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Tesco share price pares losses as FRC drops accounting investigation

Tesco share price bounced back after the Financial Reporting Council (FRC) dropped an ongoing accounting investigation. The share price is trading at £227 after dropping to £224 earlier in the day. The overall FTSE 100 index is trading £6,485.

FRC drops Tesco probe

In a statement earlier today, the FRC said that it was dropping its long-running investigation into Tesco, the biggest retailer in the United Kingdom. The investigation started after the company said that it had overstated its profit by £263 million. This figure was then increased by £326 million following an audit process. The announcement came three years after the company made a deal with the Serious Fraud Office and the FCA.

This announcement also came a few days after Alan Stewart, the firm’s Chief Financial Officer (CFO) said that he would retire after helping implement a turnaround strategy. It also came as the CEO, Dave Lewis, prepares to hand the button to Ken Murphy.

In his capacity, Stewart helped the company bounce back from the 2014 accounting scandal, implement thousands of job cuts, and streamline the domestic markets. Tesco also abandoned some of its international markets that were not performing well.

The new leader will guide the company that is facing several challenges. For example, while grocery shopping has increased during the pandemic, its costs too have increased. As with all other retailers, Tesco has had to increase its staff and implement social distancing measures.

As a highly domestic firm, Tesco is also facing the challenge of Brexit. Last week, the fourth round of talks between the UK and the eurozone ended without a deal. Analysts believe that Tesco will be affected significantly if there is a no-deal Brexit because it is mostly a domestic retailer.

Other retail stocks declined. Ocado share price fell by more than 2.60% while Sainsbury and Morrison’s shares rose by more than 1.30%.

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Tesco share price technical outlook

On the four-hour chart, Tesco share price moved to the 38.2% Fibonacci retracement level and then bounced back.  It is now between the 50% and 38.2% retracement level. The price is still below the 100-day and 50-day exponential moving average. At this stage, a move below £225 will signal that there are more sellers in the market who will be keen to push the price lower to the support at £221.

On the flip side, a move above £231 will invalidate this thesis. This price is along the 50-day and 50% retracement level.

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