Metcash Earnings: Hardware Profit Margins Gradually Normalizing

We maintain our fair value estimate for no-moat Metcash at AUD 4 per share. Fiscal 2024 earnings are coming under significant pressure. A weaker consumer grappling with rising cost-of-living pressures, material increases in operating expenses, and intensifying competition as stronger supply meets softer demand all make for a challenging trading environment. But shares screen as undervalued. We think the market is probably more concerned about recent market share losses in food—accounting for some 40% of group earnings, despite Metcash making inroads into hardware and liquor.