Metcash/MTS

Metcash (big supermarket, liquor and hardware company) hanging in there, re: the trading update. Low numbers, but just enough to keep the market happy.

Little doubt that the market is worried about cyclical bits (tools/hardware) rolling over and worried about the stable bits (food) being about as good as it gets (top line wise) whilst navigating margin pressure (wages, utilities, etc).

Trading on 13x is reasonable, in our estimation. It’s dwarfed by COL and WOW, competes with Aldi and Bunnings, and thus deserves to be on a discount to those gorillas. Equally, it is a well run shop that resonates with locals and has carved out a sustainable, profitable niche in those areas, growing to a position of relevance, overall.

The Aussie market is (in our view) facing a fork in the road with China’s new growth model (whatever it is, it doesn’t seem to be iron ore-led) and broader economic pressure (rising rates impacting the consumer) making for a difficult stock-picking environment (not that it is ever especially straightforward, but still, worse than usual), and as such we see MTS a solid holding in our direct sleeves.

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