Metcash Limited

Expecting to Record $352 Mn Impairment Charges for Full Year: Metcash Limited’s (ASX: MTS) stock has been under water lately as the group informed to the market that its financial statements for the year ended 30 April 2018 will recognize a $352 million impairment to goodwill and other net assets in the Supermarkets & Convenience segment. Of which, the group will record a $318 million as a non-cash impairment against goodwill and other intangibles, and the rest $34 million as a net asset. The full year result is likely to be released on June 25, 2018 wherein the total impairment charge of $352 million will be disclosed separately as a significant item in the company’s FY18 financial statements. According to the release, these impairment losses were related to weakness in the WA economy, intense competition across the sector and potential withdrawal of Drakes Supermarkets from the current South Australia agreement.

Further, the management stated that these impairments are non-cash in nature, thus there will be no impact on the company’s debt facilities and compliance with banking covenants. However, these one-time charges will impact the bottom line of the company for the full year. While, the share price climbed up by 34.33 per cent in the last one year, the same was down 22.4 per cent in the past one month as on June 06, 2018.There was a further drop of 1.85% on June 07, 2018. Hence, we maintain our “Expensive” recommendation on the stock at the current market price of $ 2.65, considering the recent shortcomings and rising sector-level competition which will impact the full year performance of the company.


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