Metcash Limited (MTS) - Hardwearing
November 5, 2024
Metcash was founded in 1927 and operates as a wholesale distribution and marketing company in Australia, primarily in the Food, Liquor, and Hardware segments.
It operates under a range of familiar trading names, including IGA, Foodland, Mitre 10, Home Hardware, Total Tools, Cellarbrations, IGA Liquor, and the Bottle-O.
Metcash recently provided a trading update highlighting the impacts of the weak Australian housing cycle, with Hardware trade earnings significantly below expectations. The company faces considerable operating deleverage in this division, with cost-cutting measures insufficient to offset sales and margin declines. In contrast, trading in Food and Liquor remains stable.
These weak trading conditions led the company to lower its FY25operating profit forecasts. We’ve followed suit and downgraded our profit forecasts for the current year, as well as in FY26 and FY27. Our price target also dropped from $4.10 to $4.30. Given a deeply discounted valuation, we retain a positive recommendation but acknowledge there are few positive catalysts on the horizon.
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