Shares in Metcash Ltd (ASX: MTS) took a tumble earlier this week after the company released its half-year results, but that's created a buying opportunity, according to the team at Jarden.
Metcash on Monday reported first-half revenue of $8.5 billion, up 0.1%, while its underlying net profit fell 5.9% to $126.7 million.
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Decent result given the conditions
Group Chief Executive Doug Jones said it was a solid result "in tough trading conditions''.
He went on to say:
Importantly, we've maintained good momentum in our core business, and our independent networks remain healthy and confident despite the challenging conditions. Our food business is now highly diversified and very resilient. Food again delivered earnings growth despite the significant and unprecedented decline in the sales of our largest product category, tobacco.
Mr Jones said while the grocery market was at its most competitive in years, Metcash's IGA network was itself "now more competitive than ever".
The ongoing pleasing performance in food reflects the success of our core wholesale and logistics functions, improvements made to the IGA network's value proposition, our investment in Campbells & Convenience underpinning its leading position in supply to the petrol and convenience market, and our expansion in foodservice through the Superior Foods acquisition.
Mr Jones said in the liquor division, there was sales growth in "a more difficult market", while in hardware and tools, there were "early signs of improvement in trade activity".
Metcash declared an interim dividend of 8.5 cents per share, fully franked.
Shares looking cheap
The team at Jarden ran the ruler over the results, and while they downgraded their price target on Metcash shares, they still rate the company outperform and for it to deliver double-digit shareholder returns.
The Jarden analysts said the result was about 5% below consensus estimates, "driven by misses in the higher-multiple hardware and liquor divisions''.
Looking forward, however, there was a case for optimism with some early green-shoots in food (ex-tobacco) and hardware, with Total Tools like fir like up 9.8% in the first four weeks of 2H26. However, liquor (flat) was softer, and remains at risk into 2H26. We upgrade Metcash to overweight following recent underperformance, with the view the business is seeing green shoots, is highly cash-generative and is positively leveraged to the cycle with a compelling valuation.
The Jarden team has a $3.80 price target on the stock, compared with the current price of $3.39, which would represent a 12.1% return if achieved. That figure does not include the dividend yield of 5.3%.
Macquarie this week slashed its own price target for Metcash to $3.50, down from $4.
