IV
You have possibly seen this, amazing in this day and age.
Tesco Investigates Accounting Error
The newly installed chief executive, Dave Lewis, said Monday that Tesco had uncovered a "serious" accounting issue, amounting to a third profit warning in as many months.
http://online.wsj.com/articles/tesco-error-triggers-new-profit-warning-1411367294
lol hard to miss, its spread all over the financial news sites.
Not a good thing, I remember a word from Cramer, when there are accounting irrigularities, get out, no matter what.
But to put it in perspective its 250million pounds against a forecast profit of 1.1billion pounds. If Tesco makes $850 for the half, then double it for the year its $1.7 billion. Market cap now is $15.7 billion, so PE less than 10.
They also hold a stack of property on their books at cost price. Market valuation is estimated significantly higher.
Also international operations were hammered by the rapid rise of the pound over the last year. Pound is now trending down a bit for this year, so should see better overseas profit translations.
Against this the negatives:
*their debt levels are quite high (but not alarming in itself)
*the new budget entrants are taking market share rapidly (but from a very small base)
*again do I lack understanding of the UK grocery market. Australia has an effective oligopoly with a weak 3rd player (Metcash, think IGA)
*UK has 4 major players with Tesco the biggest on 30%. With new market entrants we could see up to 7 players. This makes market pricing much harder (No matter what the Australian competition board says, you can bet that Woolworths and Coles give secret price signals to one another).
I bought my first lot of shares at 300 pence, that needs a 50% share price recovery to break even. Bought again at 270 odd, 240 odd and 212 odd.
Now represents 2% of the total share portfolio. Uncomfortably high given the uncertainties.
Yet don't want to sell, not because of loss, but because if they can just stabilize the business, then share price will be much higher.
J Sainsbury being hit by association, although their market share is also dropping a bit against the budget newcomers.
