Metcash Interim Checks All the Boxes




A strong thumbs up from the market yesterday to the solid interim figures from supermarkets, hardware and liquor group Metcash.

Metcash shares leapt more than 7% to end at $4.24, hauling the rest of the retail sector with them, helped by a 31% leap in the interim dividend to shareholders.

Shares in rivals Woolworths were up 2.7% at the end of the day and Coles shares were up 2.8%.

Metcash, which supplies and runs the IGA network of stores in Australia along with a range of independent liquor and hardware retailers (such as Mitre 10 and Total Tools), said total sales for the six months to the end of October had grown a modest 1.5% to $8.2 billion.

But underlying earnings were up 13.1% to $146 million and interim dividend by 31% to 10.5 cents a share.

Directors explained the dividend lift to the highest level since 2012. “The strong Group performance and financial position, together with an increase in our target dividend payout ratio led to a significant lift in the interim dividend.”

“It has been a very pleasing first half for both Metcash and our independent retailers as we continued to build on the very strong prior corresponding half. All pillars again benefitted from the shift in consumer behaviour and improved competitiveness of our retail networks,” outgoing CEO Jeff Adams told the market in Monday’s interim report.

“The preference for local neighbourhood shopping and shift from cities to regional areas helped our independent retail networks all deliver ‘like for like’ sales growth in the half.”

That was a trend that both Coles and Woolies reported for parts of their chains in their first quarter updates which were released during the depths of the lockdowns in Sydney (and parts of NSW), the ACT and Melbourne (and parts of Victoria as well).

Looking to the business’ second half, Mr Adams said early signs indicated strong trading in November, though he warned of potential disruptions due to the pandemic.

Food sales grew 2.3% for the first five weeks of the half (from November 1), liquor sales were 7.6%, and hardware sales jumped 20.1% thanks again to the contribution from Total Tools.

Metcash’s hardware division, which consists of Mitre 10, Home Timber & Hardware and the recently acquired Total Tools, helped drive sales growth (thanks to the continuing housing construction and renovation booms). Sales for the division rose 17.8% to $1.48 billion and earnings surging 53% to $98.9 million.

Analysts said that much of this growth was due to Total Tools, which the company acquired late last year, with the business helping the division’s margins grow to 6.7 per cent.

Group underlying earnings before interest and tax (EBIT) increased 13.9% to $231.2m reflecting the strong sales performance and improved leverage, as well as the success of recent strategic acquisitions (Total Tools). "The pleasing performance in 1H22 follows significant growth in 1H21 with Group underlying EBIT up 30.4% in that half.” directors said.

The company’s supermarkets (Food pillar) continued to perform well but EBIT was lower than in 1H21 reflecting a decline in the contribution from joint venture stores, the adverse impact of the loss of the 7-Eleven contract a year ago and there being no tobacco excise increase in first half

Liquor earnings growth "was underpinned by continued strong demand in the retail network, and an increase in on-premise sales in states less impacted by COVID-related restrictions.”

“We expect supply chain disruption, and increased COVID-related and labour costs, particularly in distribution centres, to continue to be a risk for all pillars in the second half,” Mr Adams said.

“There continues to be uncertainty over the potential impact of any future COVID-related restrictions and changes in consumer behaviour,” he added.