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

• Appointment of Pierre Boivin as new Chairman:The company recently announced Réal Raymond's retirement, who was Chairman of the Company's Board of Directors effective January 26, 2021. Pierre Boivin, a current independent director of the Board, will step in his shoes. 

• Renewed its share buyback program: The company announced the renewed share buyback programme as an additional option for using excess funds. Thus, the Corporation will be able to repurchase, in the normal course of business, between November 25, 2020, and November 24, 2021, up to 7 million of its Common Shares representing approximately 2.8% of its issued and outstanding shares. This buyback process reflects the confidence and optimism of the management in the company. 

• 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 are 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. 

Financial overview of Q4 2020 (In millions of CAD dollars)

Source: Company

• In Q4 2020 the company posted CAD 4,143.6 million sales, increased by 7.4% 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 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. 

Risks 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 ongoing pandemic is continuously impacting the Company's business. It is expected that in the short-term, food revenues will continue to grow at higher-than-normal rates against last year, as a portion of the restaurant, foodservice sales continue to transfer to the grocery channel. We expect that front-end sales will remain under pressure during the first quarter. The Company would gradually ramp up inventories and promotional activity. Therefore, based on the above rationale and valuation, we have given a "Hold" rating at the closing price of CAD 57.90 on January 18, 2021. 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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