Metcash shares tumble on Macquarie, Citi downgrades
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More news: Metcash extended losses in morning trade on the ASX, as Citi and Macquarie made downgrades to the food and drinks wholesaler on expectations of lower first-half profit compared to a year ago.
Metcash shares were down 2.7% to $3.11 by midday AEDT. It closed 3.3% lower on Friday after the company warned of lower underlying first-half profit amid softening trading activity and margin pressure in its hardware segment.
Macquarie downgraded its rating on Metcash from 'outperform' to 'neutral' and lowered its target price by 18% from $4.20 to $3.45. It reduced its earnings per share estimates by 11% to 12% between FY25 and FY28, mainly due to softer trading in Metcash's hardware division.
Citi retained its 'neutral' rating on Metcash but cut its target price from $4 to $3.40. It also downgraded its NPAT forecasts by 11% in FY25 and 9% in FY26 driven by softening sales growth in Metcash's supermarkets and liquor businesses, and operating deleverage continuing to impact its hardware margins.
Morningstar maintained its fair value estimate on Metcash at $4. Analyst Johannes Faul expects the soft trade demand to drive a 4% decline in underlying group net profit after tax in FY25. However, Faul noted that anticipated interest rate cuts will likely spark a recovery in trade activity, with a hardware sales to "rebound strongly" in FY26 at 10% growth.
What they said: "We see risks as evenly balanced from here, with upside via strategic initiatives and relative defensive food and liquor segments," Macquarie analysts said.
"However, we remain concerns on hardware profitability and broader market-share risks."
Metcash extends Drakes supply deal, sells Dramet interest
The news: Food and beverage wholesaler Metcash has extended its supply agreement with Drakes supermarkets in Queensland and sold its ownership interest in Dramet Holdings.
The numbers: Metcash has secured an extension to its supply contract with Drakes supermarkets by five years to June 2034. There are currently 22 Drakes branded supermarkets in Queensland supplied by Metcash. Sales by Metcash's food pillar to Drakes supermarkets in Queensland were $222.5 million in FY24.
Metcash also announced that it has completed the sale of its 26% joint venture ownership interest in Dramet Holdings to Drakes for net sale proceeds and loan repayment totalling $18 million. Metcash previously held a 26% ownership interest in Dramet Holdings, and Drakes held the remaining 74% ownership interest.
Dramet Holdings operates and owns 21 of the Drakes branded supermarkets in Queensland supplied by Metcash, as well as eight stores in South Australia that are supplied by Drakes.
The context: Shares in Metcash, which supplies the IGA supermarkets network as well as other independent retailers, fell last week after the company flagged a lower first-half underlying profit amid softening sales and margin pressure in the hardware segment.
The sources: ASX announcement, Citi research, Macquarie research, Morningstar research
