Goldman Sachs analysts Lisa Deng and James Leigh have downgraded food and beverage wholesaler Metcash Limited, causing it to fall to a 52-week low trading near $3.38, down 4.8% in morning trading.
The broker cited Metcash’s lagging digital transformation and intensifying competition for the downgrade, which is eroding the company’s market share.
“While the success of MTS is premised on 1) balancing the oligopoly power of WOW/COL (Woolworths and Coles); and 2) convenience and more localised range, it is at more expensive prices especially for smaller format, single site stores,” the Goldman Sachs note states.
“Additionally, its professional tools business Total Tools has also seen negative comps of 1.7% due to competitive pricing in 1Q25.”
Metcash brands include supermarket chain IGA, Foodland, IGA Liquor, The BottleO and Mitre 10 among others.
Market share erosion
Metcash has experienced market share erosion in its supermarket wholesale and hardware divisions, leading to the 'sell' downgrade by the Goldman Sachs analysts
“While MTS is using acquisitions to move from a wholesale/franchise business model to a corporate operated retailer… the company is likely to become more capital heavy and earnings more anchored to operating leverage,” the note said.
The analysts also reduced Metcash’s price target to $3.10.
Currently, Metcash supplies independent supermarket retailers that hold around 11% of the supermarket market. However, this share is expected to decrease to 9.1% by FY30.
In the hardware division, Metcash’s sales have been impacted by a slowdown in commercial activity, with housing starts down by a significant margin.