Metcash shares jumped by almost 10% yesterday in early trading after it revealed a $125 million buyback that was designed to soften the blow from what was a weak result for the year to April 30.
The independent supermarkets group and hardware and liquor operator had already softened up the market to expect problems with news of the loss of a big contract in South Australia and goodwill impairment losses.
The buyback though took investors by surprise and the shares scooted up nearly 10% to a day’s high of $3.12 before investors took a deeper look at the 2017-18 result and concluded that it was full of weak sports.
So down went the shares and they ended with a day’s gain of 6 cents (instead of the 27 cent early rise) at $2.85.
The possibility of a buyback was first mentioned with the interim results last December and yesterday’s announcement at least have helped steady the shares and hopefully end the recent sell off.
The shares had dropped by around a quarter since late May in the wake of revelations that Drakes, a major South Australian independent supermarket chain, planned to move to a self-supply arrangement from mid-next year. The shares peaked at $3.68 on May 25.
Metcash aid sales across the IGA retail network declined 0.9% on a like-for-like basis for the 12 months ended April 30, 2018.
Metcash reported a bottomline loss of $149.5 million for the 12 months because of the impact of impairments of goodwill of $346 million (after tax) which had been previously announced. This compared with a net profit after tax of $171.9 million a year ago.
Underlying profit after tax was up $20.8 million (10.7%) to $215.6 million (before the impairment losses).
Total food sales at Metcash fell 1.2% to $8.9 billion, but liquor sales were up 5.7% to $3.47 billion.
Group earnings before interest and tax (EBIT) rose more than 9% to $332.7 million, mainly driven by earnings growth in the hardware operations following the acquisition of Home Timber and Hardware (HTH)- hardware EBIT up $20.5 million to $69.0 million– thanks to the full year of HTH earnings and $20 million of cost savings.
Final dividend is 7 cents a share for a full year payment of 13 cents. That’s up from 4.5 cents for 2016-17 when the company resumed paying dividends with the 4.5 cents a share final. Previously it had not paid dividends for three years.
Shareholders in the buyback will get the 7 cents a share final.
