Tesco versus Morrisons? If you had to pick which one of those two supermarket shares appeared to be poised for the biggest, most-assured comeback, which would it be?
I’ll be frank. I own shares in both, and my bigger holding is of Tesco — by quite a significant margin.
And if pressed, I’d have plumped for Tesco as the better pick of the two.
It’s much bigger, has profitable international operations, and a range of ‘add on’ offerings that Morrisons doesn’t — the Tesco Bank operation, for instance, plus the homewares catalogue and telephone and broadband packages.
Plus, where Morrisons is struggling — those M Local stores, for instance — Tesco isn’t.
So Tesco, to my mind, seems the better bet.
Put your money where your mouth is
So now let’s look at the share purchasing behaviour of the respective chief executives of each store chain.
Over at Morrisons, incoming chief executive David Potts (formerly of Tesco, incidentally) spent over a £1 million of his own money buying shares in his first week on the job.
And last week, he spent another £500,300, buying a further 315,000 shares.
It’s interesting, too, that Morrisons chairman Andrew Higginson (another Tesco alumnus) is also a hefty shareholder.
So what about Tesco? According to news emerging last week, despite being in the job almost a year, fresh chief executive Dave Lewis has yet to put his hands in his pocket and buy a single share.
(Although, to be fair, that doesn’t seem to be quite right: company records do show him to picking up about £110 worth each month, through Tesco’s Partnership Share Scheme. Yes, that’s right: a whopping £110 worth each month.)
So put another way, it appears that I’m backing Tesco with a helluva lot more of my own money than Mr Lewis is.
Is Mr Potts’ purchase a buying signal?
Now, let’s be clear. This isn’t some kind of personal attack on Mr Lewis, who I happen (as a shareholder) to think is doing a reasonable job.
And, again in fairness, a Tesco spokesperson has apparently pointed out that he has five years from the date of joining the company to build up a stake equivalent to four times his base salary. That said, it seems that free Tesco shares are part of his remuneration package.
Even so, I can’t help thinking that I’d be happier if Mr Lewis was prepared to back his turnround plan with more of his own dosh than appears to be the case.
Conversely, with Mr Potts spending another £500,000 as recently as last week, it’s difficult to infer anything other than he thinks that right now, Morrison’s shares are a bargain.
In the know
Now, to repeat: this isn’t an attack on Mr Lewis. He is free to invest his money as he wishes, and — subject to any stipulations laid out in his contract by his employers, namely shareholders like me — the decisions that he makes are none of my business.
But there’s a reason why directors’ dealings are published, because directors are the ultimate insider, poised to have a better insight into a company’s prospects than most ordinary retail investors.
And — as one of those ordinary retail investors — I can’t help but be influenced by the apparently contrasting views of Messrs Potts and Lewis.
Mr Potts might be wrong, but at least I’ve the sense of comfort that comes from knowing that he’s investing a decent wedge of his own money right alongside mine.
Directors ought to have a stake
Here at the Motley Fool, as you’ll probably realise, we offer a number of share recommendation services. And insider ownership is one of the characteristics of a company that our analysts look at.
They, like me, like to see company bosses with a decent-sized stake in the game. Particularly, I suspect, when those stakes have been bought, rather than awarded through remuneration schemes.
And frankly, why shouldn’t chief executives and their ilk have decent amounts of skin in the game?
Directors aren’t parachuted in from Mars: they are appointed by us, the shareholders, to collectively represent our interests and manage our businesses.
And, rightly or wrongly, I’ve always been pleased to see directors backing their decisions with their own money, as well as mine.
