In the last two and a bit weeks Australia’s third retailer, Metcash, has seen a significant improvement in its share price: up nearly 50 cents from a 52 week low of $3.61 reached on August 21.
The shares had another good day yesterday, up 3%, or 12 cents at $4.17, on a day when the market fell by well over 1.5%. It has been going against the trend for over a fortnight now.
Since its low point the rally has been more than 15%, compared with a rise in the overall market of less than 2% until yesterday.
It has in fact been low key but one of the better mini-price rallies in that time on market where trading conditions have been volatile as financial and resource stocks have been hit going down, and up, often on the same day or in a couple of trading periods.
Perhaps the market was expecting something dramatic: yesterday’s AGM confirmed 2009 earnings guidance which is sitting at around 6% to 10% growth in earnings per share.
It has been the sort of rally you could justify on the basis that it’s a consumer discretionary stock, like Woolworths.
While this rally has been going major fund manager, Perpetual Trustee has been the major buyer, emerging with a stake of just over the threshold of disclosure of 5%.
It has been buying since May and finished its buying on August 27 and disclosed its holding the next day.
Apart from the impending Annual Meeting, held yesterday, there doesn’t seem to have been anything to justify this recovery in the share price except the buying of Perpetual and perhaps a feeling that the retailer, like Woolies and Coles, escaped nicely from the competition regulators inquiry into grocery retailing and the Federal Government’s regulatory response.
Metcash came in for some critical comment at the inquiry and in the ACCC’s report about the way it prices fresh fruit and vegetables to some retailers: comments it rejected.
With the Federal Government this week signalling that it is planning to stop Woolies and Coles from engaging in creeping takeovers by picking up small retailers in one off transactions, the way should be clear for Metcash to pick up some more outlets at the right price.
The competitive tensions have been taken out of the market, or will be when the law is changed.
Woolies has been blocked from acquiring a large single outlet retailer in Queanbeyan, near Canberra. If it had been allowed to buy it, it would have given Woolies three retail outlets in the city (two supermarkets and a liquor store).
Coles and Aldi would have been the other major outlets. the shop in question was a Supabarn which operates independent but is supplied by IGA (Metcash).
The AGM was told yesterday that Metcash had emerged well from the inquiry and was determined to grow.
On earnings, CEO, Andrew Reitzer, said: "Despite the trading environment being tight, our first quarter sales are in line with expectation and our major Blacktown warehouse in Sydney is back in action. We are pleased to confirm our guidance of earnings per share for the year of between 28.3 to 29.3 cents per share.
"All our organic and acquisitive growth strategies are working well. In particular our national produce network will be in place by the end of 2008 and we are on track to achieve a run rate of total fresh sales worth $1 billion by the end of the 2009 financial year" he added.
"We have built up good momentum allowing us to strengthen our trading opportunities, invest in supply chain initiatives and provide greater returns to our shareholders".
In a presentation to the meeting, directors said that
"The trading environment remains tight with market conditions continuing to be impacted by higher fuel prices, food inflation, interest rates, emerging falling house prices and share market turbulence.
"Despite all this, 1st quarter sales have held up and remain broadly in line with expectations
"Management are therefore pleased to confirm their earlier guidance for the year of 28.3 –29.3 cps
"This EPS guidance is given subject to the following key observations: comparative FY08 EPS is 26.64cps; excluding goodwill amortisation; interest cost is broadly in line with current year
Metcash earned an after tax profit of $197 million for the 2008 year and the full year’s dividend was increased 23.5% to 21 cents per share.
"This represented an 81 percent payout of reported earnings per share," chairman, Carlos Dos Santos told the meeting.
"As many of you will be aware, the key Blacktown, New South Wales dry grocery warehouse was withdrawn from service between end of December and May of this year as a consequence of major damage caused by the December hail storm,’ the chairman said.
This occurred at the worst possible time, just prior to the peak Christmas trading period. I would like to thank all Metcash employees who bonded together to overcome this disaster and ensure that customer service was maintained at a high level for the 5 months until the warehouse was returned to service.
"Earlier this year, the company advised of its intention to purchase the pharmaceutical wholesaling business of Symbion Health and subsequently advised of its withdrawal from the bidding process.
"The company remains committed to seeking further growth prospects in businesses with similar business models, where the Metcash key competencies can be employed."
