What's going on?
Tesco’s update on Wednesday was a two-for-one special: the UK’s largest grocery chain announced strong half-yearly results and the departure of its much-lauded CEO.
What does this mean?
Tesco’s CEO took the job five years ago, back when the grocery giant was under pressure to reduce product prices in the face of rival discount chains. His first task was to clean up the mess from the company’s 2014 accounting scandal, after the company took its famous slogan “Every little helps” a bit too far.
Fast-forward to Wednesday, though, and Tesco reported a 25% higher profit for the last six months than the same time last year, as well as a 60% higher dividend. Crucially, its profit margin for the period was 3.7% – bang in the middle of the CEO’s 3-4% target. “Job done,” he probably said with a wry smile, before etching his resignation on a milk carton.
Why should I care?
For markets: Wakey wakey, active traders.
“Active” investors – who aim to outperform markets – will now wait to hear the new CEO’s plans. It remains to be seen what effect those plans will have on Tesco’s shares, which have outperformed the UK stock market by more than 30% since the end of September 2014. Active investors’ decisions will also impact “passive” investors, who follow a particular group of UK or global stocks via, for example, exchange-traded funds – and whose investments will probably be affected by Tesco, since it represents over 1% of the British market.
For you personally: Don’t throw the baby out with the bathwater.
Professional analysts will now assess Tesco and recommend whether professional investors should buy its shares – but they only get it right about half the time. Retail investors might be even more cautious: it’s riskier owning a single company’s stock than several, so it’s worth waiting for the new CEO’s update before taking any action.