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Warren Buffett increases stake in Tesco

Buffett’s Berkshire Hathaway investment vehicle increased its stake in the world’s third biggest retailer from 3.21% to 5.08%

Warren Buffett, the legendary American investor, has ridden to the rescue of embattled Tesco chief executive Phil Clarke by increasing his stake in the supermarket in the wake of last week’s shock profit warning.

Buffett’s Berkshire Hathaway investment vehicle increased its stake in the world’s third biggest retailer from 3.21% to 5.08%, a regulatory filing showed on Thursday . The filing was dated 13 January, a day after Tesco warned that trading profit for its 2012-13 financial year would be flat as it steps up investment in its home market following its worst underlying Christmas sales performance for decades. Tesco shares dropped as much as 19% on 12 January and hit a 34-month low of 311p on Monday. Dubbed the “Sage of Omaha” for a string of investments that have made him among the world’s three richest people, Buffett’s share dealings are closely watched in financial markets. After buying into Tesco in 2006, Buffett has gradually increased his holding. Last year he caused a stir by saying Tesco should “look hard” at its loss-making Fresh & Easy chain in the United States, though he also said he remained supportive of the business.

On a trip to Japan in November he said that the global financial crisis was creating opportunities in European equities. “We bought Tesco earlier. I can think of a dozen euro stocks that are attractive … there are stocks I like and wonderful businesses. I could buy more Tesco if the price came down.”

Tesco shares had dropped earlier on Thursday after a negative note from Goldman Sachs which said there would be further pressure on the sector’s profitability. Either supermarkets would reduce their land grab and expansion plans – which could improve cash flows and profits – or competition would increase with possible price wars, and no slowdown in new openings, the note said.

Since Goldman has cut its 2013 earnings forecasts for Tesco, Morrisons and J Sainsbury, it is clear which the bank thinks is more likely: “The outlook for returns over the next two years has deteriorated and in particular we see expansion by Sainsbury and Morrisons as returns destructive. We see more compelling relative value in European food retail.”

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