New Tesco boss Ken Murphy told to focus on dividend and selling off the bank

The new boss of Tesco was today urged to focus paying dividends to Covid hit shareholders and to consider selling off its bank as he took charge of Britain’s biggest retailer.

Ken Murphy takes the reins at the £22 billion retail behemoth as Dave Lewis retires following six turbulent years in charge. Lewis is seen as the “man who saved Tesco” after rescuing the group from an accounting scandal.

City fund manager Richard Buxton, of Tesco shareholder Jupiter, said Lewis had done a “fantastic job”. Tesco shares hovered around 200p throughout Lewis’ era. But Buxton said the fact it had avoided enacting a rights issue and will soon pay a 51p special dividend after the £8 billion sale of its Asian stores meant investors would still have made money.

He added: “Tesco should now become a very cash generative dividend payer which – in a world where other big dividend players like the oil companies and the banks are on the back foot – that is very attractive.”

In April, Lewis was forced to defend paying out a £635 million dividend after receiving a similar sized business rates tax break due to the government’s coronavirus support package.

Buxton said Murphy could also divest Tesco Bank, which 3600 staff and more than six million customer accounts. He said: “There’s a lot of capital tied up in the bank and it only delivers modest upstream benefits to the parent company. The regulatory burden and oversight that’s needed with owning a bank is huge. It would be better that a traditional bank owned it and Tesco supplied the customers.” Tesco last year sold its mortgage book to Lloyd’s for £3.8 billion.

But Shore Capital retail analyst Clive Black said Murphy should keep his focus on running the core supermarkets business. “Dave Lewis’ challenge when he joined Tesco we largely internal; Ken Muprhy’s are the opposite – UK in recession, Brexit and the ongoing Coronavirus crisis.

"I would suggest navigating Tesco through these choppy waters will be priority enough,” he said. Black added “Dave Lewis is quite simply the man that saved Tesco, undertaking an incredible feat in the most challenging of circumstances.”

Independent retail analyst Nick Bubb said investors in the industry had preferred digital stocks like Ocado over Tesco, meaning the share price under Lewis had been static, but it had outperformed struggling Marks & Spencer which is down nearly 80% since 2014.

Markets.com analyst Neil Wilson praised Lewis’ action, adding:” I’m not sure it would have gone bust but it would have been a managed decline like Marks & Spencer, like decommissioning a nuclear reactor.” He added that Murphy should put his focus on lower the cost of servicing online grocery customers.