Why is the Metcash Share Price Down by Over 3%?

Metcash Limited [ASX:MTS] shares were trading at $2.68 early this morning, indicating a drop of 3.08%

This move comes on the back of a devastating announcement this morning. The IGA and Foodland supermarket supplier advised that it will be hit with a $352 million impairment charge after one of its customers spurned its new South Australian distribution centre.

This has been a disastrous couple of weeks for Metcash. Investors have been holding their breath ever since Metcash flagged a potential $270 million sales hit, from the potential withdrawal of Drakes Supermarkets from their current South Australia agreement.

Why the Drop?

Over a fortnight ago, the company were enjoying a 52-week high on news that Wattle Health Australia Ltd [ASX:WHA] had secured an arrangement to supply its baby food range to Metcash, its wholly owned subsidiary company.

In a sharp turn of events, the Metcash share price is now suffering.

The lack of commitment from Drakes Supermarkets will be causing significant anxiety, while this latest blunder will only be fuelling the fire.

The company will record a $318 million non-cash impairment against goodwill and other intangibles, plus a $34 million asset write-down.

These impairments are non-cash in nature, have no impact on the company’s debt facilities, compliance with banking covenants, or its ability to undertake capital management initiatives,’ Metcash said in a statement.

What’s Next for Metcash?

The market seems to be only predicting future gloom for the fallen distribution giant.

Citi analysts Bryan Raymond and Craig Woolford have said there is a risk Metcash could lose up to three more contracts, and are warning the share price could fall to as low as $2.18.

Investors will remain on watch.

Regards,

 

Ryan Dinse,

Editor, Money Morning

 

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Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

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