MTS - Metcash Limited

Re: MTS - Metcash

June 01, 2009

Article from: Reuters

GROCERY and liquor merchant Metcash has posted a 2.55 per cent lift in annual net profit and says it expects no weakening in its core grocery market in the months ahead.

Metcash reported net profit of $202.5 million for the year ended April 30, up from $197.4 million in the prior corresponding period.

The wholesaler posted an 8.51 per cent lift in revenue to $11.07 billion.

Metcash said it expects growth in normalised earnings per share (EPS) of between seven and ten per cent in fiscal 2010, subject to unemployment and economic conditions not deteriorating above current government forecasts.

"While the trading environment remains volatile and financial uncertainties continue to negatively impact overall consumer spending, we see no weakening in the core grocery market served by Metcash,'' Metcash said.

Metcash declared a final dividend of 14 cents per share, taking the total dividend for fiscal 2009 to 24 cents.

The company reported a 9.3 per cent lift in wholesale sales for the full year to $10.97 billion, driven by strong consumer support for independent retailers, Metcash said.

"The strong growth was above market guidance and was posted amid volatile economic conditions and continuing strong competition in the supermarket sector,'' it said.

Metcash's key business, IGA Distribution, posted an 11.3 per cent lift in sales and growth in earnings before interest, tax and amortisation (EBITA) of 14.7 per cent to $315.5 million.

Metcash said sales on a comparable store basis rose nine per cent as consumers continued to support the IGA network of around 1270 outlets across Australia.

Chief executive Andrew Reitzer said consumers were eating out less often and shopping more at the supermarkets that Metcash supplies with products.

"More Australians are holidaying in Australia and shopping at the widely dispersed IGA network of independent supermarkets,'' he said.

Australian Liquor Marketers, the company's liquor division, generated sales growth of 5.6 per cent, while EBITA jumped 8.2 per cent to $33.8 million. Metcash said beer volumes were the stand our performer, with 25 per cent sales growth during the year.

Campbells Wholesale, Metcash's specialised convenience distribution division, grew sales by 7.1 per cent and EBITA by 7.8 per cent to $33 million.

Primary category sales of food service, soft drinks and confectionery rose 10.6 per cent, producing higher margins, it said.

Re: MTS - Metcash

wonders if any of the chartists on the breakout threads will notice this one soon........

i hold and luvvem to bits

Re: MTS - Metcash

nunthewiser said:

wonders if any of the chartists on the breakout threads will notice this one soon........

i hold and luvvem to bits

Click to expand...

Yes nun, I hold too. Hasn't it been a champion through all the doom and gloom. I was wondering when it was going to break up too.

Re: MTS - Metcash

Interesting move on Mitre 10. Wonder how that will pan out?
Mitre 10 seem to be carrying a lot of debt. What will this play do to the Metcash share price i wonder

Re: MTS - Metcash

Romano said:

Interesting move on Mitre 10. Wonder how that will pan out?
Mitre 10 seem to be carrying a lot of debt. What will this play do to the Metcash share price i wonder

Click to expand...

Yeah it will be interesting, I wonder if Metcash are only making this move to stay in touch with the Woolworths and Wesfarmers...

It seems a bit odd to me because Mitre 10 aren't exactly the stongest competitor in the hardware market and their significant debt makes it a riskier play

Re: MTS - Metcash

Make no mistake........this is a genius move from Metcash who's growth profile is stalling a little.........

The worries about debt are unfounded as debt is just an aspect of enterprise value.......so it's up to Metcash to calculate the right buy price which I'm sure they are at this stage of consolidation.......

The problem with Woolies buying Mitre 10 was that completely a franchise business.......which is a similar issue they had with Danks, but at least there was a coherent company owned stores aspect of it, as well as a large US companion......

The entry of Woolworths sounded a further deathnell to Mitre 10, who will be picked up for a song by Metcash......and make no mistake, Metcash wants the whole thing.......

The Mitre 10 model is completely consistent with Metcash's model and expertise..........there is an illusion that Mitre 10 stores are not profitable when Mitre 10 still boast some stores of exceptional profitability while others are obviously not..........

Enter the Metcash machine........which has made an artform out of ripping profit margins out of the 'bits and pieces' of the Australian grocerty market...........compared to the inept current Mitre 10, the Metcash branding and store optimisation and scaleability machine will make Mitre 10 a rich margin flow.......this is a killer move from Metcash

Re: MTS - Metcash

From my knowledge, Mitre 10 stores are ALL individually owned. Mitre 10 is only a marketing group, that has a wholesale warehouse to supply stores.
It is exactly the same model as Danks, that has been purchased by Woolies.
These stores are in no way franchised, nor company owned. Technically, they are not really aligned to Mitre 10 except through their marketing program.
This is a very interesting play from Metcash. The Mitre 10 wholesale business would flouder otherwise.

Re: MTS - Metcash

Agree, Mitre 10 is a pure franchise play which makes it perfect to Metcash........but don't take my word for it.

But Mr Reitzer said it was for this exact reason that Mitre 10 first signalled it was interested in a takeover proposal. Mitre 10 and one other unknown bidder are currently in the race to secure control of the hardware banner group.

"We are the absolute natural owner of that business, we believe that just as we done a job to be the champion of the independent grocery retailer we think we can do exactly the same job to be the champion of the independent hardware retailer."

Mitre 10 currently has no idea how to coexist with the wearhouse category killing Bunnings........but that is Metcash artform.....they won't try to be Woolworths or Bunnings.......but they will offer suitably tailored businesses for the 'competitive opportunity' on offer.......and rely on the 'local hero' franchisee to outcompete on service and local knowledge......go you sweet thang

Re: MTS - Metcash

Romano said:

From my knowledge, Mitre 10 stores are ALL individually owned. Mitre 10 is only a marketing group, that has a wholesale warehouse to supply stores.
It is exactly the same model as Danks, that has been purchased by Woolies.
These stores are in no way franchised, nor company owned. Technically, they are not really aligned to Mitre 10 except through their marketing program.
This is a very interesting play from Metcash. The Mitre 10 wholesale business would flouder otherwise.

Click to expand...

If they are not owned by the head company but use the Mitre 10 branding and IP to promote themselves, then chances are the Mitre 10 store operators/owners are franchisees pursuant to the Franchising Code of Conduct.

Re: MTS - Metcash

I noticed that the AFR says that Mitre 10 supplies independent hardware stores. If they're not a franchise system then they must have a fairly robust advice on the aspects of the franchising code under the Trade Practices Act to make it stick.

Re: MTS - Metcash

Article in today's AFR suggests that the owners of Mitre 10 are close to finalising their decision on whether to accept MTS' offer or the private equity offer. The AFR speculates that the owners may announce their decision today in favour of MTS.

Re: MTS - Metcash

Metcash gets to buy 50.1% of the Mitre 10 chain for $55 million with an option to buy the remaining 49.9% of Mitre 10 following finalisation of the Mitre 10's audited accounts in either 2012 or 2013.

http://www.theage.com.au/business/mitre-10-seeks-independents-after-metcash-move-20091210-klpm.html

Re: MTS - Metcash

Rainmaker2000 said:

Mitre 10 currently has no idea how to coexist with the wearhouse category killing Bunnings........but that is Metcash artform.....they won't try to be Woolworths or Bunnings.......but they will offer suitably tailored businesses for the 'competitive opportunity' on offer.......and rely on the 'local hero' franchisee to outcompete on service and local knowledge......go you sweet thang

Click to expand...

My experience of 2 visits to a Mitre 10 store in Toombul over the last 3 years was they have a huge mark-up on items and the store layout was pre 1990's. :disgust: Big facelift needed but the culture may be ingrained.

Re: MTS - Metcash

McCoy Pauley said:

Article in today's AFR suggests that the owners of Mitre 10 are close to finalising their decision on whether to accept MTS' offer or the private equity offer. The AFR speculates that the owners may announce their decision today in favour of MTS.

Click to expand...

The board has recommended that Metcash is their preferred option.
Shareholders still have to vote on this. It is not a done deal yet. The votes will be finalised by the end of March 2010.

They shareholders still have to be sold on the idea of why they should accept the offer.

Re: MTS - Metcash

Mitre 10 votes in favour of acquisition by Metcash:
http://www.asx.com.au/asxpdf/20100312/pdf/31p76hl76lmc3s.pdf

So, do you guys think mts will have a big move next week?

Re: MTS - Metcash

I'm new to MTS and id like to thank most of the previous posters in this thread for there analysis and thoughts, its been truly helpful thanks all. I've just spent a few hours going over MTS and have to say im impressed, ill list the highlights below for others that may be new to MTS.

• First listed Apr 2005
• Market cap 3.1 Bill
• Cash and Cash equivalents 195 Mill (Half year financial Oct 09)
• Debt 261 Mill (approx) (Half year financial Oct 09)
• No capital raisings since listing (i couldn't find any)
• Unbroken history of interim & final FF dividend payments, increasing year on year.
• Top 20 hold over 72%
• Top 3 (HSBC, NAB, J P Morgan) hold over 50%

I imagine that the ACCC will never allow WOW or WES to take over Metcash and politicly its pretty much impossible, so other than a foreigner coming in and bidding for them, id say they are not in much danger of getting swallowed up or forced outa business.

Anyway as has been covered previously in this thread MTS is not really a competitor for the big 2 and has a different business model....i reckon the Mitre 10 buy in is a top move as again mitre 10 don't really compete against Bunnings and the Mitre 10 model is a perfect bolt on fit for Metcash.

MTS at its current SP just looks like good buying to me, well its about where i would want to be buying in, at this point in time...although easy to think that with there SP action history i mite get stuck in this trade for quiet a while waiting for my 14% profit target to get hit.


Have a look at the numbers from there 2009 annual report below.

http://www.metcash.com/site_files/s1001/files/Annual_Report_2009_web.pdf

Disclosure i don't hold but am seriously considering...please do your own research etc.
~

Re: MTS - Metcash

Hi so cynical, as you say MTS looks very good but IMO some deeper reading and thinking is needed.

It appears to be a very strong, growing stock.

So ask yourself why is the SP & MC not much, much higher. Yields good, full franked too, why has the SP moved sideways.

I started thinking about this questions as I too liked the business model.

After doing some digging I noted Perpetual, a value based investor and begun to sell down it's holding, why would it do that?

Also found this article and I didnt like it, stopped me from investing.

http://www.franchise.net.au/Article/Come-clean-Franklins-angered-by-Metcash-secrecy/508768.aspx

Come clean: Franklins angered by Metcash secrecy
18 December 2009

Franklins has urged Metcash to reveal the discounts that it hasn't passed on to the supermarket chain, the total value of those discounts and to allow full inspection of its records.

This follows the decision on 16 December by the NSW Court of Appeal that Metcash does not have the right to withhold certain discounts and rebates it negotiated with suppliers on Franklins' volumes.

"Metcash has now acknowledged that it owes Franklins money. Why has it taken them so long to come clean?" asked managing director of Franklins, Aubrey Zelinsky. "Metcash must have known that it negotiated discounts with suppliers that it unlawfully withheld from Franklins. Unfortunately, it has taken a unanimous Court decision to spur Metcash into action."

In an affidavit filed with the Court, an independent forensic accountant from Deloitte concluded that "there is a strong possibility that in respect to at least some of the suppliers, there is an inconsistency between the description or classification of the discount on the face of the trading terms ... and the actual benefit or service provided" and "there would appear to be no uniform practice in relation to the description or recording of the types of discounts negotiated between Metcash and particular suppliers".

Zelinsky said that, the value of the discounts that Metcash has retained, and to which Franklins is entitled, is significant because the supermarket chain had ordered close to $2 billion of goods from them.

Click to expand...

Structurally, I think it's still in its infancy and has a lot of kinks to be ironed out.

DYOR and good luck.

Re: MTS - Metcash

Pallen said:

Hi so cynical, as you say MTS looks very good but IMO some deeper reading and thinking is needed.

It appears to be a very strong, growing stock.

So ask yourself why is the SP & MC not much, much higher. Yields good, full franked too, why has the SP moved sideways.

Click to expand...

Wow, someone who actually asks the right question: i.e. your capital is essentially not growing.

Goodonya, pallen.

Re: MTS - Metcash

Isnt that what we're all here for, capital growth?

I too like the business model, but the reasons I have posted above I feel the market is no too impressed, perhaps when the Franklins case is adjourned I'll take another peak.

Re: MTS - Metcash

Pallen said:

Hi so cynical, as you say MTS looks very good but IMO some deeper reading and thinking is needed.

It appears to be a very strong, growing stock.

So ask yourself why is the SP & MC not much, much higher. Yields good, full franked too, why has the SP moved sideways.

I started thinking about this questions as I too liked the business model.

After doing some digging I noted Perpetual, a value based investor and begun to sell down it's holding, why would it do that?

Click to expand...

Hi Pallen thanks for posting...always good to get a bit of discussion going.

While looking though all the Metcash announcements i couldn't help but notice that there's alot of institutions buying and selling at all share price levels...sorta makes sense as there all major holders of MTS shares.

Now i know these guys are finance professionals and very well educated and paid etc etc..but im of the opinion that there pretty much fumbling around in the dark like we are, just making reasons to justify there actions and having 1 hour weekly meetings about it and writing reports.

To demonstrate this ive spent a little time recording the times PPT has announced becoming and ceasing to be a substantial holder of MTS stock..and have marked up a all data weekly chart with PPT's buying and selling activity.

I would be interested if you or anyone else can make sense of it....i cant. :cuckoo:
~