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Metcash share price storms 4% higher following strategy and trading update

In morning trade the Metcash Limited (ASX: MTS) share price has pushed higher following the release of a strategy and trading update.

At the time of writing the wholesale distributor’s shares are up 4% to $2.70.

What was in the update?

In respect to its Mfuture strategy, management revealed a number of initiatives which it will focus on over the next five years. These initiatives are expected to provide a balanced approach to revenue growth and cost outs.

They include accelerating its successful current initiatives, improving its infrastructure to enable simpler and cheaper processes, ensuring it has a sustainable cost structure into the future, and the trialling of new store formats and ownership models.

For its Hardware segment, management will accelerate its Sapphire program to 200 stores and is targeting average sales growth per store of at least 15%.

The Liquor business will see the national rollout of its Porters Liquor chain, with the aim of growing its on-premise market share from ~10% to ~20%.

The Food business will trial small format convenience stores. Ten stores will be trialled initially, but could be extended to upwards of 150 stores if successful.

In respect to its cost management, the company aims to offset the impact of inflation (~$25 million per annum) over the next five years. Approximately $50 million of savings have been identified over FY 2020 and FY 2021, primarily in the Food business.

Trading update.

Year to date Total Food sales are marginally higher than the prior corresponding period.

Liquor sales in the second half have remained strong and have been supported by increased wholesale customer volumes.

The same cannot be said for its Hardware sales, though. They have softened due to the slow-down in construction activity in the trade sector.

Should you invest?

I thought this was a positive update from Metcash and can’t say I’m surprised to see its shares push higher today.

While I would still choose Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) ahead of it, it might be worth taking a closer look.

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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 COLESGROUP DEF SET. 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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