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Metcash (ASX:MTS) share price on watch on solid HY23 result

The Metcash Limited (ASX: MTS) share price is in focus after delivering more growth in its FY23 first half.

Metcash supplies a number of different businesses including IGA, Bottle-O, Cellarbrations and Porters Liquor. It also owns the brands of Mitre 10, Home Timber and Hardware, and Total Tools.

HY23 result

The business reported strong growth in sales and earnings in the face of higher inflation and cycling the impacts of lockdowns. Here are some of the financial highlights:

  • Group revenue up 8.2% to $7.7 billion
  • Group underlying EBIT (EBIT explained) up 10.3% to $255.1 million
  • Underlying net profit after tax rose 9.1% to $159.9 million
  • Statutory net profit of $125.7 million
  • Interim dividend up 9.5% to 11.5 cents per share

Management said that all pillars of the business performed well. The food pillar saw EBIT rise 3.2% to $98.2 million, hardware EBIT grew 17.9% to $116.6 million and the liquor EBIT climbed 11.3% to $49.3 million.

However, it should also be noted that operating cashflow was $89.6 million, down from $212.1 million, with a cash reaslisation ratio of 36.5%. This was put down to increased working capital associated with a higher level of group sales including inflation, increased weighting of hardware in the group sales portfolio which has higher outstanding days and inventory in stores, and the impact of compliance with shorter payment terms with small suppliers.

Its net debt finished at $364.4 million, up from $189 million at the end of FY22, reflect the impact of an increase in working capital, dividends paid and capital expenditure.

Cashflow and net debt are something to keep an eye on for the second half.

Trading update

Group sales were up 6.2% in the first four weeks of the second half, with supply chain challenges improved but still present, as well as higher costs relating to fuel, freight and labour.

In the first four weeks, food sales are up 4%, hardware sales are up 8% and liquor sales are up 8.9%.

Summary thoughts on the Metcash share price

I think Metcash is a leading ASX dividend share idea and this result proves it in my view. It’s an impressive diversified business.

I’m not sure how much further hardware earnings can grow with the economic cycle seemingly changing, but the fact that profit is still growing is promising for its earnings leverage.

I think it’s still a buy for dividends, but long-term share price growth could be volatile in the medium-term from here.

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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.
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