Warren Buffett buys more shares in battered Tesco

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.