MIDAS SHARE TIPS UPDATE: Drastic Dave is on his way, so is now the time to check in or out of Tesco shares?

By JOANNE HART FOR THE MAIL ON SUNDAY

Updated:

Tesco is one of those shares that investors and customers used to buy and hold, because, like the banks and Marks & Spencer, it was safe and reliable. 

The grocer had an enviable reputation, results improved year by year and the dividend provided decent income. Then everything changed.

Between 1990 and 2007, Tesco shares rose from 62p to £4.95. By 2015, they had fallen to below £1.50, hit by an accounting scandal, a series of poor management decisions and intense competition from rivals, particularly Aldi and Lidl. 

On Friday, Tesco shares closed at £2.37, having fallen earlier in the week when Lewis said he would be standing down in 2020

On Friday, Tesco shares closed at £2.37, having fallen earlier in the week when Lewis said he would be standing down in 2020

The company fell into loss and even stopped paying dividends, while chief executive Dave Lewis tried to put the business back on its feet. 

On Friday, the shares closed at £2.37, having fallen earlier in the week when Lewis said he would be standing down in 2020. 

Lewis announced his departure alongside half-year results to August 31, which included stable sales, rising profits and an eye-catching 59 per cent increase in the interim dividend to 2.65p.

Looking ahead to the full year, brokers expect a slight increase in turnover to £64.7billion, a robust rise in profits to £1.9billion and a dividend of about 8p, compared to 5.77p in the 2019 financial year.

The group is certainly in a much better position than when Lewis joined and there are enthusiastic plans for growth, such as new Express stores here and in Thailand, increased investment in online shopping and even four new superstores. 

By 2015, shares had fallen to below £1.50, hit by an accounting scandal

By 2015, shares had fallen to below £1.50, hit by an accounting scandal

In line with current trends, Tesco is introducing more plant-based products and cutting back on plastics waste. The merger with wholesaler Booker is yielding results too, as it works with thousands of independent corner shops, pubs and restaurants.

Yet life on the shop floor remains a constant challenge, as Lewis’s designated successor Ken Murphy will doubtless discover, when he moves over from Walgreen Boots Alliance, the chemist chain.

Discounters, Morrisons and Sainsbury’s are snapping at Tesco’s heels, price wars are a fact of life, consumers are increasingly demanding and economic uncertainty does not help. 

Then there is some disquiet about why Lewis has chosen to leave now: should investors follow him?

Midas verdict: Tesco shares have been a mixed long-term investment and they have proved frustrating in recent years. Now is not the time to sell, however. According to the group’s succession plans, Lewis has at least one more set of results before he goes – the annual figures next spring. The shares should motor in the right direction until then at least – and the forecast dividend puts the stock on a reasonable 3.4 per cent yield as well. Hold for now.

 

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