MRU Details

Reported Decent Growth due to Improved Comparable Sales: Metro Inc. (TO: MRU) is a retailer, franchisor, distributor, and manufacturer of food and pharmaceutical products. The company operates through a distribution network of 950 food stores and has brands of including Metro, Metro Plus, Super C, Food Basics, Adonis and Première Moisson.

Q1FY20 Operational Highlights for the Period ended 31 December 2019: MRU declared its quarterly results, wherein the business reported sales of CAD 4,029.8 million, 1.3% on y-o-y basis. The marginal growth was due to 1.4% growth in Food same-store and 3.6% growth in Pharmacy same-store sales. Operating income before depreciation and amortization stood at CAD 363.1 million, as compared to CAD320.6 million in previous corresponding period. EBITDA margin stood at 9%, improved from 8.1% in Q1FY19 on account of a favorable impact of CAD 55.0 million from lease payments. Cash inflow from operating activities stood at CAD 30.2 million, as compared to CAD 177.1 million in previous corresponding period the change in noncash working capital items in 2020 and tax payment in Q1FY19. During the first quarter of FY20, the group opened 4 stores and carried out major expansions and renovations of 8 stores. The company relocate 2 stores closed 4 stores and reported a net increase of 86,000 square feet of food retail network.

Key Financial Highlights for Q1FY20 (Source: Company Reports)

Dividend Update: The Board of Directors declared a quarterly dividend of $0.225 per share, an increase of 12.5% versus the same quarter last year.

Valuation Methodology: P/Sales Based Relative Valuation

P/Sales Based Relative Valuation (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months 

Stock Recommendation: Amidst the stock market stamped emerged because of novel Coronavirus-19, shares of MRU have slumped approximately 9% in a month over a period and declined about 11% in the past five trading sessions. However, fall in share price over the period under consideration was significantly lower against the fall in its benchmark TSX 300 Composite index, which tumbled approximately 23% in a month over a period and 24.4% in the past five traded sessions. The relative outperformance of MRU against TSX 300 Composite on a month-over period stood at +14% and +13.4% in the previous five trading sessions, which is a decent positive trend and also indicates that reversal would be faster against benchmark once coronavirus pandemic gets over. Despite the recent fall in its share price, stock is still staging a positive price return of about 3% on YoY basis. The 14-day and 9-day Relative Strength Index (RSI) of the stock hovering in oversold territory, which indicates a pull-back could take place in near-terms. The stock of MRU closed at CAD 50.29 with a market capitalization of CAD12.74 billion. The business is well diversified, and the Management is confident deliver improved business performance by focusing on customer's needs and continuing to invest in the retail network and supply chain. We have valued the stock using Price to Sales based relative valuation method. For this, we have considered peers like Loblaw Companies Ltd (TO: L), Empire Company Ltd (TO: EMPA), Alimentation Couche-Tard Inc (TO: ATDB), etc., and arrived at a target price which is offering a lower double-digit upside (in % terms).  Hence, we give a ‘Buy’ recommendation on the stock at the closing price of CAD 50.29, down 7.62% as on 12^th March 2020.

MRU Daily Technical Chart (Source: Thomson Reuters)

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