The buzz has been on the street for about 6 months that Tesco (the world’s third largest grocery store chain) is coming to town. Plans are for Southern California, Phoenix and Las Vegas. I’m working on 3 locations myself. The concept is a 14,000 sf freestanding building like a Walgreens that will look sort of like a Trader Joe’s but more of a large 7-11 with the addition of ready serve meals like many grocery stores. The news today though is that Warren Buffet has boosted his stake and that’s a big vote of confidence. News story is below;
Buffett Buys More Tesco Shares, Raising Stake to 2.9%
By Angharad Couch and Sarah Thompson
March 2 (Bloomberg) — Warren Buffett’s Berkshire Hathaway Inc. increased its stake in Tesco Plc, according to the U.S. insurance and investment firm’s annual letter to shareholders.
Berkshire Hathaway owns 229.7 million Tesco shares, or 2.9 percent of Britain’s biggest retailer, yesterday’s letter shows. That makes it Tesco’s fifth-largest shareholder, according to Bloomberg data. Omaha, Nebraska-based Berkshire had held a stake of 2 percent before today, according to the most recent filings.
Buffett, the world’s second-richest man, first bought shares in Tesco last year after the Cheshunt, England-based retailer said it would open convenience stores on the U.S. West Coast. The outlets will take on 7-Eleven Inc. and Trader Joe’s to win time-pressed shoppers in southwest U.S. cities. Prevented by planning restrictions from expanding its U.K. supermarkets, Tesco is also adding stores from China to Turkey.
“Buffett is realizing that with Tesco moving into the U.S. with a fantastic format and great management, they are the ones to back,” said Chris Gower, an analyst at Man Securities in London. “I wouldn’t be surprised if other investors start piling in. They look at Buffett as the shining light.”
Buffett’s note didn’t discuss Berkshire’s Tesco investment. The company’s shares rose 8.75 pence, or 2.1 percent, to 431.75 pence in London, giving the retailer a market value of 34.3 billion pounds ($66.7 billion).
U.S. Operations
Morgan Stanley raised its price estimate on Tesco stock to 490 pence from 380 pence today, citing the prospects for international expansion.
The retailer’s “operations are still undervalued,” Morgan Stanley analyst Nick Coulter wrote. He estimates the U.S. stores will have $1,300 in sales per square foot and profit margins before interest and taxes of 6 percent, valuing the business at 46 pence a share.
The British retailer has said it will recruit more than 2,500 U.S. staff and will open Fresh & Easy Neighborhood Market outlets later this year in Phoenix, Las Vegas, Los Angeles and San Diego. The stores will be based on the Tesco Express convenience store U.K. format, selling high-quality ready-made meals and fresh produce. Tesco plans to spend as much as 250 million pounds a year opening U.S. outlets.
Investors comb Buffett’s annual Berkshire Hathaway letters for insights into everything from investments and acquisitions to executive pay and economic policy. The letters disclose most of the company’s holdings worldwide. Buffett was labeled “the world’s greatest investor” in Robert Hagstrom’s 1994 biography.
To contact the reporters on this story: Angharad Couch in London at acouch2@bloomberg.net ; Sarah Thompson in London at sthompson17@bloomberg.net
Last Updated: March 2, 2007 11:49 EST
Regards, Don (858.486.9999)