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Alastair Mundy: it would be wrong not to invest in Tesco now

by Robert St George on Jun 05, 2014 at 14:14

Alastair Mundy: it would be wrong not to invest in Tesco now

Contrarian investor Alastair Mundy has explained why he is backing Tesco despite a wider market flight from the beleaguered supermarket.

Tesco’s share price slumped 2% yesterday after it announced falling sales in the first quarter, prompting dismissal of the retailer as a ‘sinking ship’.

‘Tesco has significant problems, which the market is well aware of,’ Mundy (pictured) acknowledged.

In particular, Mundy highlighted Tesco’s troubled international expansion and its focus on maintaining a 6% margin.

‘They got a bit full of themselves,’ Mundy said. ‘I think the UK consumer sussed them out.’

Despite these problems, Mundy felt investors were overlooking Tesco’s core strengths.

‘Let’s imagine they were a Belgian widget maker,’ Mundy suggested: the firm enjoys an industry-leading 30% market share, high margins, and is ‘nasty’ to suppliers to keep costs low.

Mundy added that ‘there is a very good chance we’re going to get management change’ at Tesco in the near future, bolstering a turnaround investment case.

He also doubted the consensus that Tesco’s business was being squeezed into irrelevance by discount chains below it and upmarket stores above it.

‘Everybody is an expert on Lidl, Aldi and Waitrose,’ Mundy remarked, observing too that Aldi and Lidl did not offer ‘the greatest shopping experience’.

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