Say what you like about octogenarian investment guru Warren Buffett, but he does not mess about.
Days after calling his investment in Tesco “a huge mistake”, Buffett sold a chunk of his shares in the supermarket group to take his stake from 3.7% to under 3%.
This was hardly the resounding vote of confidence new chief executive Dave Lewis would have wanted as he prepares to unveil the group’s half-year figures on Thursday.
Lewis clearly has a difficult task. He must try to convince investors that Tesco is on the right track after the revelation of a £250m black hole in its profits, the suspension of several senior executives and continuing worries about a supermarket price war.
The City will want updates on the investigations into the scandal, which analysts fear could disrupt the supermarket’s preparations for the vital Christmas period, with commercial staff ordered to hand over their laptops and supplier meetings delayed. Lewis will also have to explain his thinking on pricing, promotions, store formats and dividend policy.
Some in the City think Lewis should unveil a £3bn cash call to bolster the balance sheet. Others would prefer disposals of, say, stores in Thailand or data specialist Dunnhumby.
Lewis also has to boost confidence within the group itself, which is not easy when every day seems to bring a new scandal or gaffe. Banning a guide dog from a London store, anyone?
Exceedingly tough for Premier
Supermarket suppliers are used to being squeezed, judging by Tesco’s actions as revealed by its recent accounting problems. And with the big four grocers cutting prices to compete with the discounters, the likes of Mr Kipling cake group Premier Foods face growing pressure on their margins. Premier has radically restructured, raising £353m, refinancing its debt, creating a joint venture for Hovis and beefing up its management team. But its shares have slumped by nearly three quarters since the March refinancing on concerns about trading.
The second quarter saw a 6.3% fall in revenues, but Clive Black at Shore Capital expects an improved performance when the company reports third-quarter figures on Thursday. He forecasts a 3% to 4% decline, helped by favourable weather in August and September and product launches backed up by more advertising. Premier has even put Homepride back on TV for the first time in a decade, although anyone who has seen the ads – with its mascot Fred as a six-foot puppet rather than a cheeky cartoon character – might find them more offputting than conducive to buying flour.
TSB’s costly quest?
Local banking for local people may sound like something out of the League of Gentlemen TV series, but TSB hopes the strategy will help it stand out from the crowd. The challenger bank, which spun out of Lloyds Banking Group and floated in June, is attempting to expand its loan book to match its cost base, but analysts fear this could hit its margins.
Analysts at Berenberg bank said: “TSB is not alone in its quest for market share. Many other challenger banks are looking to compete, while the incumbent banks’ commitment to growth means they will be unwilling to sacrifice market share… Margins will thus come under pressure as banks compete on price. We believe TSB will be unable to offset this with lower funding costs.”
TSB, which reports third-quarter figures on Friday, plans to add around 30 branches to its 600-strong estate, which the City thinks could raise costs further. Meanwhile, TSB has underperformed since its float, with one investor telling Investec’s Ian Gordon that the bank is “simply too boring”. Gordon, however, sees that as a virtue and, given the past financial shenanigans in the sector, who can blame him? However, the shares may continue to go nowhere fast since Lloyds must sell its remaining 50% stake by the end of 2015.
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