Metro Inc.

Metro Inc. (TSX: MRU) is a Canada-based company engaged in the food and pharmaceutical industry. It portrays a retailer, franchisor, or distributor's role under various grocery banners in the conventional supermarket and discount segments.

Key Highlights

• Modernizing Supply Chain and its Network of Stores: The company is investing in supply chain modernization projects, which are on schedule with only minor delays owing to the pandemic. It is also expanding its e-commerce footprint at a steady pace. As the organization enters a new fiscal year, its unwavering emphasis is on exceeding customers' expectations every day while meeting strategic objectives.

• Increase in Cash from Operating Activities: Operating activities generated cash inflows of CAD 415.3 million in Q4FY21 (ended September 25, 2021), compared to CAD 415.8 million in Q4FY20. In comparison, the operating activities generated cash inflows of CAD 1,583.3 million in FY21 v/s CAD 1,474.1 million for the same period in 2020. This disparity was mainly due to higher earnings and non-cash working capital items changes, which resulted in healthy cash inflows.

• Industry Beating Margins: Despite the second wave of the COVID-19 pandemic, MRU maintained its pace and witnessed spirited performance across its profit margins. It is continuously working closely with customers and increasing its presence and volumes, which is appreciable. In addition, the management's solid determination helped them leap the industry margins on many fronts in Q4FY21, which is a key positive. The chart below gives a glimpse of this. 

Source: REFINITIV, Analysis by Kalkine Group

• Consistent Dividend Distribution: The company has an excellent track record of dividend distribution over the years, reflecting resilience and healthy cash flow generation. Recently it declared a dividend of CAD 0.25 per share. 

Source: REFINITIV, Analysis by Kalkine Group

Financial Overview of Q4FY21 (in CAD Millions)

Source: Company

• In Q4FY21, MRU posted sales of CAD 4,092.0 million, which decreased marginally by 1.2% compared to CAD 4,143.6 million in the previous corresponding period. The fall was primarily due to negative growth in food same-store sales, partially offset by higher sales from the pharma segment.

• Operating income before depreciation and amortization in the reported period stood at par with the previous corresponding period at CAD 403.6 million (v/s CAD 403.5 million in Q4FY20).

• The company reported net earnings of CAD 194.0 million in Q4FY21 against CAD 186.5 million in the previous corresponding period. The increase was primarily due to lower depreciation and finance costs, partially offset by higher income tax.

Valuation Methodology (Illustrative): Price to Earnings based valuation

Stock Recommendation

Despite decreasing sales, the corporation closed FY21 on a high note, with higher net earnings in the fourth quarter. As government restrictions loosened throughout the summer, a percentage of food consumption shifted back to restaurants. Yet, MRU's food sales have remained consistent with pre-pandemic levels. With a record amount of capital expenditures this year, the company is also investing in transforming its supply chain, store network, and omnichannel strategy. Furthermore, the group is clocking industry-leading margins, which reflect its operational efficiency, another key positive. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 62.15 on November 29, 2021. We have considered George Weston Ltd, Alimentation Couche-Tard Inc, etc., as the peer group for comparison.

One-Year Technical Price Chart (as on November 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.