Boris, Tesco and Buses - All Change Please

The Week: Tesco plans for a new boss, Stagecoach's Souter steps down and the UK investors welcome a new Conservative government 

Rodney Hobson 13 December, 2019 | 10:32AM

rodney

2016: The country votes to leave the European Union. The pound slumps, the FTSE 100 index drops 500 points at the opening as the result is seen to create massive uncertainty.

2019: The country votes to leave the European Union. The pound soars, the FTSE 100 index jumps 100 points as the result is seen to end massive uncertainty.

Different times, different circumstances, but one rule applies to small investors: it’s generally best to let the markets settle. Despair and euphoria can evaporate quite quickly.

Just as we realised in 2016 that the world had not come to an end, we shall soon come to accept that all the real work on leaving the EU will come in 2020.

Home is Where the Heart is

Excursions abroad by UK supermarkets have generally been as enjoyable as travelling with Thomas Cook, so many investors will be relieved that Tesco (TSCO) is bringing an Asian adventure to an end. It is hoping to sell its operations in Malaysia and Thailand, continuing a trend that has seen it withdraw from the United States, South Korea and Japan.

This could be the biggest overseas sell-off that Tesco has managed. It claims it is reviewing its business in the region after receiving expressions of interest from potential buyers, so this won’t be a fire sale. Proceedings are at an early stage but Tesco shareholders should work on the basis that this will go ahead and that Tesco will get a decent price, one that should lead to a special dividend.

The downside is that a potentially lucrative operation is being sold; the upside is that a new chief executive taking over next summer can concentrate on the highly competitive UK market, where there is quite enough to deal with.

Tesco shares jumped 4.6% on the day the news was confirmed. That’s probably far enough for now but if I were a Tesco shareholder I would be happy to stay in.

... and It’s Goodbye From Him

Dave Lewis, the chief executive who has done so much to turn Tesco round after years of decline and racing down dead ends, is not the only company boss standing down soon. Sir Brian Souter is stepping down as chairman of transport group Stagecoach (SGC), although he will remain on the board as a non-executive director, while his sister Dame Ann Gloag is leaving the board.

The changes take place at the end of this month, which is a bit short notice, but since the board have a ready replacement chairman in non-executive Ray O’Toole, the changeover should be smooth and was presumably in the pipeline for some time. Souter and Gloag were the driving force behind Stagecoach and it will be interesting to see whether he can live in Souter’s long shadow.

This is a tiny step towards modern corporate governance and at last Stagecoach has a chairman who is separate from day-to-day running of the business. However, Souter is still there breathing down his neck and ready to whack his successor with the family’s substantial shareholding.

Results for the half year to October 26 show there is much work to be done, with almost all the UK rail operations coming to an end. Revenue was down by a fifth and underlying profits slipped, although there was some consolation in that the dividend was maintained and is not under threat at this stage.

The 11.2p jump in the shares to 136.8p looks more than a trifle optimistic, although it was partly accounted for as a recovery from a drop of 7.75p the previous day. I really can’t recommend a purchase.

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Stagecoach Group PLC147.00 GBX0.82
Tesco PLC248.90 GBX2.43

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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