Just when you think that things couldn't get any worse for Tesco(LSE:TSCO) investors, they have. The company has announced this morning that it has inflated its latest half-year profits to the tune of £250m.
In a nutshell it has booked income before it should have done, and has delayed recognising costs until a future period. This is pure number massaging at its best. Unsurprisingly, its share price is tanking.
So not only does Tesco have a problem with its sales, profits and return on its assets, the whole integrity of its profits is now being called into question. An investigation has been launched, but this smacks of the acts of desperate company accountants under pressure to mask the real extent of the mess that Tesco is in. It now seems that they have gone too far.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
I wrote about Tesco a couple of weeks ago in MoneyWeek magazine and argued that the shares weren't really that cheap. I said I wouldn't be interested in buying until they fell to at least 150p. I stand by that figure.
But this morning's revelations suggest Tesco is in deep trouble, with a highly questionable company culture that smells very bad indeed. Tesco will not go bust - but it is like a big ship that has been holed and is still taking on water.
I've been banging on from time to time about how Tesco's finances are not as strong at they seem. It has lots of off-balance sheet debt and has milked its suppliers as a source of cash flow by squeezing their payment terms. This game is well and truly over.
It would not surprise me one bit if Tesco is forced to ask it shareholders for more cash to shore itself up and to buy itself some time to turn itself around. The dividend has been slashed but we can't rule out a rights issue.
These shares are nowhere near the bottom yet. Buying now may be a mistake. There will be a better entry point in the future.
-
Ofgem proposes new energy tariffs with low or no standing changesStanding charges have invited public backlash as households battle high energy bills
-
Google shares bounce on Gemini 2.0 launchGoogle has launched the latest version of its Gemini AI platform, and markets have responded positively. Is it time to buy Google shares?
-
How to profit from rising food prices: which stocks should you invest in?Tips Food prices are rising – we look at the stocks to avoid and the one to invest in this sector.
-
Tesco looks well-placed to ride out the cost of living crisis – investors take noteAnalysis Surging inflation is bad news for retailers. But supermarket giant Tesco looks better placed to cope than most, says Rupert Hargreaves.
-
Tesco sells its retail subsidiary in Thailand and Malaysia for £8bnNews Tesco has agreed to sell its southeast Asian operations to Thai conglomerate Charoen Pokphand for £8.2bn in cash.
-
Tesco should keep its Asian assetsOpinion The £7bn that Tesco could get for its Tesco Lotus business in Asia looks enticing. But holding on to it would be smarter, says Matthew Lynn.
-
Tesco cashes out of the mortgage businessFeatures Tesco Bank has left the mortgage market by selling its £3.7bn loan book. Its 23,000 customers will be moved to the Halifax, a subsidiary of Lloyds.
-
Share tips of the weekFeatures MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
-
Tesco wields the axeFeatures Britain’s biggest supermarket is cutting back on staff and fresh food. Will the move prove counterproductive? Matthew Partridge reports.
-
If you'd invested in: Tesco and Associated British FoodsFeatures Tesco has seen its market value rise almost 50% in a year, while AB Foods has seen shares slide despite a rise in profits.
