Market Mixed on Metcash Outlook

Australia | Sep 15 2022

Despite strong year-on-year sales growth in the new financial year, brokers remain split on how an inflationary environment may impact Metcash’s market share in the coming year.

-Metcash delivers strong start to the new financial year with sales growth of 8.9%
-Independents prove resilient year-to-date despite inflationary environment and lockdown cycling
-Value consciousness could see consumers revert away from independents, but some analysts see potential for Metcash to continue to gain market share

By Danielle Austin

Reporting a strong start to the year at its recent annual general meeting, Metcash ((MTS)) has delivered 8.9% group sales growth in the first seventeen weeks of the new year.

Segmentally, hardware and liquor underpinned the result, up 19.5% and 11.5% year-on-year respectively, while food was up a softer 4.3%. By brand, Total Tools reported an 85% sales increase year-to-date and Independent Hardware Group a 12% increase.

Analysts have noted the continuing strength in Metcash’s results reflects independent supermarket customer retention post-lockdown. Independents industry wide have reported a sales rise of 2.6% in the two weeks to September 8, while Woolworths ((WOW)) reported a -0.5% decline in the same period.

Value consciousness is expected to increase as inflationary impacts take hold, potentially driving consumers away from independents and towards discount retailers. The duopolistic nature of the domestic grocery sector could provide some buffer to Metcash’s food division. Results have also spoken to the company’s cost management, and effective pass-through of inflation-driven costs.

Brokers debate whether Metcash will gain or lose share market

Analysts share differing opinions on the likelihood of Metcash making or losing market share. While sales growth strength and customer retention in the first seventeen weeks of the year are positive indicators that independents may weather the inflationary storm, some brokers remain cautious on risk of value-seeking consumers reverting to discount retailers.

The five FNArena database brokers that cover Metcash all updated on the company following its full year results release in June with three equivalent Buy ratings and two equivalent Hold ratings. Between them these brokers have an average target price of $4.73, with a range of $4.40-5.00.

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