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Market Matters opinion on Metcash
Not Held

Metcash (MTS) $3.33
UPDATED 23/10/2024 09:18

A tough session yesterday for MTS following an aggressive broker downgrade from Goldmans to a sell (from neutral) and a $3.10 price target, 13% below the price before they released the note. This is an “outlier” call from Analyst Lisa Deng and goes hard against consensus, hence the big influence on the stock. The call is predicated on three key factors:

Increasing use of online ordering/e-commerce and both Woolworths & Coles have a better offering which will increasingly erode IGA’s value proposition.
Bunnings is winning in Hardware and that trend is unlikely to change due to size and range.
MTS’s acquisition-led growth strategy will reduce the return on invested capital.
We think these are valid points, however, they’re not new. Metcash trades at a material discount to peers due to its market position, and on 12x consensus earnings for FY25, relative to Coles (21x) and Woolworths (23x), we think these dynamics are priced into the shares. For context on other broker calls, there are 10 buys, 3 holds (and now 1 sell) ranging from JP Morgan’s bullish price target of $4.50 down to Morgan Stanley with a hold and $3.83 PT, with Goldman’s call 19% below the next most “bearish” view.

Metcash has been underperforming since its 2022 high of ~$4.80, though we retain a positive stance on the stock for income, expecting a yield for the coming 12 months of nearly 7% fully franked, trading at a valuation that captures the issues raised in the Goldman’s downgrade.
MTS
MM intends to hold MTS for Income

<blockquote data-quote="finicky" data-source="post: 1301662" data-attributes="member: 2104">Market Matters opinion on MetcashNot HeldMetcash (MTS) $3.33UPDATED 23/10/2024 09:18A tough session yesterday for MTS following an aggressive broker downgrade from Goldmans to a sell (from neutral) and a $3.10 price target, 13% below the price before they released the note. This is an “outlier” call from&nbsp; Analyst Lisa Deng and goes hard against consensus, hence the big influence on the stock. The call is predicated on three key factors:Increasing use of online ordering/e-commerce and both Woolworths &amp; Coles have a better offering which will increasingly erode IGA’s value proposition.Bunnings is winning in Hardware and that trend is unlikely to change due to size and range.MTS’s acquisition-led growth strategy will reduce the return on invested capital.We think these are valid points, however, they’re not new. Metcash trades at a material discount to peers due to its market position, and on 12x consensus earnings for FY25, relative to Coles (21x) and Woolworths (23x), we think these dynamics are priced into the shares. For context on other broker calls, there are 10 buys, 3 holds (and now 1 sell) ranging from JP Morgan’s bullish price target of $4.50 down to Morgan Stanley with a hold and $3.83 PT, with Goldman’s call 19% below the next most “bearish” view.Metcash has been underperforming since its 2022 high of ~$4.80, though we retain a positive stance on the stock for income, expecting a yield for the coming 12 months of nearly 7% fully franked, trading at a valuation that captures the issues raised in the Goldman’s downgrade.MTSMM intends to hold MTS for Income</blockquote>

[QUOTE="finicky, post: 1301662, member: 2104"] Market Matters opinion on Metcash Not Held Metcash (MTS) $3.33 UPDATED 23/10/2024 09:18 A tough session yesterday for MTS following an aggressive broker downgrade from Goldmans to a sell (from neutral) and a $3.10 price target, 13% below the price before they released the note. This is an “outlier” call from Analyst Lisa Deng and goes hard against consensus, hence the big influence on the stock. The call is predicated on three key factors: Increasing use of online ordering/e-commerce and both Woolworths & Coles have a better offering which will increasingly erode IGA’s value proposition. Bunnings is winning in Hardware and that trend is unlikely to change due to size and range. MTS’s acquisition-led growth strategy will reduce the return on invested capital. We think these are valid points, however, they’re not new. Metcash trades at a material discount to peers due to its market position, and on 12x consensus earnings for FY25, relative to Coles (21x) and Woolworths (23x), we think these dynamics are priced into the shares. For context on other broker calls, there are 10 buys, 3 holds (and now 1 sell) ranging from JP Morgan’s bullish price target of $4.50 down to Morgan Stanley with a hold and $3.83 PT, with Goldman’s call 19% below the next most “bearish” view. Metcash has been underperforming since its 2022 high of ~$4.80, though we retain a positive stance on the stock for income, expecting a yield for the coming 12 months of nearly 7% fully franked, trading at a valuation that captures the issues raised in the Goldman’s downgrade. MTS MM intends to hold MTS for Income [/QUOTE]

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