This article is from the source 'independent' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.independent.co.uk/news/business/news/tesco-in-crisis-city-fears-250m-profit-debacle-could-be-just-the-start-9749824.html
The article has changed 3 times. There is an RSS feed of changes available.
| Version 0 | Version 1 |
|---|---|
| Tesco in crisis: City fears £250m profit debacle could be just the start | Tesco in crisis: City fears £250m profit debacle could be just the start |
| (about 9 hours later) | |
| The £250m profit hit to Tesco from its accounting scandal could just be the first of many for the stricken supermarket, analysts feared last night. | The £250m profit hit to Tesco from its accounting scandal could just be the first of many for the stricken supermarket, analysts feared last night. |
| Investors sold the shares heavily, leaving them at 11-year lows, fearing the situation may get so bad that the company has to tap the markets for hundreds of millions of pounds to shore up its finances. Tesco has already said it is slashing its dividend to enable it to cut its prices, and an emergency rights issue – the sale of new shares – would only make the stock even less appealing to investors. | Investors sold the shares heavily, leaving them at 11-year lows, fearing the situation may get so bad that the company has to tap the markets for hundreds of millions of pounds to shore up its finances. Tesco has already said it is slashing its dividend to enable it to cut its prices, and an emergency rights issue – the sale of new shares – would only make the stock even less appealing to investors. |
| Analysts said the astonishing size of the shortfall in its profits admitted to yesterday seemed to be related to one relatively narrow area, and they feared that further investigations could find errors elsewhere. | Analysts said the astonishing size of the shortfall in its profits admitted to yesterday seemed to be related to one relatively narrow area, and they feared that further investigations could find errors elsewhere. |
| HSBC’s head of European consumer retail research, David McCarthy, said: “This raises the spectre that there could be more issues across the group. Carrefour had a similar problem in Brazil and it took several profit warnings before the matter was cleared up.” | HSBC’s head of European consumer retail research, David McCarthy, said: “This raises the spectre that there could be more issues across the group. Carrefour had a similar problem in Brazil and it took several profit warnings before the matter was cleared up.” |
| He concluded: “In our view, investing in Tesco is investing in the unknown and is high risk… Many issues remain unanswered and the possibility of a rescue rights issue should not be ignored.” He highlighted that the problems to which it had admitted referred only to the UK food business. Therefore, he said, there could be further problems in the international and non-food departments, both of which make hundreds of millions of pounds of profit a year. | He concluded: “In our view, investing in Tesco is investing in the unknown and is high risk… Many issues remain unanswered and the possibility of a rescue rights issue should not be ignored.” He highlighted that the problems to which it had admitted referred only to the UK food business. Therefore, he said, there could be further problems in the international and non-food departments, both of which make hundreds of millions of pounds of profit a year. |
| The suggestion of foul play, inherent in the hiring of the City law firm Freshfields, added further uncertainty to the extent of the mess that is yet to be uncovered. | The suggestion of foul play, inherent in the hiring of the City law firm Freshfields, added further uncertainty to the extent of the mess that is yet to be uncovered. |
| The Business Secretary, Vince Cable, said last night that if “serious malpractice” had taken place, the Financial Reporting Council could be called in to investigate. That would be on top of the existing investigation announced yesterday by the overarching City regulator, the Financial Conduct Authority. Meanwhile, brokers at Espirito Santo warned that profits in the UK, Tesco’s biggest market, could fall to zero. | |
| Small investors who might consider the precipitous share price collapse as a buying opportunity were urged to be cautious. Jim Osman at Edge Consulting Group said: “We strongly advise investors to stay away. Tesco’s senior management team has severely misrepresented its figures and losses are just the start of major problems for the business.” | Small investors who might consider the precipitous share price collapse as a buying opportunity were urged to be cautious. Jim Osman at Edge Consulting Group said: “We strongly advise investors to stay away. Tesco’s senior management team has severely misrepresented its figures and losses are just the start of major problems for the business.” |
| He was among many advising a dramatic corporate restructuring of the company, urging management to break the business up and sell off its £20bn property portfolio. Speculation in the City meanwhile began to veer towards the once unthinkable: that Tesco, having lost another £2bn in value yesterday, is now valued at an increasingly affordable £16bn, and could fall prey to an outright takeover. | He was among many advising a dramatic corporate restructuring of the company, urging management to break the business up and sell off its £20bn property portfolio. Speculation in the City meanwhile began to veer towards the once unthinkable: that Tesco, having lost another £2bn in value yesterday, is now valued at an increasingly affordable £16bn, and could fall prey to an outright takeover. |
| Not all investors were mourning the company’s woes, however. Analysis of the share register by The Independent reveals that two hedge funds – Lansdowne Partners and Lone Pine Capital – have taken out enormous bets against the company’s share price. While it is impossible to tell exactly how much profit they make each time the price falls, the size of their bets is striking. Lone Pine has bought a “short” position on 56 million Tesco shares, while Lansdowne has shorted 50.4 million. | Not all investors were mourning the company’s woes, however. Analysis of the share register by The Independent reveals that two hedge funds – Lansdowne Partners and Lone Pine Capital – have taken out enormous bets against the company’s share price. While it is impossible to tell exactly how much profit they make each time the price falls, the size of their bets is striking. Lone Pine has bought a “short” position on 56 million Tesco shares, while Lansdowne has shorted 50.4 million. |
| London-based Lansdowne, run by Stuart Roden and Pete Davies, is famous for spotting early the weak stocks whose shares are likely to fall. Its funds had a record year last year, partly due to its negative stance on the supermarkets, having bet heavily against | London-based Lansdowne, run by Stuart Roden and Pete Davies, is famous for spotting early the weak stocks whose shares are likely to fall. Its funds had a record year last year, partly due to its negative stance on the supermarkets, having bet heavily against |