MTS - Metcash Limited

joeno said:

Time to dump?

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Got off and short at 2.06 but it has to break minor 1.90 then 180.
There is a fair bit of consolidation under pinning it, so it would take a realistic report to get sentiment down for all those new holders that got sold into since Jan.
Aldi's growth could have done it but it hasn't respond yet. There are two deep pocket sellers quietly trying to offload above 2.

I have actually taken a long position in MTS.

I think it is excellent value at this price, they are still in a transformational stage of improving the business and cost cutting.

Hopefully it can stay above resistance levels of $2.00, it is looking quite positive on an up trend in both daily/weekly charts.

leyy said:

I have actually taken a long position in MTS.

I think it is excellent value at this price, they are still in a transformational stage of improving the business and cost cutting.

Hopefully it can stay above resistance levels of $2.00, it is looking quite positive on an up trend in both daily/weekly charts.

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I can't remember why but I was going to load up on it at $1 - 1.05 last year, but didn't. Probably because it was such a bargain at that range and that's about it.

Can't be asked to look its value at $2 but been looking at WOW and it looks very interesting.

MTS hasn't had a great history. It relies too much on too many independent operators - each of whom would be doing it quiet tough when the other 3 move in next door.

For my money I'd go with WOW. Long term (say within 5 years), it'd at least reach $31. With dividends and you could double your money.

My view of Metcash is as follows:

-IGA: Even if sales hold up their margins will go down over time due to increased price competition (which will only accelerate) from Aldi and Costco. The same thing will happen to Woolworths and Coles over the next 5-10 years but perhaps to a lesser extent. Also in my opinion its basically a larger fancier version of a convenience store rather than a true supermarket (except for the mega IGAs). They should only operate in high foot traffic areas where there is no supermarket nearby. A good example of a well placed IGA in Sydney is the one at UNSW (its a 15-20 minute walk from the nearest Coles or Woolworths) so you have plenty of University students coming in to buy a few things (most still go to Coles or Woolworths if they need to do major shopping) due to the convenience. IGA at petrol stations can also be competitive because Coles Express (at petrol stations) and Woolworths at petrol stations charge higher prices than their normal supermarket stores.

-Mitre 10: They will never be an effective competitor to Bunnings. The only stores that can do well are the ones that operate in suburbs where there is no Bunnings. Given Bunnings continued gradual store roll-out over time there will be fewer and fewer locations where they could be open. A good Mitre 10 is one that is in a regional area that is too small in terms of population for a Bunnings to bother opening or a crowded inner city suburb of a capital city CBD where there is not a big enough floor space (at a reasonable rent) for a Bunnings to open. For example in Sydney there is a Mitre 10 in Bondi-Junction, two in the CBD and one in Paddington all owned (as a franchisee) by the same guy. They are doing relatively well in those locations because Bunnings can't open nearby due to their not being an empty site/store large enough and with a reasonable level of rent for them to open a store, coupled with the fact that the nearest Bunnings store is too far away for some people too bother going. Its basically a niche business that should not try and compete with Bunnings head on. It will never be a 1000 store business. Any attempt to expand the store footprint greatly will likely result in losses from trying to take on Bunnings head on. In my opinion Mitre 10 is the sort of business that would do well with maybe 100 - 200 stores strategically placed throughout Australia and New Zealand and no more.

Basically its main earners of IGA and Mitre 10 are niche business that can only support a very limited store footprint. They over-expanded and got themselves into trouble. This type of business is better off as a private company where it doesn't have the pressure to grow into locations it shouldn't. Just like the pressure for growth induced by being a public company caused Dick Smith to open too many stores first under Woolworths then continued under private equity which caused it to go under (Dick Smith said so in a TV interview this year that it was his opinion that dick smith would have been a viable business with a smaller number of stores).

Skillful intraday dumping on tech traders still the theme of the day.
Gotta wonder if they skillfully pushed it up in the first place to get the tech trading volumes and short cover's to dump on.
Hard to see it accelerating higher out of this in the next week!



Look out ALDI here comes Metcash, yeh right.

That would be the realistic report today - Bottom line margin deflation vs 16% earnings increase.
That translates as already working harder for going nowhere and the competition is just getting started.

notting said:

So it would take a realistic report to get sentiment down for all those new holders that got sold into since Jan.

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notting said:

Skillful intraday dumping on tech traders still the theme of the day.
Gotta wonder if they skillfully pushed it up in the first place to get the tech trading volumes and short cover's to dump on.
Hard to see it accelerating higher out of this in the next week!

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Bang and Down 12%, on a very positive day for the market!

Now it's the longs that are covering LOL

notting said:

That would be the realistic report today - Bottom line margin deflation vs 16% earnings increase.

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I forgot to say that this was for Food & Grocery. Over all earnings were only up 1.3%

Testing the fires of hell.



Support built since January getting punched hard!!!

Sold half of my holdings at 1.9 a few weeks back. A little uncertain which direction its going to go now.

Cracker deal, not just the purchase of Home Timber and Hardward's wholesale business but the stunning 80 million institutional placement a $2.00 OMFG!!!!

Who the hell would buy that. They obviously have incredible faith in M10s ability to compete with Bunnings because competition in the supermarket wars is just getting going.

Gotta hand it to the sale team in management who sold that to institutional investors.

There is room for two hardware players in this market, seems everyone is thinking they can do it.

In addition share price getting a great kicker from the short squeeze today on the announcement as it is one of the most shorted stocks. That should help them get the retail placement off nicely. Great performance from those in the management jobs of this company.

Let's see what happens to share holders when the rubber hits the road on hardware. That's where the game is.

Now lets look at that -
Personally I'd love to see them have a crack at Bunnings but since Woollies have sold all the inventory to one company and the stores real estate to another that means no real direct competition, only chewing at the edges.
Wesfarmers smiling me thinks!

notting said:

There is room for two hardware players in this market, seems everyone is thinking they can do it.

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Not sure about other states but in Hobart we've had two major players in the hardware business since the mid-1980's, that being K&D Warehouse (locally owned and the same "warehouse" concept as Bunnings) and Bunnings and its predecessors (Harrys, BBC, Hardwarehouse).

Over the past year or so Bunnings has replaced their largest store (north of the city) with a bigger one, built a new store south of the city and is now building another one on the Eastern Shore.

Gut feel and having been to both K&D and Bunnings in recent times tells me that Bunnings is slowly but surely gaining the upper hand. K&D isn't dead but it's nowhere near as busy in their stores as it once was, "struggling" would be perhaps the best description there.

K&D seem to have shifted their marketing strategy to one of "we're locally owned, support the local guys" more than anything else these days. That might work in Hobart since they are indeed locally owned but the same strategy won't work for MTS since they too are a national company as is Wesfarmers. Both could say they're Australian, neither could say they're locally owned in one particular state or city.

notting said:

There is room for two hardware players in this market, seems everyone is thinking they can do it.

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Never owned MTS and probably never will. Without knowing much about the business specifically, there is a vast area of the country that will never be serviced by a Bunnings. The demographics might suggest that this geographic market is in long term decline but, it still exists.

Metcash is a long-term play.

There is always room for a duopoly or triopoly

Look at the the broader market/industry

JB-Hifi / Good guys / Harvey norman

Coles / Woolies / Aldi /IGA

David Jones / Myer

Telstra / Optus / TPG

It all depends on how well the executive team/CEO run's the company and this can either make or break the company.


Cheers
leyy

Solid run by Metcash over the last 12 months. It seems to be going from strength to strength after bottoming out at around $1 back in 2015.

greggles said:

Solid run by Metcash over the last 12 months. It seems to be going from strength to strength after bottoming out at around $1 back in 2015.

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May have spoken too soon.

Announcement of a major contract loss for Drake supermarkets in South Australia which is circa $270m in sales in FY18.

Doesn't say impact on future earnings but based on their margins of 2.7% would say circa $7.3M in EBITDA.

Stock price hammered down 17%

MTS short term trader: (not on this forum)
Yeah, I bought the break-out. I'm a genius. P2 can eat my dust.
Why didn't I sell when the bars turned red. Ignored my plan.
Yeah, new highs, only suckers sold this, my TP's OK but I'm a discretionary trader!
Oh no! All my profits are gone and now I'm losing. Let's hold this for another day. Price'll bounce back.

leyy said:

May have spoken too soon.

Announcement of a major contract loss for Drake supermarkets in South Australia which is circa $270m in sales in FY18.

Doesn't say impact on future earnings but based on their margins of 2.7% would say circa $7.3M in EBITDA.

Stock price hammered down 17%

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Yes I spoke too soon. Exactly one day too soon. The MTS share price slide has continued this morning and is currently down another 4.62% to be trading at $2.89. Losing that Drakes Supermarkets contract was a big body blow for Metcash. It will be interesting to see where their share price stabilises after the dust has settled.

greggles said:

Losing that Drakes Supermarkets contract was a big body blow for Metcash.

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Is that what happened? I was up 20% on this and now nought. I had a bad day across the board yesterday, resulting in a portfolio loss of around 6%

systematic said:

Is that what happened? I was up 20% on this and now nought. I had a bad day across the board yesterday, resulting in a portfolio loss of around 6%

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Yes, the announcement came through yesterday just after the open. Here it is in full:

Potential new DC and loss of major customer in South Australia

Metcash Limited (ASX:MTS) advises that it is planning for a potential new purpose-built Distribution Centre (DC) in South Australia.

If approved and constructed, the DC will enable local independent retailers in South Australia to benefit from significant operational efficiencies, as well as accessing a broader range of products. It would also benefit local suppliers through the opening up of a pathway to access Metcash's extensive distribution network.

The assessment work for the proposed new DC has included site identification, which is well advanced, and preparation for regulatory approvals.

The company has received support for the proposed DC and long-term Metcash supply from its major independent retailer customers in South Australia, other than Drakes Supermarkets. Disappointingly, Drakes has advised that it will not be making a commitment to have its supermarkets in South Australia supplied from Metcash's proposed new DC.

Total Sales including tobacco to Drakes Supermarkets in South Australia were ~$270 million in FY18. Metcash has an agreement with Drakes Supermarkets in South Australia to supply its stores through to June 2019, and has not been advised of any intention to change the current supply arrangement with Drakes Supermarkets in Queensland.

Metcash is assessing the implications of this advice from Drakes Supermarkets, which will be taken into account in the company's FY18 year-end review of the carrying value of its goodwill and other assets.

The Supermarkets & Convenience pillar is expected to report a 1.2% decline in Total Sales and a 3.6% decline in Wholesale Sales excluding tobacco for the year ended 30 April 2018. FY18 earnings for Supermarkets & Convenience is expected to be in line with the prior financial year. It is not expected that this advice from Drakes will have a material impact on the earnings of the Supermarkets & Convenience pillar in FY19.

A further update regarding the above will be provided with the release of the company's FY18 results on 25 June 2018, or earlier as appropriate.

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Metcash have announced this morning that its financial statements for the year ended 30 April 2018 will recognise a $352 million impairment to goodwill and other net assets in the Supermarkets & Convenience pillar.

The impairments follow the company's year-end review of the carrying value of its assets. The review has taken into account the information contained in Metcash's ASX release on 28 May 2018 concerning Drakes Supermarkets in South Australia, as well as weakness in the Western Australian economy and the ongoing intensity of competition in the sector.