Under Pressure: Tesco, AstraZeneca & Barclays

11th April 2012

With Tesco and AstraZeneca, the concern is poor performance. With Barclays, it's another round of the equity owners vs executives struggle over who gets paid more.

According to Reuters, big shareholders in Britain's pre-dominant retailer want a strategy rethink following a quarter of substantial under-performance. And while they don't expect all the answers, they believe that the April 18th preliminary statement and indication of the way ahead for the year offers an opportunity to at least set a new direction.

Tesco losing its corporate way

Many Tesco shareholders believe it has lost its way, perhaps too influenced by that "one in every eight pounds is spent at Tesco" statistic to see the wood for the trees.

Investors have told Tesco, which issued its first profit warning in two decades early this year, that they are disappointed by the US Fresh & Easy venture. This has cost about $1.3bn with little signs of any real returns. Like so many other UK retailers, Tesco has found that crossing the Atlantic is fraught with difficulties.

While it has made a better job of its central and eastern European projects, investors want Tesco to concentrate on the UK.

They are critical of new Tesco chief executive Phil Clark who has taken on the UK business as well as maintaining his control over the global empire. They say he has created too big a job for himself. The recent announcement that the bottom end Value range was to be replaced by a new Everyday Value range left many unimpressed.

Shut the bank down call

And as well as the US venture, investors are unhappy with Tesco's move into UK retail banking. This has yet to produce the promised current accounts – or anything else innovative to show that Tesco is alone among retailers to have a full banking licence. Others such as Sainsbury's, and Marks & Spencer effectively brand offerings from other banks such as Lloyds and HSBC.

Critical shareholders wonder what Tesco can profitably add to the mix at a time when new entrants such as Virgin and Metro Bank are trying to make a mark.

A Tesco spokesman said: "We stay close to our investors and know what they expect from Tesco." He added that they had "a clear target to break even in America".

AstraZeneca's A to Z underperformance

Pharmaceuticals group AstraZeneca has underperformed the FTSE100 over the past six months with the gap increasing since February.

The Financial Times says that "some of the biggest investors are calling for a radical shake-up of the board and executive team, as a new chairman prepares to join the underperforming Anglo-Swedish pharmaceutical group." Some investors are calling for chief executive David Brennan to quit. Again, they are likely to use the annual meeting later this month as a forum to express their disquiet including a failure to deliver any adequate return on investments in acquisitions, in licensing and internal research and development over more than a decade.

Investors want new management "which could change the group's direction and address shareholders' frustration at the long-running failures". "Otherwise," one investor said, "the group is destined to be cheap forever."

Contrarians should buy AstraZeneca

But a blog on investment site iii suggests that cheap could be good. This states: "The company has struggled to replace revenue lost to generic rivals and patent expiries. Analyst criticism has tended to focus on the need to boost the pipeline of drugs prospects, for example by acquisitions. It amounts to quite a challenge, hence unsurprising the market keeps the shares modestly rated, exacting a decent yield to compensate for the risks. If this is correct, the shares could recover from around 2,770p to 3,600p.

The blog adds: "This is the classic "big unpopular company" with its risks priced in, yet scope to surprise on the upside. Well worth considering as a contrarian investment."

Banking bonuses bounce back

Barclays' problem is the long running bonus issue – with chief executive Bob Diamond the lightning rod.

Pensions & Investment Research Consultants, which monitors pension fund investments, has advised institutional shareholders and pension funds to vote down Barclays' remuneration report, claiming the pay plan is inappropriate given the performance of the bank.

The Daily Telegraph says the PIRC line is: "In view of the fact that Barclays' shares are trading far below net asset value, we cannot think of any circumstances in which a chief executive who was part of a team when the bank got into this predicament should be receiving any bonus at all, indeed the board should also be considering clawbacks itself."  Investors have criticised the bank's 2011 return on equity and its share price fall of a third in 2011.

This adds to to the views of some of Barclays' biggest investors who are already planning to vote down the bank's remuneration report and Diamond's total £17.7m package.

Over 10% of Barclays shareholders may vote against the remuneration report and the re-appointment of remuneration committee chair Alison Carnwath at the meeting, the Sunday Times has reported.

This will not be enough to upset the Barclays apple cart, which depends on support from Middle Eastern investors – Abu Dhabi and Qatar sovereign wealth funds have around 20%. But it sends the market a message that neither it nor Barclays can afford to ignore.

 

More on Mindful Money

AstraZeneca is a great business, but is it a great investment?

Tesco: What's love got to do with it?

Branding values – All change for Barclays, Nissan and Hermes

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