Metcash reports strong full year financial results

4 June 2010

This week Metcash announced a strong set of full year financial results. In particular, it announced normalised FY10 NPAT of $245 million, which translates to EPS of 32 cents and represents an increase of 8% on the prior year. The company also announced a final dividend of 15 cents per share, bringing the full year dividend to 26 cents. The result was underpinned by continuing strength in the core IGA>D division, which distributes food to IGA and other independent grocery retailers. Importantly, Metcash was able to again grow sales in this division at a quicker pace than rivals Coles and Woolworths, and indeed increased its market share in the grocery sector to 20%. The company looks to have a bright future with guidance for FY11 being for EPS growth of 6%-8%.
 
Late in the financial year Metcash completed its acquisition of a controlling interest in Mitre 10. Mitre 10 distributes hardware supplies to Mitre 10 and other independent hardware retailers. Metcash acquired its interest in the company for an attractive price - at approximately 9 times earnings - and has a genuine opportunity to improve and grow the business into a meaningful earnings contributor. Metcash is well placed to make the most of this opportunity given that Mitre 10 is in many respects a similar business to that of its core IGA>D food distribution business. Metcash management will be able to employ many of the same strategies that it has used to build the IGA>D business.  
 
The IML investment team met with Metcash’s CEO and top management following the result. The meeting confirmed for the team their comfort in the strong outlook for the company and their strong view of management. IML’s retail analyst, Julian Beaumont said: “Metcash has proved in this result that it can grow the business despite the retail and economic landscape and can compete very strongly with Woolworths and Coles. Not only is Metcash a high quality company, but its shares are attractively priced. In particular, Metcash shares trade on 12 times forecast earnings with a fully franked dividend of 7%. The company has a solid growth outlook, underpinned by the Mitre 10 acquisition as well as other potential opportunities.”  
 
Metcash represents a quality, defensive investment with genuine potential upside.