Discussion
Tesco is covered on the front page of this weekend's FT and a story further in. Their Christmas sales are lagging behind Sainsbury's, Morrisons, M&S and ASDA. Results are below expectation perhaps due to the Big Price Drop and they will look to cut back on store expansion and expenditure in April. The consensus appears to suggest that it is Buy at the current price.
mike570 said:
Now might be a good time to pick some up cheap - I expect it will bounce tomorrow between 2-5% after the 16% fall today...
Should do, if not over the next week. It's a good long term buy either way but this is an interesting article:http://www.investorschronicle.co.uk/2012/01/12/tip...
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The problem with supermarkets is that the market is slowly waking up to the fact that the analysts have been fundamentally basing their work on the growth of like for like sales as the primary indicator of growth and thus whether to promote the stock or demote.
In turn the supermarkets have been tailoring their accounts to fit this process.
This is why we have seen enormous growth in BOGOF as you book one sale as two items thus increasing your unit sales but potentially actually making a loss but this isn't factored in by the analysts.
Some have even booked a litre of fuel as a single item so if an individual store looks like it may not be showing growth on like for like sales they will slash the price of the fuel at that shop to artificially inflate unit sales.
Got a sports match on? Stack up cheap loss making cases of stubbies for the blokes. One case of beer sold at a loss, booked on the accounts as a sale of 24 units, value o the business increases.
Store openings are another fiddle as you can stagger those and merge their data in where you like to look like you have achieved growth as well as increasing floor space at existing stores.
Many Tesco Metros or Extras are suspected of being loss making as they sell at discounted prices to match their local superstore and to undercut the local cornershop but have higher overheads. These micro stores are brilliant as they only sell the smallest version of items so as to maximise unit sales. And these figures are merged in to those of the local superstore. If a main store is struggling, just open up a couple of little satellites and book their unit sales figures to the main store and hey presto all looks good and the valuation increases even though they've made less money than last year.
Another wheeze is that the supermarket will subtly change the reporting dates to miss out a few bad trading days and include some better ones. Just have a look at which supermarkets have reported between different dates to the previous year.
The situation is falling under the microscope and brokers are beginning to look for a better way to value these businesses as the ruse of like for like is likely to be busted and shown for what it is, essentially a scam as the reality is it doesn't tell you whether the business is growing or contracting or even turning a profit.
I the market decides that the game is up and that they no longer want to use like for like unit sales as the measure of a supermarkets success and growth then their whole model of the last 10 years changes. They won't keep loss making satelite stores that only exist to inflate this mystical number etc and the rebasing of values could be harsh.
TSCOs didn't fall 16% so much on the fact that it missed targets but because they couldn't extract an increase in unit sales any more and if they couldn't then the others may not be able to and then the whole valuation model will need to be changed to a new system.
Good companies and still important to hold in a diversified portfolio but I would prefer to hold stock in their products rather than them, so classic defensives like Unilver, Nestlé etc would be safer as they are more solid and don't carry the same kind of valuation premium based on continued growth that the retailers do.
In turn the supermarkets have been tailoring their accounts to fit this process.
This is why we have seen enormous growth in BOGOF as you book one sale as two items thus increasing your unit sales but potentially actually making a loss but this isn't factored in by the analysts.
Some have even booked a litre of fuel as a single item so if an individual store looks like it may not be showing growth on like for like sales they will slash the price of the fuel at that shop to artificially inflate unit sales.
Got a sports match on? Stack up cheap loss making cases of stubbies for the blokes. One case of beer sold at a loss, booked on the accounts as a sale of 24 units, value o the business increases.
Store openings are another fiddle as you can stagger those and merge their data in where you like to look like you have achieved growth as well as increasing floor space at existing stores.
Many Tesco Metros or Extras are suspected of being loss making as they sell at discounted prices to match their local superstore and to undercut the local cornershop but have higher overheads. These micro stores are brilliant as they only sell the smallest version of items so as to maximise unit sales. And these figures are merged in to those of the local superstore. If a main store is struggling, just open up a couple of little satellites and book their unit sales figures to the main store and hey presto all looks good and the valuation increases even though they've made less money than last year.
Another wheeze is that the supermarket will subtly change the reporting dates to miss out a few bad trading days and include some better ones. Just have a look at which supermarkets have reported between different dates to the previous year.
The situation is falling under the microscope and brokers are beginning to look for a better way to value these businesses as the ruse of like for like is likely to be busted and shown for what it is, essentially a scam as the reality is it doesn't tell you whether the business is growing or contracting or even turning a profit.
I the market decides that the game is up and that they no longer want to use like for like unit sales as the measure of a supermarkets success and growth then their whole model of the last 10 years changes. They won't keep loss making satelite stores that only exist to inflate this mystical number etc and the rebasing of values could be harsh.
TSCOs didn't fall 16% so much on the fact that it missed targets but because they couldn't extract an increase in unit sales any more and if they couldn't then the others may not be able to and then the whole valuation model will need to be changed to a new system.
Good companies and still important to hold in a diversified portfolio but I would prefer to hold stock in their products rather than them, so classic defensives like Unilver, Nestlé etc would be safer as they are more solid and don't carry the same kind of valuation premium based on continued growth that the retailers do.
Donkey Appple, Thanks a good post for that sums things up well. For me the price has moved in a range and although it wasn't completely slaughtered in 08/09, the only way to have made meaningful return on this was to trade in and out, also known as "hindsight investing" or gambling.
What really shocked me was the ferocity with which the market reacted, it was a combination or fear and spite, it doesn't bode well for reporting companies who might miss.
What really shocked me was the ferocity with which the market reacted, it was a combination or fear and spite, it doesn't bode well for reporting companies who might miss.
Hyper10 said:
Donkey Appple, Thanks a good post for that sums things up well. For me the price has moved in a range and although it wasn't completely slaughtered in 08/09, the only way to have made meaningful return on this was to trade in and out, also known as "hindsight investing" or gambling.
What really shocked me was the ferocity with which the market reacted, it was a combination or fear and spite, it doesn't bode well for reporting companies who might miss.
Also incredibly thin equity markets at present. Almost no liquidity so a large chunk of this fall will be down to this. What really shocked me was the ferocity with which the market reacted, it was a combination or fear and spite, it doesn't bode well for reporting companies who might miss.
My general view is that this has been a good 2% trading stock since 08 as you say.
If I were looking at it now I would be of the view that subject to press sentiment it would regain a large part of the 16% in the next week or so. I would be monitoring volumes today and gauging sentiment over the weekend for confirmation.
Is the lack of volume an indication that the big money is just not going into the market and if this is the case are we to assume that they are waiting on the sidelines to see how the Macro climate moves.
I've been racking my brains to think of mid cap to smaller large cap stocks with a strong brand that would make them T/O targets, as there is a lot of money in companies and I think M+A activity may increase this year
I've been racking my brains to think of mid cap to smaller large cap stocks with a strong brand that would make them T/O targets, as there is a lot of money in companies and I think M+A activity may increase this year
Hyper10 said:
Is the lack of volume an indication that the big money is just not going into the market and if this is the case are we to assume that they are waiting on the sidelines to see how the Macro climate moves.
I've been racking my brains to think of mid cap to smaller large cap stocks with a strong brand that would make them T/O targets, as there is a lot of money in companies and I think M+A activity may increase this year
I don't see M&A as a good play at present as the firms can't get the debt to finance any deals and the market isn't right for using stock issues. I've been racking my brains to think of mid cap to smaller large cap stocks with a strong brand that would make them T/O targets, as there is a lot of money in companies and I think M+A activity may increase this year
The market is so thin because the money is going into other markets which are lower risk for long side returns.
Pretty much the only institutional money going into equities is that which is legally mandated to do so.
Short side liquidity is low as well as a lot of stock has been pulled from the lending market.
However, this is good news for the retail trader as tey trade in small volumes anyway so can get orders away at or very close to market and the lack of liquidity is increasing volatility so the potential for small, quick returns is currently good.
Mid caps are better at the moment in some regards as they are ebbing and flowing more on the merits of the business and it's sector, main index constituents are tougher as they are being moved in bulk to the general sentiment of the market as a whole on an almost hourly basis.
This does make Tescos interesting as the bad news has actually broken it away from the herd and it will be able to have some independent movement for a while until it falls back into the herd.
Some fascinating insights here guys, thanks for sharing. It will be very interesting to see what happens over the next week. Given the amount of coverage we are seeing about Tesco, it's clearly spooked the majority of investors but the 16% figure surely must be an overreaction to the present climate...?
OP, I'm assuming it wasn't just me that said it was a Buy given that's what I was seeing elsewhere?!
OP, I'm assuming it wasn't just me that said it was a Buy given that's what I was seeing elsewhere?!
The Stiglet said:
Some fascinating insights here guys, thanks for sharing. It will be very interesting to see what happens over the next week. Given the amount of coverage we are seeing about Tesco, it's clearly spooked the majority of investors but the 16% figure surely must be an overreaction to the present climate...?
OP, I'm assuming it wasn't just me that said it was a Buy given that's what I was seeing elsewhere?!
From my bitter experience I'd be careful, a couple of years ago MAN reported and fell and I was full sure of a bounce because of the divi, it kept falling and I'd lost heavily.OP, I'm assuming it wasn't just me that said it was a Buy given that's what I was seeing elsewhere?!
I can't begin to get my head around whether it's a buy, there are others out there but a clear out is needed, take RIO for example, it fell with Euro concerns to below 2700 in Oct yet back up to 3500-3600, I doubt Tesco will find 30% in 3 months (but who knows).
I wouldn't worry about whether Tesco is a buy or you were right or wrong, the old saying "the man who doesn't make a mistake, will never make anything" is true. My view is have a go, if it doesn't work out, live to fight another day and never over expose yourself to 1 position or market. When the small cap oilers went up in 09/2010, I remember ruminating on the fact that I should have had more on them, I wasn't saying that in 08.
Tesco falling 16% isn't the end of the world, unless of course it was one's world and that in my view wouldn't be wise investing
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