Metcash Limited [ASX:MTS] shares were trading at $2.94 in morning trading, a climb of 5.56% today.
After Drakes Supermarkets in South Australia withdrew its support back in May, the market has been waiting with bated breath for the grocery wholesaler’s full year results.
This morning’s announcement indicated a statutory loss after tax of $149.5 million, but investors may have been enticed by a $125 million off-market buyback strategy.
Why Metcash’s share price up by over 5%?
The buyback — at a price discount between 8% and 14% — contains a fixed capital component of 61 cents and the remainder a fully franked dividend.
This could be an attractive option for investors able to obtain the full benefit of the franking credits.
But, sales across various areas were cause for concern, including the supermarket and convenience segments, Metcash logged strong operating cash flows and growth in hardware earnings. Notably, there was a rise of 4.3% in group sales to $14.5 billion with group earnings before interest and tax (EBIT), up 9.2% to $332.7 million.
More specifically, Metcash’s liquor segment also enjoyed positive results, with sales up by 5.7% to $3.47 billion. An increase in new customer acquisition as well as an increase in existing customer orders can only signal good things ahead.
What’s next for Metcash?
In terms of future strategy, the wholesaler giant is planning to improve infrastructure to enable growth in its grocery business and further reduce costs. If this manages to compensate for the loss in sales on the back of the Drakes Supermarket debacle, then the market’s enthusiasm this morning could well be rewarded.
The supermarket sector, however, is highly competitive, and in light of recent news that German superstore Kaufland will soon be reaching our shores, this isn’t likely to change anytime soon. If Metcash is to remain above water, it will need to stay hot on the heels of public demand.
Editor, Money Morning
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