Metro – A recession-proof stock and beating the index

Metro is a leading food and pharmaceutical company based out of Quebec and Ontario and ranks amongst the largest food retailers in Canada. 

Due to the similar nature of operations, its two business segments, food operations, and pharmaceutical operations are combined into one reportable operating segment. Metro has developed a successful market segmentation strategy with its different grocery banners targeting three different market segments.

The grocer operates a network of 953 food stores under several banners including Metro, Metro Plus, Super C, Food Basics, Adonis, and Premiere Moisson, as well as 648 drug stores primarily under the Jean Coutu, Brunet, Metro Pharmacy, and Food Basics Pharmacy banners. Metro and Metro Plus are leading the Quebec and Ontario supermarket chains. Metro, Super C, Jean Coutu, and Brunet also lead the industry in terms of customer satisfaction.

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Key Investment Data

 

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Revenue Growth & Market Exposure

With more than seven decades of experience in the consumer industry, the company is known for its fresh products and premium quality. The company has built a solid reputation and earned the trust of its customers. Its grocery banners – Metro supermarkets, Super C and Food Basics discount banners, and Adonis international food stores, target three different market segments, while its Premiere Moisson banner is specialized in bakery, pastry, deli products, and other food offerings.

In order to add to customer convenience, the company is offering same-day delivery for its online grocery shopping service and also lets customers pick-up their order at the participating stores. Metro is also investing to strengthen and modernize its distribution network. The company is looking at building new distribution centers that will offer a wider range of products and will be automated. 

Metro is expanding both organically as well as through acquisitions increasing its customer base and retail footprint. The largest acquisition was that of the Jean Coutu group that resulted in the creation of a $16-billion retail leader. The company opened seven new stores, completed two relocations and 17 renovations during the last year.

MRU’s Q1 2021 sales increased by more than 6% registering growth in both the food and pharmacy business. Online food sales also increased by an impressive ~170% YoY. The current crisis situation further proved the resiliency of the company’s supply chain and its ability to maintain in-store operations.

The company expects a milder cold and flu season to have an unfavorable impact on its Pharmacy commercial sales, however, the company is promoting online shopping and in-store order services to boost sales. The company expects food revenues to continue to grow at higher than normal rates.

Dividends

Metro is a Dividend Aristocrat. It has been raising its dividends handsomely and has grown them at an impressive rate of 16%+ CAGR over the last decade. The company’s latest dividend hike of more than 11% marked the 27th consecutive year of dividend growth. Metro raised its dividend by more than 12% in the last year. It has a dividend yield of 1.8% and a policy of maintaining its payout ratio of near 30%-40%. Metro currently has a reasonable payout ratio of 31%. 

The grocer provides essential services and therefore, enjoys a regular stream of cash flow. The company’s cash flow is sustainable as it deals in the food and drug business which are necessities. It is making good progress on its $420 million investment plan for the construction of a new automated distribution center for fresh and frozen products in the greater Montreal area and for the expansion of the Laval produce and dairy products distribution center.

The acquisition of the Jean Coutu Group was expected to deliver synergies of $75 million within three years and Metro achieved this objective by the end of FY2020. Post-acquisition, Metro’s retail network has expanded to 1,601 establishments. 

The growing demand for food and medicines should act as a tailwind for this Dividend Aristocrat. Metro continues to invest in its retail networks, merchandising and loyalty programs, and technology to deliver a better customer experience. A proven business model, an extensive store and distribution network infrastructure, and a reputed brand name form a deep moat around Metro’s business.

Metro (MRU) historical yield
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Competition

Metro faces competition not only from the traditional brick and mortar stores but also from online players. The company is expanding online shopping as well as delivery options as it faces acute pressure from Amazon.com. On the conventional front, Metro competes with Loblaw Companies Ltd. which is another leading grocery chain in Canada. Another contemporary is Sobeys, which is the second-largest food retailer in Canada. Competition remains intense amid high and rapidly changing consumer expectations.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:ATD.BATD.BAlimentation Couche-Tard Inc.Consumer DefensiveGrocery Stores0.7150.2954.0416.5016.503.120.00700.700.099040.350.2797106Consumable - NecessitiesYESYESYESNOCanada1
TSE:LLLoblawConsumer DefensiveGrocery Stores0.4884.4028.9321.5221.525.040.01731.730.333041.460.060356Consumable - NecessitiesNONOYESNOCanada1
TSE:WNWNGeorge Weston LimitedConsumer DefensiveGrocery Stores0.34129.3819.6673.0673.067.750.01701.701.193042.200.056944Consumable - NecessitiesNONOYESNOCanada1
TSE:DOLDOLDollarama IncConsumer DefensiveDiscount Stores0.4658.7517.9030.9930.991.900.00340.340.096040.200.066166Consumable - DiscretionaryYESYESYESNOCanada1
TSE:MRUMRUMetroConsumer DefensiveGrocery Stores0.6464.7015.8219.5919.593.420.01551.550.279041.000.143286Consumable - NecessitiesYESYESYESNOCanada1
TSE:EMP.AEMP.AEmpire Co Ltd A NvtgConsumer DefensiveGrocery Stores0.5140.9710.9615.7315.732.610.01461.460.199040.600.068656Consumable - NecessitiesNOYESYESNOCanada1
TSE:NWCNWCThe North West Company Inc.Consumer DefensiveGrocery Stores0.5136.361.7610.7010.703.280.03963.960.408041.440.039647Consumable - NecessitiesNONOYESNOCanada1

Bottom Line

Metro is one of Canada’s best grocers and should gain from its consumer defensive business amid the pandemic outbreak. As a result of the lockdown, its online sales volume has nearly tripled, and there is a rising trend for buying local and shopping in the community.

The company has also launched healthier food products under one brand and introduced branded organic baby products. The company continues to modernize and upgrade itself to meet these changing customer demands and continues to fortify its position as a consumer defensive giant in the nation. 

Metro (MRU) historical pe
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DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.