2024/25 ambition kicked out to 2030
The headwinds Metro has had to face are unenviable. Across its last financial year, exposure to Russia (c40% of EBIT) and a large cyber-attack are unique in our coverage. Even more challenging however, the group''s cash and carry stores still struggle to maintain their relevance. The group''s ''sCore'', now two years old, is the latest attempt to deal with that but though there are glimmers of hope, a ''mid-term'' EBITDA CAGR ambition of 5-7% for the 4 years to 2024/25 has now been kicked out to 2030. Near term, underlying earnings will likely fall again in 2023/24.
Investment is easy. Generating a return is the hard bit
Metro describes the group being in an investment phase with an expanded salesforce to secure bigger spending, more loyal customers. They in turn are more likely to demand delivery and the group continues to adapt its cash and carry warehouses to do that. But it''s a familiar tale and this management team seems to be coming to realise that the investment is easy. It''s the return that is more challenging, particularly with unexpected events like cyber attacks in the mix.
A small step down for EBITDA, a giant leap for EBIT and FCF
For 2023/24, Metro is guiding to a small fall in EBITDA (EUR25m at the mid-point) which seems like a rounding error on EUR1.2bn of adjusted EBITDA. But when we consider that Metro pays nearly EUR600m in rent and cEUR400m in capex we can quickly see 1) free cash flow will be minimal and 2) using adjusted EBITDA as the key profit measure isn''t particularly useful. That, and a practice of only partially adjusting earnings, is something we hope a new CFO will tackle.
Cutting TP to EU4 from EUR5 - Metro''s high gearing is painful
On a very low level of earnings, small absolute changes are large proportionally, but our TP falls because of higher net debt and a slight negative skew to those changes. At EUR4 (from EUR5) our TP may seem harsh but there''s EUR5bn of net debt / lease...
