Metcash Shares Fall Despite Increased Payout Plan




A funny result for shareholders in supermarket, hardware and liquor supplier Metcash which produced a strategy and trading update to the market yesterday.

Metcash revealed solid sales data for the second half of its financial year so far but more importantly it outlined tweak to its dividend policy that will see total payout to shareholders rise to 70% of underlying profit after tax from the present 60%.

The company said in the update that the higher dividend payout ratio will start in the current financial year and the board will ensure the dividend remains fully-franked.

Good news of that type would normally see the share price rise.

But nope - the shares fell through the day to be down nearly 4% at $3.39. That was in a market that ended up 0.6%. Actually, Metcash shares were up 1.3% in early trade, so the crunch on the day was larger than it looks - more than 5%.

That’s despite what was an upbeat trading update.

Metcash reported strong sales momentum for all business segments so far in the second half of 2021. Supermarket, hardware and liquor sales have all jumped by double digits compared to the prior corresponding period.

Metcash told investors in the strategy update that it has seen a shift in consumer behaviour that has benefited its retailer network and is generating “strong sales momentum”. Metcash added it has made “additional investment in shopper retention”.

In the food division, supermarket sales increased 14.4% in the first four months of the second half of 2020-21 (November 2020 to February 2021 as Metcash’s year runs May to April), compared to the same period in 2019-20. Food sales were up 4.1%, or 14.1% excluding the impact of losing a 7-Eleven tobacco supply contract.

In its Mitre10 hardware division, sales were still strong, up 31.6% in the November to February period, and in liquor sales are up 19.6% “with continued strong sales in the retail network more than offsetting the adverse impact of COVID-19 restrictions on ‘on-premise’ customers”.

It said liquor sales to Independent Brands Australia (IBA) were up nearly 24%. This includes retailers like Cellarbrations, Thirsty Camel, The Bottle-O, and Porters Liquor.

But it did warn that the growth would disappear this month and in April when comparisons are made with the same months of 2020 which saw a surge in grocery sales as the lockdowns started across the country. In fact growth could fall on a comparison with the same months in 2020 and perhaps for May as well.

Coles made similar comments in its half year report in February.

As well corporate costs have tripled to $15 million due to higher insurance and staff bonuses.

So the shares were sold off, even though sales growth hasn’t tanked and dividends will be juiced with a higher final for the year.