Metcash/MTS

Metcash result is out, a little soft, at the margin. Hardware remains under pressure, given the decline in building approvals (associated with the very sizeable uplift in interest rates, and thus decreased activity) and MTS has a sizeable exposure through IHG and Total Tools (hardware is ~40% of the EBIT, food is 40%, liquor is 20%).

Food and liqour was “fine”, but even food is a little challenged given how cost sensitive the consumer appears to be.

Managements’ framing was a lot more upbeat than our summary above, peppering their update with the words “strong” and “healthy”.

Our view, MTS has a good balance sheet (~0.5x ND/EBITDA ex operating leases) and is performing well overall. It’s in defensive industries (food) and cyclical growth industries (hardware, given the fairly desperate need to build new houses).

Those growth industries are probably a little wobbly, at the moment, given building approvals are down so much, but, balancing that out, MTS are on 12x earnings, which is quite cheap, a sizeable discount to the broader market. The comments on the earnings call, and from the accompanying slide deck regarding market share are well taken.

Cashflows, as highlighted above, were indeed quite good.

So that’s probably all okay, on balance.

More to follow.

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