Tesco shares hammered

rockitup

Too late now but I wish I had gone with gut feeling last Friday and sold my Tesco shares which I have been averaging into. News was out that day about retailer's results being likely to disappoint this week

Got the shock of my life when I turned on my PC and see about a 15% drop in their share price, I was expecting a dip but not this size of a drop.
Don't know if I have done right but I bought more at £3.2585 today, a gamble I suppose but will watch carefully.

Does anybody on here think the decline in share price was overdone today, anybody else bought back in?

oldvicar

My local Tesco is deserted. The competitor store next door is buzzing. That tells me most of what I need to know.

It's amazing what you can tell about future share performance just by visiting a retailer's stores. It was the same with M&S years ago before their big decline (which they are recovering from), and Woolworth....

There's also the higher they rise the further they fall (after too much hype IMO) factor to consider here.

To anwer your questions briefly: 'No' and 'No'.

gadgetmind

Back in August, I asked my wife if she was OK with me buying some Tescos shares in her name, and she told me not to be daft and buy Sainsburys instead. Their capital value got hit in the crossfire today, but they had a cracking Christmas and the 5.3% divi yield we bought in at looks safe.

And yes, I have told her that she was right. :-)

buffman

A lot of Tesco's success over the past decade is due to Sir Terry Leahy. He stepped down last year as CEO. As a consequence I have stayed clear of Tesco (I own Sainsburys). I would wait for a few days to see how the dust settles before buying.

rockitup

I have been out of the UK for almost 4 years now so hadn't been able to notice the drop off in the number of customers at Tesco.

I can't really moan as I have traded in and out of their shares a number of times in the last 5 years and made a few quid but was just really shocked to see this 15% drop (expected 4 or 5% myself)

Will see how things go for next few weeks, I hadn't planned to hold on to the batch I bought today for too long, if they have a decent bounce I will sell. Think I will stick more to indices from now on, I had some really good results on the FTSE & DJ swing trades I made in 2011.

premierfella

Tesco have only themselves to blame in terms of their UK food business.

If customers such as myself start seeing wild price changes, for no apparent logical reason, on the products they buy every week, its a prompt to visit another supermarket and see how the price compares. This is my experience of Tesco of late.

I can count on one hand the number of offers in the Price Drop promotion newspaper adverts that interested me, which leads me to suspect that all that promotion did was cut the revenue from consumers buying those products anyway every week without attracting new revenue from other Tesco customers or getting non-Tesco shoppers in.

The share price fall looks a little overdone though considering they are still expecting profits to come in within the expected range (albeit at the lower end).

IronWolf

Tesco shareholder here, so opinions likely to be biased

I was shocked too today by the SP decline, not really because of the bad news, but more because of the size of the drop considering their earnings are still set to meet expectations. The most worrying part was their outlook for next year, profits being flat because of increased capital investment. Hmmm, capital spending doesn't count in profits apart from depreciation so doesn't square with me.

Well on the plus side, these are tough times, I'm optimistic that in 5 years time consumer spending will once again be stronger and Tesco will benefit from it. Tesco still has the strongest customer loyalty of any supermarket, and the best profit margins. While the UK business is not looking great, they are very strong overseas (apart from their curious attempts to break into the US which I think are foolish). Their Asian strategy building malls and hypermarkets is a very good one to me, especially when you find out they sell the malls to funds Tesco Bank manages and so have control over the rents they pay without tieing up capital.

Their balance sheet is very strong, debt is manageable and they are very cash generative, so the dividends are safe.

Tesco stills has the best profit margins of any supermarket (bar Asda who I can't check as it's consolidated in Walmart - which I also own fyi), due in part to Tesco bank, but also due to the great work of Terry Leahy. Tesco won market share while improving margins, Morrisons however win market share by cutting profit margins. I am watching the new CEO like a hawk though, few decisions he's made haven't been great imo, I don't want to see margins being eroded for the sake of market share, because that isn't substainable. It also puts them in a stronger position than Morrisons and Sainsburys who can't really afford to erode margins for marketshare anymore.

I haven't bought any more shares today, only because I'm already heavily in Tesco, I don't want to be that exposed to one share, regardless of whether I think its a good price or not.

In summary, I consider these a buy, even more so with the fall in share price. Tesco is far more than a UK supermarket now, and the latest results seem to have been taken as the beginning of the demise of Tesco in the UK. Do I think that's going to happen? No not really, I think they can spend a bit of money and fix the problem, if spent right. The good thing is they have recognised the issue and not hidden it behind strong results from overseas. That gives me some comfort.

gadgetmind

IronWolf wrote: »

Their balance sheet is very strong, debt is manageable and they are very cash generative, so the dividends are safe.

Dividends covered twice over, so I agree, but compare and contrast with Ocado's performance today. I'm sure Tesco will have to react.

Thrugelmir

Share price has merely returned to the level pre Christmas. Appears that somebody called the results wrong.

atush

My local tesco is alway choca with shoppers. I think I might buy as I haven't held them for years.

I can count on one hand the number of offers in the Price Drop promotion newspaper adverts that interested me

The one or two price drop items on my normal list were just dumped. Didn't buy any of the new ones last week?

Makeandsave

Tescos big price drop was to blame people noticed the price creep up and then go back down in the "price drop" People are not stupid with there money any more, This xmas i shopped around instead of at one store being tescos) Any way the price drop also spread to there shares!

I say do away with the clubcard and pass the price cuts on.