Metro Inc.

Metro Inc. (TSX: MRU) is a Canada-based company engaged in the food and pharmaceutical industry. The Company, as a retailer, franchisor or distributor, operates under various grocery banners in the conventional supermarket and discount segments.

Key highlights

• Growing Same-store Sales: In Q4 2020, the company registered a growth in all the segments through same-store sales. Food same-store sales were up 10.0% as against 4.1% in Q4 2019. Online food sales were up 160% versus last year. Group’s food basket inflation was flat at 2.8% compared to the previous year. Pharmacy same-store sales were up 5.5% as against 3.4% in Q4 2019, with a 5.3% increase in prescription drugs and a 6.0% increase in front-store sales. 

• Management is repurchasing the stocks:The company has kept itself busy in the buyback process. Between November 25, 2019, and November 10, 2020, the group has repurchased 4.26 million Common Shares at an average price of CAD 56.52, for a total consideration of CAD 240.8 million. This buyback process reflects the confidence and optimism of the management in the company. 

• Dividend: On September 28, 2020, the company declared a quarterly dividend of CAD 0.225 per share and paid on November 10, 2020. 

Financial overview of Q4 2020 (Millions of CAD dollars, except for net earnings per share)

Source: Company

• In Q4 2020 the company posted sales of CAD 4,143.6 million, increased by 7.4% as compared to CAD 3,858.9 million Q4 2019. The increase was primarily due to growth in same-store sales in all the segments.

• Operating income before depreciation and amortization and associate’s earning in Q4 2020 stood at CAD 403.5 million, or 9.7% of sales, as against CAD 321.6 million, or 8.3% of sales for the corresponding quarter of fiscal 2019.

• In Q4 2020 the company reported Net earnings of CAD 186.5 million, as against CAD 167.4 million in the previous corresponding period. The increase was primarily due to high revenue, partially offset by growth in depreciation cost.

Risk associated with investment

The COVID-19 pandemic still clouds the Company's near-term outlook. While the Company foresees revenue to remain above average through the duration of this pandemic based on its role as an essential service offering, but there is downside risk to this outlook related to increased outbreaks of COVID-19 and potentially severe economic challenges.

Valuation Methodology (Illustrative): Price to Earnings

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The company expects that in the short-term food revenues is likely to grow at higher-than-normal rates against last year, as a portion of restaurant and foodservice sales continue to transfer to the grocery channel. The company expect that front-end sales will remain under pressure during the first quarter as it will gradually ramp up inventories and promotional activity, and this will negatively impact its pharmacy division results in the first quarter of fiscal 2021. Therefore, based on the above rationale and valuation, we have given a “Hold” rating at the closing price of CAD 60.06 on November 27, 2020. We have considered Empire Company Ltd, Alimentation Couche-Tard Inc, Dollarama Inc, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

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