View the article online at http://citywire.co.uk/money/article/a559608
Warren Buffett buys more shares in battered Tesco
The 'Sage of Omaha' pounced on last week's profits warning from Tesco to increase his stake in the supermarket group to over 5%.
Warren Buffett has increased his stake in Tesco to over 5% in a boost for the supermarket group after last week’s historic profit warning.
Berkshire Hathaway, Buffett’s investment company, bought over 130,000 Tesco shares on 12 January as the stock plunged 16% in response to the retailer’s first profits warning in 20 years.
According to a stock exchange announcement today, it bought a further 150,000 shares on 13 January as the price fell further. This takes the Tesco stake of the veteran value investor, nicknamed the ‘Sage of Omaha’, to 5.08% from 3.21%.
The move will bolster the position of chief executive Philip Clarke who saw billions wiped off Tesco’s market value after he shocked investors by saying there would be no profits growth next year. This is so Tesco can invest around £400 million on its UK stores in a bid to claw back market share in its home market.
Given Buffett’s remarkable investment record, the move will also intensify the debate over Tesco’s prospects. The disclosure of Berkshire Hathaway's buying lifted Tesco (TSCO.L) shares 2p to 324p, but the stock has essentially traded sideways since last week as the City digests what the news means for the company and its sector.
Shares in Tesco’s arch rivals Morrisons (MRW.L) and J Sainsbury (SBRY.L) fell today after Goldman Sachs published a bearish note on supermarkets, downgraded all three companies and cut their earnings forecasts. ‘Following Tesco's profit warning on 12 January, we believe the UK food retail sector outlook has significantly worsened. Tesco announced margin investment, and as a result we expect negative pressure on sector profitability,’ Goldmans said in the note.
According to Reuters data, 18 analysts now rate Tesco a ‘hold’ with just 10 rating the former retail darling a ‘buy’, although four have put the company down as ‘underperform’ or ‘sell’.
Yet with Tesco’s shares now yielding over 5% and the dividend well covered, many private investors have jumped at the chance to buy a FTSE 100 company on the cheap. Their numbers are likely to swell after today's news that Buffett remains a fan of Tesco's long-term value. It may also reassure Tesco's new chairman, Sir Richard Broadbent, who bought nearly £100,000 of the company's shares last week.
News sponsored by:
After Boris announced he was backing Brexit, sterling suffered its biggest slump in six years. Our Market Mavens discuss. Follow the Market Mavens LinkedIn page for weekly videos, in which our panel of industry experts share their views on financial news
The Citywire guide to investment trusts
In association with Aberdeen Asset Management
More about this:
Look up the shares
More from us
- Smart Investor: you're no Buffett, so ignore company management
- Smart Investor: how Tesco remains a stock for all seasons
- Smart Investor: Warren Buffett – lessons from the ultimate value investor
- Diary of a Dumb Investor: why I’m not buying Tesco
- Tesco chairman swoops on retailer's distressed shares
- Tesco: the funds that held the battered stock
- Big Price Drop leaves Tesco investors reeling
Tools from Citywire Money
From the Forums
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add firstname.lastname@example.org to your safe senders list so we don't get junked.
by David Kempton on May 24, 2016 at 17:15