Queries on Metcash forecasts

Posted by AFN Staff Writers on 17th June 2015
When independent grocery wholesaler Metcash announced that it had sold its automotive division (including Autobarn, Autopro and Midas), it announced the sale would generate approximately $210 million for debt reduction and investment into the groceries retail operation.
When independent grocery wholesaler Metcash announced that it had sold its automotive division (including Autobarn, Autopro and Midas), it announced the sale would generate approximately $210 million for debt reduction and investment into the groceries retail operation.

When independent grocery wholesaler Metcash announced that it had sold its automotive division (including Autobarn, Autopro and Midas), it announced the sale would generate approximately $210 million for debt reduction and investment into the groceries retail operation.

The company however has revealed a $384 million loss for the 2014 financial year. Previously disclosed write-downs of $638.8 million contributed to the loss and Metcash said it would have posted a $169.2 million profit without the write-downs. However, this is well down on its 2013 earnings of $390.3 million.

Is it enough to save Metcash?

Brokers and analysts BW Equities has released an analyst’s report which explores why Woolworths, Coles and Aldi are winning out over the independent wholesaler Metcash.

“Convenience continues to be a point of differentiation for smaller independent retailers, but as economic conditions deteriorate, it has become increasingly clear that consumers are sacrificing convenience in search of value,” said the report.

According to the report, the cheap prices and convenience of the big players is persuading Metcash customers to shift over.

A lack of capital assets is also said to be a Metcash weakness.

Metcash has little capital tied up in its operations, with stores owned by private operators while Metcash bears the cost of leasing the warehouses and other logistics equipment, according to the report.

There are also concerns that Metcash’s promise to provide loan capital to its independent supermarket operators might rebound because operators most likely to borrow could well be the more vulnerable and weakest who are least likely to have the capability to repay debt. Already Metcash has written off several unpaid loans previously made to supermarket operators who failed.

Any future difficulties for Metcash could present new opportunities for Metcash operators looking to sell out. Successful German retailer Aldi, or its German rival Lidl which is still rumoured to be looking in the long term at establishing an Australian-based operation, could be at the forefront of any groups seeking to exploit any weak spot in Australia’s grocery retailing market.