Australia's leading wholesale distribution and marketing company — supplying grocery, fresh food, liquor, hardware and automotive parts to independent retailers. Trading at 7× EV/EBIT with a fully franked 5.9% dividend yield, Metcash offers a compelling income profile and meaningful valuation discount to listed peers.
Metcash is a wholesale distribution and marketing company specialising in grocery, fresh food, liquor, hardware and automotive parts. It operates across three pillars — Food (IGA-bannered independent supermarkets and convenience stores), Liquor (independent outlets and hotels including Cellarbrations and The Bottle-O), and Hardware (Mitre 10 and Total Tools retail networks). Recent acquisitions include Bianco Construction Supplies and Alpine Truss, expanding its hardware footprint across South Australia and Victoria/NSW.
| Metric | Apr 16 | Apr 17 | Apr 18 | Apr 19 | Apr 20 | Apr 21 | Apr 22 | Apr 23 | Apr 24 | Apr 25 |
|---|---|---|---|---|---|---|---|---|---|---|
| Cash flow (cents) | 17.9 | 31.8 | 29.6 | 26.3 | 12.9 | 46.4 | 43.9 | 38.4 | 48.2 | 49.1 |
| Earnings (cents) | 20.1 | 22.2 | 21.6 | 22.5 | 21.1 | 24.4 | 30.3 | 31.7 | 29.7 | 25.3 |
| Dividends (cents) | 0.0 | 11.0 | 13.0 | 13.5 | 12.5 | 17.5 | 21.5 | 22.5 | 19.5 | 18.0 |
| Franking (%) | — | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |
| Return on capital (%) | 13 | 13 | 15 | 16 | 10 | 13 | 15 | 16 | 13 | 12 |
| Net interest cover | 10.51 | 11.95 | 12.43 | 11.39 | 6.30 | 9.02 | 9.72 | 7.74 | 5.52 | 4.17 |
While Metcash ticks all the fundamental boxes and is a company we view with limited downside risk based on valuation metrics, we also do not own this company expecting significant gains in share price appreciation. It is reasonably valued at 7× EV/EBIT for a company that has produced negligible growth over the last 20 years and has had a lean couple of years in this cost-conscious environment.
It is too early to determine if recent acquisitions will materialise into earnings gains — however, encouragingly, a recent market update notes underlying NPAT is expected to be around $270M for this financial year, representing a slight improvement in results. Part of the attractiveness for holding Metcash is that it trades significantly cheaper relative to Coles and Woolworths, both trading over 24× earnings, with similar returns on capital. As such, a share price closer to $4 would be a more than reasonable expectation.