Cash is the king when in doubt. This adage falls perfect on stagnating/retracing stocks, which are giving no indications of moving higher in short term. One such ASX 200 stock is
Metcash Limited (ASX: MTS)
Metcash Limited posted a modest 0.7% increase in Group revenue to $18.2 billion for the year, with Group EBIT declining slightly by 0.9% to $496.3 million. Growth in the Food and Liquor segments helped support overall performance, although this was offset by weaker results in the Hardware division and increased corporate costs. Underlying profit after tax fell 8.2% to $282.3 million, largely due to challenging conditions in the Hardware business, while reported profit after tax remained relatively stable at $257.2 million. A key highlight for the year was the company’s strong operating cash flow, which surged 29.5% to $483 million, resulting in a cash realisation ratio of 102%, well-aligned with prior guidance. Over the past three years, Metcash has averaged a cash realisation ratio of 90%. The board declared total dividends of 19.5 cents per share, fully franked, maintaining its target payout ratio of 70% of underlying profit after tax.
Metcash continues to focus on expanding its business capabilities and pursuing growth initiatives, notably through the $390 million acquisition of Superior Foods. This acquisition strengthens its Food division and opens opportunities in the adjacent and growing food services market. In addition, Metcash achieved a record 26 new store openings in the Food segment during the year, positioning the company for significant retail sales growth in FY25. The company's strategic focus, "Championing Successful Independents," aims to enhance its competitive position across its core segments. In the Hardware division, the acquisitions of Alpine Truss and Bianco Construction Supplies are expected to accelerate its Whole of House strategy, further strengthening market presence and service offerings in the construction materials space. With a well-diversified business portfolio spanning Food, Liquor, and Hardware, Metcash is positioned for future growth, supported by clear strategic plans and a strong management team. However, the company continues to face macroeconomic challenges that have weighed on consumer confidence and earnings performance, leading to relative underperformance compared to peers.
Looking ahead, Metcash may experience further near-term pressure given ongoing economic uncertainty. A shift in consumer behaviour is expected once market conditions improve. While the company has delivered stable year-over-year revenue growth, its EBITDA margin of 4.33% lags the industry average, indicating potential operational inefficiencies. Additionally, with a P/E ratio of 12.70, an EV/Sales ratio of 0.33x, and an EV/EBITDA ratio of 8.18x, the stock appears slightly overvalued compared to peers, despite a solid dividend yield of 5.82%. Investors may want to wait for more consistent earnings growth and better cost management before considering a position.
(Source: Company’s Report)
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