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Here’s Why Metcash Limited (ASX:MTS) Shares Slumped Today

ASX-listed Metcash Limited (ASX: MTS) (MTS.AX) shares were trading lower today despite the broader S&P/ASX 200 (INDEXASX: XJO) (^AXJO) climbing higher.

Metcash is a leading wholesale distributor of supermarket products and the owner of popular retail brands like IGA, Mitre 10 and Foodworks. In liquor it owns The Bottle-O, Cellarbrations and Duncans.

What Happened?

In an ASX announcement, Metcash released its 2019 half-year financial report to the market showing a 2% increase in revenue and profit up 3% to $95.8 million.

“The first half results were pleasing in the face of challenging market conditions, with the Group delivering improved sales and earnings,” CEO Jeff Adams noted.

The underlying drivers of the improved result were the hardware division, which reported a 37% increase in earnings before interest and tax or “EBIT” (click here to learn what EBIT means).

The acquisition of Home, Timber and Hardware (HTH) from Woolworths Group Ltd (ASX: WOW) positively impacted the result.

“It was pleasing to see all Pillars contribute to the improved results, with additional synergies from the HTH acquisition being a key driver of increased earnings in the Hardware Pillar.”

Metcash’s board announced a half-year dividend of 6.5 cents per share fully franked, slightly higher than last year’s 6 cents per share.

What Now?

Metcash expect more intense competition in 2019 but the company said it was encouraged by the slowdown in the rate of decline in non-tobacco sales. It expects the supermarkets’ second-half profit result to be reduced by $8 million as it invests in growth opportunities.

In my opinion, Metcash shares look pretty tempting at today’s prices given the trailing 5% fully franked dividend yield and modest relative valuation. However, it is not a business I want to own right now given the mounting competition from online retail companies which offer speedy delivery (e.g. Amazon.com Inc).

While things won’t change overnight and the hardware business mightn’t be impacted quite as badly as Metcash’s supermarkets business, I figure there’s no harm in waiting and looking towards other great dividend-paying shares on the ASX…

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