Questor share tip: Tesco offers good value despite failure to crack Japan

So, Tesco has said Sayonara to Japan, quitting the country eight years after it first tried to sell sushi to the commuters of Tokyo.

Tesco

378.6p +13.8p

Questor says Buy

The move may sound drastic, exiting the world's third largest economy with its tail between its legs and selling off a business which generated annual sales of £476m.

But it reality it was a tiny part of Tesco's operations. Even less significant than the pickled ginger you get on the side of a plate of raw fish. The 129 Japanese stores were responsible for less than 7pc of the company's overall turnover and absolute none of its profit.

Indeed, the company has confirmed that it was loss making last year, and probably the year before that. Analysts calculated that it lost about £20m last year and the disposal could boost group profits by about 0.5pc, presuming it sells the business without any hiccups. It has already written down the goodwill in the business, so it shouldn't book any losses on the sale.

What is interesting about the deal, however, is that it proves Tesco's newish chief executive Philip Clarke is prepared to be ruthless and prune out any dead wood. This has immediately prompted Tesco-watchers to speculate whether he will be as similarly hard-headed when it comes to Fresh & Easy, the troubled American business, which has yet to make any profit.

Mr Clarke categorically denied any exit from the States was on the cards, reiterating his ambition for the American stores to break even by March 2013 and thereafter to make returns for shareholders.

Perhaps the most significant aspect of the Japan business was that after eight years it never managed to make any impact in the country, a nation that famously loves both food and shopping. It never reached a 1pc share of the Tokyo market, not even half of 1pc.

That it could fail to crack such an important market proves that the company is sometimes fallible. Will it be in a similar position in 2015 - eight years after entering the American market?

But one shouldn't dwell too much on Tesco's failure. In the rest of Asia it is powering ahead, having more than doubled sales in the last five years, thanks to its substantial Korean business.

China, of course, is the real prize and Tesco did not make a profit here last year, but reported like-for-like sales growth of 5.5pc last year. If it can continue to move forward here, it can afford to cut lose from America in a few years, if circumstances force an exit.

Questor has been a long-term fan of Britain's biggest retailer and the country's largest private sector employer. We last said buy at 407.3p back in June, and though the company has been hit by the falling stock market and its shares are now at 378.6p, this makes them, if anything, even better value. Plus, the shares offer a solid dividend yield.

Yes, Aldi, Lidl and the discounting efforts of even Waitrose will put the company under pressure in the UK, but you bet against Tesco at your peril, especially as Mr Clarke has vowed to concentrate on the highly profitable area of non-food.

A forward price earnings ratio of 10.7 is low for such a quality company, and makes it considerably better value than most boxes of sushi on offer in the supermarket – with or without the pickled ginger.