Sales growth continues
1H23 RESULTS
Need to Know
- Sales growth for the 1H period remained strong and is continuing into the first 4 weeks of trade for 2H23.
- EPS beat due to the strength in packaged goods inflation. Market EPS upgrade are likely for FY23.
- 2H23 volume softness is expected to be largely offset by pricing inflation. We have a BUY rating.
Summary
Good result for 1H23. Sales growth remained strong at +7%. EBITDA came in ahead of consensus due to strong hardware EBIT growth and general growth in core segments. Margins were steady across key divisions. We see earnings upgrades risk for FY23E.
Operating cash flow (OCF) was much weaker, driven by inventory rebuild. Inventories are up 3% vs FY19 with sales up 23%, so we don’t see this an issue.
The cost of debt almost doubled since the last result. MTS does not hedge interest cost. Hardware continues to show strength, with Trade sales outperforming Retail.
Chief Financial Officer (CFO) Alister Bell announced his retirement.
Result Details
Group revenue in-line with market A$7,737m vs A$7,673m market. EBITDA ahead A$255m vs A$242m market. Underlying profit in-line A$160m vs A$162m mkt. EPS ahead, 16.6cps vs 15.5cps market. DPS in-line at 11.5cps. Margins remained steady. OCF fell from A$212m (PCP) to A$90m. The cost of debt increased from 1.67% (PCP) to 3%.
Outlook
Sales for the first four weeks of 2H23 were up ~6.2% with the most significant growth being in hardware and liquor. Food sales ex-tobacco was up ~10.6%. Management expects sales volumes will fall over 2H23 due to the elevated base over COVID-19. Fuel, freight, and labour pressures are expected to remain although will be manageable.
Investment Thesis
Metcash has navigated through 1H23 well, demonstrating growth in key segments. Sales momentum has continued for the first 4 weeks of 2H23E. Operating conditions look to be in a good position and whilst macro pressures may come to play, management looks like they have a grasp on the operational impacts. At a forward PER of ~14x, we think MTS looks attractive. We reiterate our BUY rating.
Stock overview
Share Price
Company overview
Metcash Limited is an Australia-based distribution and marketing company. The Company is engaged in supplying and supporting retailers and other businesses across the food, liquor and hardware markets.
Disclaimers and Disclosures
Issuer
The information and opinions contained within Sandstone Insights Research were prepared by MST Financial Services Pty Ltd (ABN 54 617 475 180, AFSL 500557) ("MST").
Reliance
Whilst MST make every effort to use reliable, comprehensive information in the construction of its reports, MST make no representation, warranty or undertaking of the accuracy, timeliness or completeness of information in this report. Save for any statutory liability that cannot be excluded, MST and MST employees, representative and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person.
General Advice
Any advice contained within Sandstone Insights Research is general advice only and has been prepared without taking into account any person’s objectives, financial situation or needs. Any person, before acting on any advice contained within Sandstone Insights Research, should first consider consulting with a financial adviser to assess whether that advice is appropriate for their objectives, financial situation and needs.
General Disclosures
This report should be read in conjunction with MST Disclaimers and Disclosures and is published in accordance with MST Conflict Management Policy which are available on the MST website: https://www.sandstoneinsights.com.au.
Currency of Research
The recommendations made in a Sandstone Insights Research report are current as of the publication date. If you are reading a report materially after publication, it is likely that circumstances will have changed and at least some aspects of the analysis may no longer hold.
Access and Use
Any access to or use of Sandstone Insights Research is subject to the Terms of Use. By accessing or using Sandstone Insights Research you hereby agree to be bound by our Terms and Conditions and hereby liable for any monies due in payment of accessing this service. In addition you consent to us collecting and using your personal data (including cookies) in accordance with MST Privacy Policy, including for the purpose of a) setting your preferences and b) collecting readership data so MST may deliver an improved and personalised service to you. If you do not agree to MST Terms of Use and/or if you do not wish to consent to MST use of your personal data, please do not access this service.
Equities Research Methodology
Please click here for information about MST equities research methodology.
Related Reports
Growing a leg
ING’s 2H23 outcome was very strong with margins recovering 260bp due to the price-driven growth in sales.
One sip at a time
The Chinese Ministry of Commerce decision to remove tariffs on Australian barley from 5 August 2023, has created an expectation that wine tariffs may also be removed in due course.
Back to the future
The Victorian Government has announced proposed changes to gaming machines that echoes an infamous day in 2008. Regulatory scrutiny and changes in the gaming industry are a frequent negative event that needs to be understood before investing in this industry.