A long-standing manager with a superb track record. An organisation at the top of its field, with vocal fans handsomely rewarded with continuing success. Then the wheels come off; the boss totters off into the blissful sunset, and his replacement at the reigns does nothing but disappoint. Probably no surprise – reversion to the mean, and all. Anyway, the new guy doesn’t last long before a third manager comes along promising to turn the ship around, and only a few weeks into his leadership we’re reminded that we are still far from the glory days.
Yes, like you, I was pretty shocked when I woke up this morning to the news that Manchester United had lost last night to Leicester – and let in 5 goals in the process! There’s some rot at that organisation, I tell you.
It’s not as if they haven’t spent serious cash, either – though probably not in the right places. Investment probably could’ve been more optimised; they needed to stay on top of the game in their core areas, but instead overspent on ambition at the more exciting end of the spectrum.
Still, I can’t help but think that structurally, they’ll be fine. They’re in a good spot – but a poor sense of direction and a bit of strategic ambiguity muddies the picture. That stuff, though, should be fixable.
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I’m being a bit facetious, I grant you. Hopefully you’ll allow someone who’s been as unambiguously wrong about Tesco as I have that small pleasure; my flippant little analogy of course misses out all sorts of important information.
There’s actually a lot of danger in my viewpoint, I should add. Lots of people talk about the tendency for investors to sell on the bad news like lemmings, pushing the price down further on negative sentiment and offering even more value for the ‘shrewd’ investor. The implication is a sort of haughty disdain; that the short-termist punters are playing a fools’ game. But anyone reading my blog over the last 3 months might sense in me a sort of stubborn contrarianism – that I’ll back it the whole way down – that I won’t reassess my position given the new information. I’m married to my opinion, essentially.
I try not to be – don’t we all – but I still think, as I thought one month ago and I thought 3 months ago and I thought 1 year ago, that Tesco is structurally sound. Strategy and marketing and direction are (very important) short term factors. Their cross-services are a good idea, they still have a great property portfolio and – even if you buy the online shift – you still need a company with scale and a physical supply chain to deliver that. They’re now trading at something like 0.7x what they estimate to be the company’s book value (based on market value of properties). Take it with a pinch of salt, and with a dose of caution; Tesco has a significant debt pile and hefty lease obligations, and their ‘book’ is implicitly full of assumptions too.
The question then becomes – is Tesco now in such a poor position in the market that it deserves to trade at a discount to its book? The implication here is that the assets would literally be better utilised outside of the company than within it. I guess lots of people would say yes. I still say no.
Full disclosure – I still don’t actually own any. A move to London hasn’t left me with a load of disposable cash, so I was – as usual – extremely lucky. Saved from myself, if you will. Treat me with the derision you would any talking head!
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