Warren Buffett famously said that when a good manager meets a bad business, it’s the manager’s reputation which suffers.
I’m paraphrasing slightly, but Mr Buffett’s point was that it’s less risky to buy firms with good fundamentals than to pin your hopes on difficult turnaround situations.
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It’s a good principle, but as with any rule, there are times when it’s worth questioning.
The sudden departure of Barclays’ chief executive Antony Jenkins has come sooner than expected, but is not a surprise.
Barclays’ new chairman, John McFarlane, is known as ‘Mac the knife’ for good reason.
On 17 July, after less than three months in the role of non-executive chairman, Mr McFarlane will become executive chairman of Barclays — effectively both chairman and chief executive. He will be in charge of all aspects of the bank’s strategy and operations.
Shares in Barclays have risen by 4% since the news became public.
The City has high hopes that Mr McFarlane will be able to repeat the successes of his time at insurer Aviva. In less than three years, Mr McFarlane presided over a 95% rise in Aviva’s share price, thanks to a ruthlessly effective turnaround plan (and a new chief executive).
Mr McFarlane delivered similar results in his previous role as chief executive of Australia and New Zealand Banking Group Limited.
Many investors, including me, bought shares in Barclays for their deep discount to book value and low valuation relative to historic earnings.
We’ll now have to wait to see if Mr McFarlane’s arrival is the catalyst needed to complete the bank’s recovery.
Tesco’s problems have been well documented. Yet the firm remains the UK’s largest supermarket, with 28.6% of the grocery market. That’s more than Wm Morrison Supermarkets and J Sainsbury combined.
Tesco has both a new chairman, John Allan, and a newish chief executive, Dave Lewis. Mr Lewis has a sterling track record from his time as a product chief at Unilever, but it’s Mr Allan I want to focus on here.
His most recent role was as chairman of Dixons Carphone, where he oversaw the merger between Dixons and Carphone Warehouse. Shares in the newly-merged company have risen by 32% since the merger completed, in August 2014.
Earlier in his career, Mr Allan was chief executive of logistics firms Ocean Group and then of Exel plc, which he created by merging Ocean with NFC in 2000. Exel was then sold to Deutsche Post in 2005. Mr Allan clearly has a track record of transforming large, manpower-intensive organisations.
Tesco shares currently trade on a 2015/16 forecast P/E of 23, and offer a forecast yield of less than 1%.
Net debt of £9.9bn is far too high.
On the face of it, this isn’t an attractive prospect.
However, I doubt that Mr Allan would have accepted this role if he thought that Tesco was a business doomed to a gradual decline.
I expect to see further changes in the supermarket sector, and suspect that with the help of its new management team, Tesco may be one of the eventual winners.
For me, Tesco remains a long-term hold.