Is Metcash Limited a turnaround opportunity?

Metcash Limited (ASX:MTS) has surged 8% higher following the appointment of two new executives to lead its turnaround efforts.

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Shares of Metcash Limited (ASX: MTS) have surged higher on news that the embattled grocery wholesale business has appointed two new executives to lead its turnaround efforts. In an update this morning, Metcash said that Steven Cain will lead the group's Supermarkets division as of 1 August in an effort to help rebuild the IGA business while Mark Hewlett will become the Executive General Manager of New Channels.

The two men both have vast experience in the industry with Cain being the former managing director of Coles, while Hewlett has spent the last three years leading the convenience business development for Woolworths Limited (ASX: WOW).

Encouragingly, Hewlett, who also spent 12 years in the UK with German discounters Aldi and Lidl, said: "I am really looking forward to joining Metcash and supporting successful independents. The business has great distribution capability on which to build new models."

The appointment of Cain and Hewlett couldn't have come at a better time with the group's shares hovering near their lowest price in more than 14 years. Metcash's earnings have come under enormous pressure as a result of pressure from larger rivals Woolworths and Coles, owned by Wesfarmers Ltd (ASX: WES), as well as Aldi.

Metcash's management has outlined a strategy to improve its Food & Grocery division and sold its Automotive Division to Burson Group Ltd (ASX: BAP), although investors had all but given up hope, especially after it was announced that Metcash's lucrative dividend was being scrapped.

However, today's news appears to have encouraged some buyers back to the scene with the stock lifting an impressive 8.1% to $1.14 per share. That's the highest level they've traded at in a fortnight, although the stock is still down 61% since November 2014.

Although the knowledge and experience of Cain and Hewlett will certainly be of benefit to Metcash; investors shouldn't rush back in too soon. As Woolworths and Coles continue to lower their prices in what is becoming a fiercely competitive market, Metcash could continue to struggle to gain traction which could result in greater losses in the future. Until there are strong signs that suggest Metcash is turning around, Foolish investors should remain well clear.

Motley Fool contributor Ryan Newman owns shares of Burson. You can follow Ryan on Twitter @ASXvalueinvest. The Motley Fool Australia owns shares of Burson. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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