Metcash Ltd’s [ASX:MTS] share price is continuing to drop today, with broker downgrades following in the wake of yesterday’s full year results.
In yesterday’s announcement, the company reported a 3% drop in Food Earnings Before Interest and Taxation (EBIT), amounting to $183 million from their wholesale grocery operations — a disappointing hit that has appeared to rattle many.
At time of writing, Metcash shares are trading at $2.665, a decrease of 6.16%.
The Australian Financial Review reports that both Goldman Sachs and JPMorgan have downgraded their recommendations on the conglomerate to ‘neutral’, and Macquarie advises they will ‘underperform’.
But this doesn’t mean Metcash is doomed, as we’ll explain below.
More on the Metcash results
As well as the drop, the Full Year Results revealed that their group revenue had increased by 1.8% to $12.7 billion, excluding charge through sales.
One of the greatest challenges the company has faced has been the competition from grocery giants Coles Group Limited [ASX:COL] and Woolworths Group Limited [ASX:WOW], contributing to their disappointing results.
Group EBIT has altogether dropped by 1.4%, to $330 million. Underlying profit after tax sits at $210.3 million, dropping by 3% (excluding restructuring costs).
But on a positive note, underlying earnings per share (EPS) risen to 1.8%, due to the $150 million share buy back. In the previous financial year, it reported a loss of $148.2 million which included a post-tax charge of $345.5m due to the impairment of goodwill and other net assets.
What does this mean for Metcash?
It is possible that despite the change in attitude from investment giants, some may remain positive on Metcash.
The company has a Return on Equity (ROE) of 16% — which is greater than the average 10% in the Consumer Retailing Industry. This points to the conclusion that the company’s management is using its assets effectively.
It also previously announced a final dividend of 7 cents, fully franked.
If you are interested in dividends, why not check out our favourite dividend stocks in our free report titled, ‘Top 5 Dividend Stocks 2019.’
For Money Morning