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Two ends of the spectrum, as Metcash beats and Carsales buys


Negative news on the economy eventually becomes good news for stocks, as markets rally on hopes that rate hikes may not be as aggressive as expected. Tech and consumer retailers have gained more than 2 per cent with the healthcare sector the “worst,” adding just 0.8 per cent in the last few trading sessions. In this section we look at some of the broker calls following the end of “confession season” where listed companies seek to get guidance and upgrades out ahead of their full-year reports.

Carsales.com (ASX:CAR) – Credit Suisse has an Outperform recommendation with a target price of $24. The broker discusses the acquisition of the remaining 51 per cent of Trader Interactive, for $1.207 billion. It was done at a premium, but Credit Suisse says this is justifiable as it expects this business division to deliver strong returns in the future. The broker has kept the Outperform recommendation but has reduced its target price slightly to $24 from $25.80, largely as a result of dilution from the $1.2 billion equity raising that was completed to enable the acquisition.

Macquarie has an Outperform recommendation, with a target price of $21. The broker is confident of the capital raising largely because the purchase will deliver double-digit revenue growth, but Macquarie says it will wait for evidence of execution before adjusting its forecasts.

  • Metcash (ASX:MTS) – Shares are on the rise following the release of well-received FY22 financial result. The company posted a 5.9 per cent increase in revenue to $15.2 billion and a full-year dividend of 21.5 cents. Metcash managed to post continued growth for the year ending April 30, despite external challenges like supply chain issues, flooding and Covid. Underlying EBIT rose 17.7 per cent to $472.3 million, while statutory profit after tax lifted 2.7 per cent to $245.4 million. The results were supported by the success of the company’s MFuture initiatives. The increase in earnings led to a 23 per cent increase in total dividends for FY22, which represents a 72 per cent increase on a two-year basis.

    Citi has a Neutral recommendation with a target price of $4.40, lifted from $4.20 following the FY22 result. Metcash had increasing sales across each segment due to inflation. But the Food market and Hardware businesses will slow down somewhat in FY23, given the weakening housing cycle. Therefore Citi says is a little cautious of further earnings upgrades and maintains a Neutral.

    Credit Suisse also has a Neutral recommendation with a target price of $4.67. The broker says it was “surprised” by the extent to which Metcash outperformed in the 2H. IGA managed to gain market share during the 4Q which wasn’t expected by the market, especially post-covid. As inflation drives higher, the broker does expect IGA to lose some ground.

    Macquarie has an Outperform recommendation with a target price of $4.70. The broker says Metcash delivered a beat on FY22 results expectations. The main highlight was Food sales growth of 5 per cent in the first seven weeks of the new financial year. Looking forward the broker expects, “capital expenditure to increase to $190 million-220 million in FY23, from $122 million in FY22, driven by acquisition activity. The Outperform rating is retained and the target price increases to $4.60 from $4.50.”

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