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White papers



Alistair Wittet

Analyst / Portfolio Manager

Growth stocks naturally tend to command premium valuations to reflect their attractive earnings profile. While growth lasts, all is well. Any unexpected halt, however, can be painful as investor expectations are reset. Using Tesco as an example, this White Paper attempts to demonstrate how long-term investors can spot a future stall in order to sell out in time.


On 28 September 2017, Sasha Wass QC, a lawyer for the United Kingdom’s Serious Fraud Office (SFO), stood up to address the jury at Southwark Crown court in London:

“This case concerns what is often referred to as white collar crime and it concerns fraud and false accounting... 
…On 22 September 2014…Tesco Plc made a public announcement to the stock market and the announcement said that Tesco’s had previously overstated its expected profits by approximately £250million.
…[The defendants] encouraged the manipulation of profits and indeed pressurised others working under their control to misconduct themselves.” 

Tesco’s fall from grace could hardly have been less elegant. For much of its history, the multinational supermarket chain was a darling of the stock market and a mainstay of most UK portfolios. It became known as a “ten percenter”, referring to its remarkably consistent ability to deliver 10% earnings growth per annum with a share price that followed. CEO Sir Terry Leahy, who stepped down in 2011, was even knighted for his achievements.1 

If it's too good to be true, it usually is.

Half a decade later, the shares have lost 60% of their value, profits have collapsed and three senior executives were put on trial by the SFO.2 The question for many is, how did they get there?

In our view, Tesco is an excellent example of a growth investor’s greatest challenge: what happens when growth stalls and, more importantly, how best to anticipate it. 

Read the full article 

This paper was originally written in 2018. This version was updated in September 2019 and has not changed since publication.

“Tesco Bosses Fiddled The Books To Save Their Jobs.” Court News UK ( 29 Sept 2017; Butler, Sarah. “Former Tesco executives pressured others to falsify figures, court told.” The Guardian. 29 Sept 2017.
Update (May 2019): “Tesco directors aquitted in fraud trial,” BBC News (, 06 Dec 2018.



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