The Metcash Limited (ASX: MTS) share price is on watch this morning after announcing its FY21 result, a buyback and buying more of Total Tools.
Metcash FY21 result
The diversified business that owns businesses like Mitre 10, Home Timbre and Hardware, and supplies a wide array of IGAs and other supermarkets, as well as various liquor stores, saw “significant growth in sales volumes” across all of its pillars in FY21.
Group revenue rose by 9.9% to $14.3 billion. Including ‘charge-through’ sales, revenue went up 10.1% to $16.4 billion.
Total food sales increased 3.1% to $9.4 billion, or 11% excluding the impact of losing the Drakes and 7-Eleven contracts. The IGA retail network benefited from a shift of consumer behaviour to local neighbourhood shopping and migration from cities to regional areas.
Total liquor sales increased 19.2% to $4.4 billion.
Total hardware sales grew 24.7% to $2.6 billion, with significant growth in DIY sales and a return to growth in trade. Online sales grew 122%.
Underlying group EBIT (EBIT explained) went up 19.9% to $401.4 million. Underlying profit after tax jumped 27.1% to $252.7 million.
Statutory profit after tax was $239 million, up from a loss of $56.8 million.
Cashflow was particularly strong, more than quadrupling from $117.5 million in FY20 to $475.5 million in FY21.
Underlying profit or earnings per share (EPS) went up 13.3% to 24.7 cents.
The above numbers gave the board the confidence to increase its target dividend payout ratio from 60% to 70% of underlying net profit after tax. The FY21 total dividend was increased by 40% to 17.5 cents per share. The final dividend for FY21 is 9.5 cents per share.
At the end of FY21 it had a net cash position of $124.6 million, up from $86.7 million.
Share buyback
Metcash also announced an off-market share buy-back worth up to $175 million as a way to return some excess capital to shareholders.
Total Tools
The retail business also announced today that it has increased its ownership of Total Tools from 70% to 85% for a cost of $59.4 million.
Total Tools is the franchisor to the largest professional tools network in Australia with 90 stores across Australia.
Management believe it has significant growth opportunities with store network expansion and buying an ownership interest in a select number of stores.
Metcash has a pathway to full ownership of Total Tools by the end of FY24.
Outlook for Metcash and the share price
In the first eight weeks of FY22 compared to FY21, food sales are down 8.2%, liquor sales are up 17.3% and hardware sales are up 15.5%.
Metcash seems as though it’s going to have another solid year in FY22, though who knows how long this growth will continue?
I think Metcash is a better and stronger business than some investors give it credit for. It has a pretty solid dividend yield too.
It’s one of the ASX dividend shares I’m interested in, it’s just hard to say what the long term profit growth is going to be – is this growth a one-off, or can this higher sales level be maintained (and grow)?
