Metro Inc.

Metro Inc. (TSX: MRU) is one of the largest grocery retailers in Canada, and operates through popular grocery banners like Metro, Metro Plus, Super C, and Food Basics, while its pharmacies primarily operate under the Jean Coutu and Brunet trademarks.

Why Should Investor’s Book profit?

• Increase in input costs due to inflationary pressure: The industry is witnessing inflationary pressure, which has resulted in increase in the cost of goods sold. Moreover, the management expects challenges regarding the labour market along with the food basket inflation is likely to remain for a while, which would further act as a drag for the company in the near term.
  

• Lower liquidity: At the end of Q4FY21, the company reported its quick ratio and a current ratio of 0.59x and 1.12x, respectively, which is below the industry median of 0.62x and 1.33x, respectively. Hence, the above indicates that the group is struggling to meet its short-term liabilities through its current assets.
  

• Stretched technical: On a daily technical chart, the 14-days RSI of MRU is hovering higher at 66.98, which indicates an overbought zone and further possibility of price correction from the current level. Moreover, the stock is trading at the upper range of its 20-days, which further indicates a price weakness in the coming days.

Technical price chart (as on December 16, 2021). Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): Price to Earnings based

Stock Recommendation:

The company reported its net debt to EBITDA of 10.27x in Q4FY21, higher than the industry median of 7.41x. A higher ratio suggests poor debt protection metrics of the firm. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a double-digit downside (in percentage terms). For the said purposes, we have considered peers like Saputo Inc, George Weston Ltd etc. Considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock of MRU at the closing price of CAD 66.13 on December 16, 2021.

One-Year Technical Price Chart (as on December 16, 2021). Analysis by Kalkine Group

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

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