The Company in a Nutshell
- Metro is a dominant player in the grocery business in Quebec. It is using its strong position in Quebec to grow in Ontario at a good pace.
- MRU’s strong loyalty program retains its clients and leads to a faster inventory turnaround time.
- As MRU owns most of its real estate, a REIT spin-off may eventually unlock additional value.
- Download PDF format (Last reviewed: Sept 17th 2019)
|PRO Rating||3||Dividend Yield||1.44%|
|Dividend Safety||4||Dividend Growth Since||1994|
|DDM Valuation||-9.03%||Dividend Frequency||Quarterly|
Metro operates over 600 grocery stores under banners such as Metro, Super C and Food Basics. It is mainly active in Quebec and Ontario. Metro also has a pharmaceutical sector operating 250 drugstores under banners such as Brunet, Clini Plus and Pharmacy & Drugs basics. Finally, Metro operates a pharmaceutical distributor named McMahon, which has about 200 affiliated pharmacists. Metro completed the acquisition of Jean Coutu on May 2018.
|General Information||GE Data|
|Expected Earnings Date||2020-04-17|
|Next ex-dvd date||N/A|
Metro has put a strong emphasis on its private-label brands which sell for 20% less than original products. In a world where price is the first consumer driving decision factor, this is a key advantage. We like the recent acquisition of Jean Coutu as we believe it will give additional stability in Metro’s business model. Plus, the company has the possibility of unlocking values to shareholders by spinning-off its real estate business. Metro is well established in two provinces with strong economies; Quebec & Ontario. Metro is also pushing its online services to gain additional customers.
|5-Yr Rev. Growth:||7.66%|
|5-Yr EPS Growth:||10.47%|
|5-Yr Div Growth:||15.27%|
Metro made a move on Jean Coutu mainly because competition is increasing in the food retail business. Companies like Wal-Mart and Costco will continue to play hard and put additional pressure on margins. With the purchase of Whole Foods by Amazon, we can expect additional pressure coming from online grocers. This will be a challenging environment for Metro in the upcoming years. We reduced our rating to “hold” considering those headwinds and MRU price jumped in 2019.
|Financial Debt to EBITDA (TTM)||1.94|
|Current Ratio (Quarterly)||1.06|
|Free Cash Flow (Quarterly)($B)||-0.047|
Dividend Growth Perspective
Upon the purchase of Jean Coutu, our valuation has been revised. While Metro has plenty of room for additional dividend increase, we reduced our growth rate assuming MRU will need more cash flow. We also changed its discount rate to 9% given it will become a major player in the drugstore business. MRU shows payout and cash payout ratios well under control. Metro announced a 11% dividend raise for 2019 and will continue to raise its dividend with a high single-digit growth rate for many years.
|Payout Ratio (%)||30.01%|
|Cash Payout Ratio (%)||42.41%|
|Enter Expected Dividend Growth Rate Years 1-10:||9.00%|
|Enter Expected Terminal Dividend Growth Rate:||7.00%|
|Calculated Intrinsic Value OUTPUT 15-Cell Matrix||Metric2||Metric3||Metric4|
|Discount Rate (Horizontal)||Discount Rate (Horizontal)||Discount Rate (Horizontal)|
|Margin of Safety||8.00%||9.00%||10.00%|
|Market Cap ($)||14B|
|Price to Book Ratio||2.39|
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- The PDF format includes only comments (no metrics) and are reviewed every 6 months.