Hi Tony,
Declining tobacco sales is not a new trend for Metcash (MTS) and one that all retailers of tobacco products have grappled with, although it must be said, it’s a positive trend for society albeit against the backdrop of rising vaping issues. There is a wide range of views on Metcash in the market (Click Here for broker calls)with the stock having been hurt more recently by a negative thesis published by Goldman Sachs, the broker effectively saying that with the improvement by WOW & COL in their online offering, convenience sales will suffer. They also flagged the impacts of moderating inflation which impacts top line sales volumes, but it also impacts them on the cost side as well. The resignation by Food CEO Scott Marshall to pursue an external opportunity following >30 years with the company across multiple senior management positions including CEO of Food and CEO of Liquor was also a negative surprise in January and this has caused some further uncertainty around their outlook hence the recent underperformance versus the majors.
Ultimately, we think these challenges are captured in the price and sub $4.00, Metcash is good buying, trading on 13.3x & likely to yield ~6.2% fully franked. We do own from lower levels but remain bullish.
Regarding Semiconductors, this is very much influenced by short term trends, not long ago there was a huge shortage – it’s very boom and bust in this area so Samsung & TSC’s decision to reduce capacity is a natural reaction to a change in the market. The lower demand in consumer electronics is the read through here, and this is something that we expect to continue as discretionary spending gets hurt on rising rates.
Regarding the Semi ETF from Global X (SEMI), we are not interested at current levels, Nvidia (NVDA US) is it’s largest hosting and we think this stock is very susceptible to a meaningful pullback after an extraordinary run in share price.
