
- Slovakia: £1.45 billion
Across these markets, the unit employs over 22,000 people in 561 stores. The division generated £264 million of EBITDA in fiscal year 2026.
Market Position and Performance
AdAccording to data from Euromonitor, Tesco has lost market share in the region over 3-year, 5-year, and 10-year periods. The company holds the number four market position in Czechia and Hungary and is number three in Slovakia, facing stiff competition. In Czechia, for example, the market leader Schwarz Group is approximately 4.4 times larger than Tesco.
Morgan Stanley highlighted that the division is currently under-earning compared to its historical performance. Its current EBIT margin of 2.5% is well below a prior peak of over 4.3%, and its EBITDA has declined from over £300 million in fiscal years 2022 and 2023.
Valuation Considerations
From a valuation perspective, the property assets are a key component. Tesco's annual report estimates the property value at £1.8 billion as of February 2026, compared to a net book value of £1.4 billion, implying a £400 million embedded revaluation surplus. The business also has approximately £680 million in IFRS16 lease liabilities, according to Morgan Stanley's estimates.
Recent transactions in the CEE grocery sector provide a benchmark for a potential sale price, with multiples ranging from 5 to 7 times EV/EBITDA. Precedents include Ahold Delhaize's acquisition of Profi Rom at 7 times post-synergy EV/EBITDA and Carrefour's sale of its Romanian business for approximately 6.5 times EV/EBITDA.