On paper, it was a perfect "squeeze": on the one hand, Tesco had to deal with unprecedented price increases from its suppliers: on the other hand, it had to manage to make consumers absorb these increases.

The group, which published its annual results last Thursday, is finally doing better than expected. But beware of optical effects: the growth in turnover - £65 billion compared with £60.6 billion the previous year - is a direct result of the said inflation, rather than an increase in volumes.

On a constant basis, in fact, sales are continuing their long trend of slow erosion, particularly in the face of very aggressive competition from German discount chains and as a result of the rationalization of the geographic footprint - in other words, the closure of the least profitable stores.

The good surprise - the one that pushed the share price up following the announcement of the results - comes from the resilience of the operating margins, well defended despite the context. At £2.7 billion, operating profit remains in line with its average for the last five years.

While the accounting result was affected by a £982 million depreciation of the property portfolio as a result of the rise in interest rates - a glimpse of what lies ahead for all major land and property owners - the cash profit, or free cash flow, remains comparable to the previous year.

It reached £2.7 billion, half of which was used to reduce debt - a wise decision in this context of rising interest rates - and the other half to pay shareholders, which was equally divided between dividends and share buybacks. Another pleasant surprise.

Tesco has repositioned itself well after a difficult start to the cycle. At x7-x8 cash earnings, there is a possible case for undervaluation of the stock, even if the "new normal" following the pre-pandemic restructuring is to be confirmed.

This, notwithstanding the downward trend and a return on equity barely above the cost of capital, resulting in structurally limited value creation.