Metcash has struggled over the last three years as the owners of household brands such as IGA, Porters Liquor, Mitre 10 & Total Tools have faced intense competition, particularly in hardware, where growth has failed to live up to expectations – Bunnings is a tough adversary! The company downgraded guidance for FY25 in October, and the stock hasn’t recovered since, with $3 feeling like a magnet for the stock. However, downside seems very limited from current levels, and this is our preferred starting point when we’re thinking about investing for income.
MTS is forecast to yield 7.7% fully franked over the next 12 months, equating to 11% grossed for franking, which, combined with the stability from food and liquor, provides insulation for investors on the downside. A recovery from hardware is probably the required catalyst to push the stock back towards $4, but as a yield play, it looks sound after its steep correction. The stock is trading on an estimated 12.6x for FY25, around 15% “cheap” relative to its own history, providing further comfort on the downside.
- We can see MTS rotating between $2.75 and $3.25 this year while paying a great dividend — MM holds MTS in our Active Income Portfolios.
NB MTS reports out of cycle, reporting FY25 results (30th April year end) on the 23rd June, trading ex-dividend in mid -July.
MM is long and bullish MTS for yield
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