The food, liquor and hardware wholesaler copped a downgrade from Goldman Sachs on Friday and shares have underperformed as a result as the broker reduced their price target to $3.50/sh and put a sell on the stock. GS argued that moderating inflation and further competition from the major supermarkets, particularly online, would weigh on market share for Metcash which supplies IGA supermarkets, all at a time when capex spend is peaking. Metcash was a COVID beneficiary with many people shifting from large supermarkets to more convenient community supermarkets of IGA. This shift has been pretty resilient despite the reopening over the last 24 months, highlighting the stickiness of the consumer. We think the view from GS is overly bearish on customer attrition and disregards the group’s opportunity in growing Liquor and Hardware segments. Current expectations have the stock on 12.2x FY23 PE and paying a dividend yield of around 6% fully franked, attractive numbers for the Income Portfolio.
MM is bullish MTS for Income
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