Metcash enters the hardware market

10 December 2009

This week Metcash announced its decision to invest in Mitre 10. Metcash is currently the third largest player in the food & liquor industry player through its distribution to IGA and other independent food and liquor retailers. With this announcement the company will be moving into the distribution of hardware supplies to Mitre 10 and other independent hardware retailers. Initially, the investment will be $55 million to acquire a majority 50.1% interest in Mitre 10. Metcash will then have the right to acquire the balance of the company in a further three years.
 
Metcash’s entry into the hardware retail industry follows the entry of Woolworths into the industry through its joint venture with US-based Lowe’s and the acquisition of Danks, which distributes to retailers operating under the Home Timber & Hardware and Thrifty Link Hardware brand names. The hardware industry has for some time been dominated by Wesfarmers-owned Bunnings but is likely to see considerably more competition in the next decade with the entry of Woolworths and Mitre 10’s likely improvement under Metcash.  
 
Last week, Metcash announced a strong set of 1H10 results. In particular it announced NPAT of $109 million, which was an increase of 12% on the prior comparable period, and a half-year dividend of 11 cents. The result was underpinned by strong growth in its core IGA distribution business, aided by strong sales growth and its new Fresh offer. The result bodes well for the company reaching its guided profit increase of 7%-10% in FY10.
 
IML’s retail analyst, Julian Beaumont said: “Metcash has been considering an expansion into another distribution business like hardware for sometime. Its experience over the past decade in turning around the IGA distribution business shows it has the skills and experience to do the same with Mitre 10. Metcash has a very shrewd and capable management team and the company is in a strong financial position. We believe the acquisition makes sense as it will enable Metcash to use its proven distribution capabilities and strong merchandising and brand management skills to improve Mitre 10’s position, which will ultimately add to shareholder value. We continue to remain comfortable holding Metcash shares across IML's portfolios.”