Fundamental value investing
in Australian equities
The Value Digest applies a rigorous, fundamentals-first framework to identify ASX-listed companies trading below their intrinsic value — with a clear margin of safety.
Australia's leading wholesale distribution and marketing company — supplying grocery, fresh food, liquor, hardware and automotive parts to independent retailers. Trading at 7× EV/EBIT with a fully franked 5.9% dividend yield, Metcash offers a compelling income profile and meaningful valuation discount to listed peers.
Metcash is a wholesale distribution and marketing company specialising in grocery, fresh food, liquor, hardware and automotive parts. It operates across three pillars — Food (IGA-bannered independent supermarkets and convenience stores), Liquor (independent outlets and hotels including Cellarbrations and The Bottle-O), and Hardware (Mitre 10 and Total Tools retail networks). Recent acquisitions include Bianco Construction Supplies and Alpine Truss, expanding its hardware footprint across South Australia and Victoria/NSW.
| Metric | Apr 16 | Apr 17 | Apr 18 | Apr 19 | Apr 20 | Apr 21 | Apr 22 | Apr 23 | Apr 24 | Apr 25 |
|---|---|---|---|---|---|---|---|---|---|---|
| Cash flow (cents) | 17.9 | 31.8 | 29.6 | 26.3 | 12.9 | 46.4 | 43.9 | 38.4 | 48.2 | 49.1 |
| Earnings (cents) | 20.1 | 22.2 | 21.6 | 22.5 | 21.1 | 24.4 | 30.3 | 31.7 | 29.7 | 25.3 |
| Dividends (cents) | 0.0 | 11.0 | 13.0 | 13.5 | 12.5 | 17.5 | 21.5 | 22.5 | 19.5 | 18.0 |
| Franking (%) | — | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |
| Return on capital (%) | 13 | 13 | 15 | 16 | 10 | 13 | 15 | 16 | 13 | 12 |
| Net interest cover | 10.51 | 11.95 | 12.43 | 11.39 | 6.30 | 9.02 | 9.72 | 7.74 | 5.52 | 4.17 |
While Metcash ticks all the fundamental boxes and is a company we view with limited downside risk based on valuation metrics, we also do not own this company expecting significant gains in share price appreciation. It is reasonably valued at 7× EV/EBIT for a company that has produced negligible growth over the last 20 years and has had a lean couple of years in this cost-conscious environment.
It is too early to determine if recent acquisitions will materialise into earnings gains — however, encouragingly, a recent market update notes underlying NPAT is expected to be around $270M for this financial year, representing a slight improvement in results. Part of the attractiveness for holding Metcash is that it trades significantly cheaper relative to Coles and Woolworths, both trading over 24× earnings, with similar returns on capital. As such, a share price closer to $4 would be a more than reasonable expectation.
Every stock idea we propose must meet our internal investment criteria — a disciplined framework built around real profits, fair valuations, and protecting against downside risk.
- Fundamental analysis to determine reasonable value
- Agnostic to company size and sector
- Avoid macro commentary and media noise
- Reduce downside risk first
- Operating cash flows routinely exceed earnings
- FCF yield at least in line with earnings yield or higher
- FCF not diminished by high ongoing capex or lease liabilities
- Dividends reinvested to compound returns
- Dividends provide a margin of safety against losses
- Calculated from the income statement
- Preference for debt-free or low-debt companies
| Stable / low growth | < 10× |
| Moderate growth (5–10% p.a.) | < 15× |
| Strong growth (10%+ p.a.) | < 20× |
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| Ticker | Avg. purchase price | Current price | % Return | Portfolio % | |
|---|---|---|---|---|---|
| LYL | $9.20 | $16.05 | +366.6% | 2.2% | |
| HVN | $3.19 | $4.44 | +30.5% | 2.4% | |
| FMG | $17.88 | $20.53 | +62.1% | 3.1% | |
| GRR | $0.45 | $0.16 | −27.5% | 1.0% | |
| ANN | $25.63 | $27.71 | +12.5% | 2.3% | |
| SUL | $11.86 | $11.32 | +17.0% | 5.0% | |
| MFG | $9.67 | $8.67 | +4.8% | 1.4% | |
| JBH | $50.30 | $72.08 | +105.0% | 4.3% | |
| GWA | $1.91 | $2.05 | +20.5% | 5.1% | |
| SDI | $0.90 | $1.36 | +56.9% | 7.0% | |
| MTS | $3.38 | $3.04 | −3.4% | 6.1% | |
| KOV | $8.97 | $20.40 | +142.6% | 2.1% | |
| CKF | $9.19 | $8.19 | −5.0% | 1.6% | |
| VLS | $2.12 | $2.56 | +28.7% | 4.5% | |
| NHF | $5.81 | $6.59 | +18.7% | 4.1% | |
| CAA | $9.99 | $11.22 | +19.2% | 1.0% | |
| SIQ | $7.44 | $11.92 | +65.2% | 7.4% | |
| IGL | $2.71 | $2.46 | −6.8% | 2.5% | |
| SDF | $4.25 | $3.96 | −6.9% | 1.3% | |
| SHA | $6.03 | $6.77 | +12.2% | 1.0% |
| Ticker | Avg. purchase price | Current price | % Return | Portfolio % | |
|---|---|---|---|---|---|
| VEU | $83.79 | $117.30 | +50.2% | 16.4% | |
| IOZ | $28.81 | $34.77 | +36.7% | 5.9% | |
| IVV | $47.40 | $70.70 | +212.3% | 5.7% | |
| IHVV | $38.55 | $68.61 | +72.2% | 3.1% | |
| LEND | $19.45 | $14.73 | −4.2% | 3.4% |
* Returns shown are cumulative from date of first purchase and include dividend payments (pre-tax).
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