Major retail supplier, Metcash has had a good crisis – the surge in consumer panic buying pushed up sales in its key grocery supply business with the IGA chain of supermarkets (but not as much of a boost for its liquor and hardware divisions).
That saw the shares shake off the selling surge in late February and early March as the company reported jumps in same-store sales. While overall retail sales fell, Metcash saw good gains.
On Monday Metcash revealed food sales for the five months ending in March rose 4.3%. Excluding the sales from South Australia’s Drakes Supermarkets, which ended its supply deal with Metcash in September last year, sales jumped 7.6%. In the months prior to the pandemic, sales had fallen 1.6%.
As a result, Metcash was one of the few companies on the ASX not to see a significant share price drop due to the COVID-19 pandemic fears. The shares fell just 14% in February and March before jumping 30% on the surge in panic buying.
As a result Metcash shares are now up 20% since the beginning of the year. In contrast, the ASX 200 is off more than 18%.
So it should not have come as too much of a surprise that with that sort of upbeat news Metcash is joining the lengthening queue of companies asking shareholders and lenders for more money.
Metcash is looking for $330 million from shareholders in two parts – $300 million from institutional investors in a fully underwritten placement at $2.80 a share, a cheap 7.9% discount to Friday’s $3.04 closing price.
A further $30 million will be sourced from retail shareholders via a share purchase plan. Metcash has also secured an additional $180 million in short-term debt facilities from its existing lenders.
In total, the new funding will provide Metcash with $852 million in undrawn funds, as the proceeds from the institutional raise will be funnelled directly into paying down debts.
CEO Jeff Adams said the raise was primarily to provide the company with “flexibility” throughout the coronavirus crisis, giving it the ability to both invest in support across its retail networks and fund a number of acquisitions.
“It will enable us to continue to support our independent retailers through this challenging period and progress our Future growth program. We will also be able to consider potential new growth opportunities should they arise and align with our strategic direction”, he said in Monday’s statement.
Three of those acquisitions were outlined by Metcash as complementary to its existing liquor, hardware and supermarket pillars. It expects to finalise the purchases by the first half of the 2021 financial year, with the total value being around $45 million.
Metcash, however, warned yesterday that earnings from the spike in supermarket sales would be somewhat offset by the increased costs involved with meeting the heightened demand and meeting new health and safety requirements.
Both Metcash’s hardware and liquor divisions did not experience the same growth, with the closure of pubs and bars damaging liquor sales, despite an uptick in bottle shop retailing.
Metcash’s financial year runs from May to April, and the company will report its full-year results on June 22. Metcash’s board says it is still considering its payment of a full-year dividend.
