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Tesco needs new leadership, says Alastair Mundy
Alastair Mundy, manager of the Temple Bar investment trust, talks about his contrarian investment philosophy and explains why out-of-favour Tesco doesn't merit inclusion in his funds.
Despite a 19% drop in Tesco’s (TSCO.L) share price so far this year, Alastair Mundy, manager of the Temple Bar investment trust, says it would take a big change, like a management shake-up for him to become interested in the stock.
Mundy is a contrarian investor and looks for out-of-favour stocks, which have typically fallen 50% from their peak over the past seven years. Tesco, which reports half-year results tomorrow, may be down on its luck but Mundy says he won’t be buying its shares in the foreseeable future.
He adds that the company isn’t as strong as other retailers and doesn’t generate much cash due to its high capital expenditure on opening new stores abroad.
Mundy also believes the business will need new leadership to solve the its problems rather than relying on existing management.
An ideal environment for contrarian investors?
Despite difficult market conditions Mundy says he’s not finding more opportunities as a contrarian investor and believes there is a lack of quality stocks as listing rules in the UK have become too lax.
He adds that since buying JJB Sports, which he calls one of his ‘worst investment’ decisions, he’s avoiding smaller companies in the portfolio as they can be difficult to get enough information on and can be reliant on key people within management to drive the company forward.
Mundy, who features in Citywire Selection, our choice of the best investment funds, manages a large number of other funds such as the Investec High Incom e investment trust and Investec Cautious Managed and UK Special Situations funds. He believes his ten-strong team is big enough to cope.
Temple Bar currently trades at 994p, a 2.4% premium, to its net asset value (NAV) of 970p. Its shareholders have enjoyed a total return of 19% over the past year and 59% over the past five years, beating the FTSE All-Share total returns of 12% on a one and five year basis.
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by Daniel Grote on Feb 27, 2015 at 18:36