Consumer Staples

Metcash boosts FY22 revenue & profit: Flags grocery inflation impact

Mon 27 Jun 22, 11:13am (AEST)
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Key Points

  • Metcash reported a 5.9% increase in group revenue to $15.2bn for the full year ended April 30
  • Hardware was the standout with earnings growth up 40.7%
  • The group ended the financial year with net debt of $189.0m

A warning by Metcash (ASX: MTS) this morning that inflation could affect consumer behaviour across its stores and those of its partners, did little to curb the market’s thumbs up to what was a strong FY22 result, with the share price up 6.78% at the open.

The supermarket wholesaler reported a 5.9% increase in group revenue to $15.2bn for the full year ended April 30, while underlying earnings (EBIT) were up 17.7% to $472.3m.

While the company’s statutory net profit after tax (NPAT) was also higher, up 2.7% ($245.4m), it fell short of UBS’ forecasted NPAT of $261m.

Despite wholesale price inflation accelerating in the second half - with price increases being received from 60% of the supplier base – management plans to help shoppers manage the impact [of inflation] by providing better value options through offering a wider range of products at competitive prices.

Other FY22 highlights reported today included:

  • On an underlying basis, profit increased 18.6% to $299.6m

  • Total group sales increased 8.6% in the first seven weeks of FY23

  • Underlying earnings per share up 23.5% to 30.5 cents

  • Strong operating cashflow of $432.3m (cash realisation ratio 90.9%)

  • Significant return to shareholders – dividends and buy-back of around $400m

Metcash also declared a final dividend of 11¢ per share, bringing total dividends for FY22 to 21.5 cents per share, an increase of 22.9% on the prior corresponding year.

Commenting on the result, group CEO, Doug Jones believes record sales results were underpinned by the success of MFuture initiatives designed to further improve the competitiveness of the group’s retail network, continuation of the local neighbourhood shopping trend and the success of recent strategic acquisitions.

Hardware is the standout

While the group reported earnings growth within all pillars of the business, with food and liquor up 4.1% and 9.8% respectively, hardware was the standout with earnings growth up 40.7%.

Due to significant growth in both IHG and Total Tools and the impact of acquisitions – including an additional 20 joint venture and company-owned (hardware) stores acquired during the year which added $95m of sales - overall, hardware sales increased 20.5%.

Recent developments

Metcash has signed a long-term lease agreement with the Goodman Group (ASX: GMG) for the construction and leasing of a new wholesale distribution centre (DC) at Truganina, Victoria.

The new 115,000m DC, which will replace Metcash’s existing 90,000m DC at Laverton, is expected to help further improve the competitiveness of its independent retailers in Victoria through delivery of greater efficiencies and by providing access to a wider range of products.

Construction of the DC is scheduled to commence in the first half of FY23, with completion expected mid-2024.

The capital cost to Metcash for racking and other fit-out of the DC is expected to be around $70m, with $20m scheduled to be incurred in FY23.

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Metcash share price performance over one year.

 

What brokers think

Reflecting the impact of the $400m of shareholder distributions from the share buy back and increase in dividends paid, plus the strategic investment in inventory, the group ended the financial year with net debt of $189.0m.

Metcash share price is up 12.84% over one year but fell from $4.78 11 May to $3.85 20 June.

Consensus on the stock is Moderate Buy.

Based on Morningstar’s fair value of $3.78 the stock appears to be overvalued.

While Goldman Sachs expects strong growth on the hardware segment, the broker also flags the risk of worse than expected variable cost inflation.

The broker rates Metcash Neutral: Target price $4.40.

On 24 June UBS anticipated the group delivering total sales of $17.1bn, earnings of $451m, and net profit of $261m. 

Today’s result may test the broker’s Buy rating and target price of $5.00.

Credit Suisse expects the expansion of Total Tools to add $55m to earnings (EBIT) through to FY25 (from a FY21 base) and retains an Outperform rating and $4.70 target (24/06/22).

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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