Metcash Limited

This report is an updated version of the report published on the 9 January 2023 at 3:45 PM (GMT+11)

Section 1: Company Overview and Fundamentals Insights

1.1 Company Overview

Metcash Limited (ASX: MTS) is an Australia-based distribution and marketing company, and it is engaged in supplying and supporting retailers and other businesses across the food, liquor, and hardware markets.

1.2 The Key Positives, Negatives, Investment Highlights, and Risks

1.3 Top 10 Shareholders: The top 10 shareholders together form ~44.21% of the total shareholding. Pendal Group Limited and Colonial First State Investments Limited are holding a maximum stake in the Company at ~8.90% and ~6.09%, respectively.

1.4 Key Metrics: The company has reported a high asset turnover ratio of around 1.45x in 1HFY23 compared to the industry median of 0.74x. Further, the quick ratio improved in 1HFY23, which was around 0.72x compared to 0.23x of industry median. Below is captured the trend of the gross margin and return on equity:

Section 2: Business Updates, Financial and Operational Highlights

2.1 Recent Updates:

2.2 Results Highlights of 1HFY23: During 1HFY23, the EBITDA improved by 7.8% YoY to AUD 341.0mn compared to AUD 316.2mn in 1HFY22, while the underlying profit after tax rose to AUD 159.9mn in 1HFY23 compared to AUD 146.6mn in 1HFY22.

2.3 The following picture depicts MTS upcoming view:

2.4 Dividend History: The company maintained the dividend payout ratio of ~70% of underlying earnings and the dividend in 1HFY23 increased by 9.5% to AU 11.5 cents per share, fully franked compared to AU 10.5 cents per share in 1HFY22.

Section 3: Key Risks and Outlook:

Section 4: Stock Recommendation Summary

4.1 Price Performance and Technical Summary

4.2 Fundamental Valuation

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is January 9, 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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