Private Investor: Why I won't give up on my Tesco shares...for now
Saturday 22 January 2005
"Bonkers!" That was John Humphrys' reaction on the
Today programme on BBC Radio 4 on Tuesday morning when the business correspondent told him that
Tesco shares were down after the supermarket reported excellent results, quite in line with expectations.
"Bonkers!" That was John Humphrys' reaction on the Today programme on BBC Radio 4 on Tuesday morning when the business correspondent told him that Tesco shares were down after the supermarket reported excellent results, quite in line with expectations. Had Mr Humphrys been watching the financial affairs of four leading retailers over the past week or two rather more closely than I suspect he has, he might have added that it was strange indeed that when Sainsburys and Marks & Spencer reported their usual dismal sales news, their shares were marked up.
Bonkers it may be, of course, but it is relatively easy to comprehend. It's all about expectations. Business, like politics, increasingly depends on the massaging of these expectations. Those who have been buying into Tesco in the recent strong run were anticipating good results, and when they got what they wanted, they took profits, the shares were sold and the price slipped.
Perfectly sensible. When Sainsburys and Marks & Spencer managed to persuade the markets that things may be bad but they really can't get much worse, then they were rewarded instead. Quite understandable, too, I guess. It is all a little dispiriting though, as it seems to confirm all those old chestnuts about the short-termism of the City.
Then again, that is itself a short-term view taken over the last couple of years. Since, in fact, I started piling money into Tesco, the shares have been rerated by investors large and small on the basis of the group's long-term record at home and abroad. I reckon that mine cost about 225p a share, and they're all in the money now, at just over 300p. Under the leadership of Sir Terry Leahy, Tesco has shown a very sure touch. The international expansion in East Asia and Eastern Europe has been well managed, and continues apace in Korea, for example. The strategy of opening more local stores also seems to have come off rather well. Room for expansion in the United Kingdom may well be limited by the watchful eye of the Government, as Tesco's market share relentlessly rises, although all the official inquiries into the supermarket's power in recent times have concluded that there is really nothing to worry about.
The other regulatory risk is the planning system, apparently geared to frustrate giant developments on out-of-town sites. Yet this may work to Tesco's advantage, as none of its rivals will be able to catch up with it in this field because they, too, are going to have their planning applications turned down. Stopping Asda and Morrisons from building brand new hyperstores, in other words, may serve only to institutionalise Tesco's pre-eminence in the marketplace.
The real question now, of course, is when the existing management team will drop the ball. Sooner or later, in the life cycle of companies, there comes a period of complacency, and so there will for Tesco. One or two tactical errors - an overstocking here perhaps, an imprudent expansion into an unknown market there - and soon the whole edifice comes tumbling down, just as it did in the case of Marks & Spencer.
The historical analogy is a strong one, as I know to my cost. I recently sold most of my Marks & Spencer shares after a long period of frustration, punctuated only by the excitement of Philip Green's manoeuvres to buy the firm. That really isn't the sort of shareholder reward that we deserve. So I put the money into the racy but hotly tipped SportingBet, which I regard as much the less risky enterprise. But sell my Tesco shares? I would really like a few more pennies on the share price, a little nearer to 350p, before I go for it. After all, every little helps.
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