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Metcash Limited (ASX:MTS) shares rocket higher on AGM update

The Metcash Limited (ASX: MTS) share price has been a huge mover in afternoon trade after the wholesale distributor released its annual general meeting presentation.

At the time of writing the company’s shares are up almost 11.5% to $2.99.

What was in the presentation?

As well as providing a breakdown on its performance in FY 2018, management provided the market with an update on its performance so far in FY 2019.

According to the release, despite highly competitive market conditions, the improvement in FY 2019 Food sales that management highlighted in its full year results in June has continued, with a slow-down being seen in the rate of decline of non-tobacco sales.

Pleasingly, management has advised that the loss of the Drakes Supermarkets supply contract in South Australia is not expected to have a material impact on its supermarket earnings in FY 2019.

Things have been equally positive for Metcash’s Liquor business. It has experienced strong sales so far in FY 2019, partly reflecting the benefit of the roll forward of new contract customers. The company expects the Liquor market to continue growing modestly throughout FY 2019.

The company’s Hardware business is performing well. Hardware sales have continued to grow, though not quite as strongly as in the first half of FY 2018. However, the business is expected to see full synergy benefits realised in FY 2019.

Why did its shares rocket higher?

I suspect a good portion of today’s gain could be from short sellers closing positions after no further bad news came to light in today’s presentation.

After all, on Monday I revealed that Metcash was the sixth-most shorted share on the Australian share market with 12.8% of its shares held short.

Should you invest?

While the company’s update was quite positive, I’m still not in a rush to invest just yet. It is still early days in FY 2019 and trading conditions are far from easy. Instead, I would class its shares as a hold along with industry peers Wesfarmers Ltd (ASX: WES) and Woolworths Group Ltd (ASX: WOW)

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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 Scott Phillips.

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