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By Dan Stratful

Monday 5th December 2011

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Metcash (ASX: MTS) is another Australian retailer battling against soft retail trading conditions and it has just completed the acquisition of the Franklins chain of supermarkets from Pick n Pay Retailers. MTS is known as the "third force" in the Australian grocery retailing market behind Woolworths and Coles supermarkets.

MTS operates in the marketing and distribution space in the grocery, liquor and hardware wholesale industries throughout Australia. In March 2010, MTS acquired a 50.1% stake in Mitre 10 in order to broaden its customer range to include independent hardware stores.

Australian retail conditions have quickly deteriorated and Australian retailers are beginning to feel the pinch, however the Reserve Bank of Australia cutting interest rates in early November 2011 may help.

MTS has completed the acquisition of Franklins which will add in excess of $500 million of annual wholesale sales. In the year to 30 April 2011, MTS reported a 6% increase in net profit to $241 million, and the year was the 12th successive year of record profits. During the year the Australian liquor market achieved sales growth on a like for like basis of 3%, Campbells Wholesale saw a 5% increase in sales and Mitre 10 reported a strong contribution in its first full year of operations with sales of $797 million.

The Mitre 10 acquisition has proved to be a success and offers MTS strong earnings growth potential over the next few years as it takes on its competitors which include Bunnings. MTS’s competitor Woolworths has issued guidance of subdued trading conditions into 2012, and this should also rub off on MTS.

Status: HOLD

MTS shares today traded at $4.26

For sharemarket and fixed income trading enquires contact:
Dan Stratful at Investment Research Group (IRG)
Authorised Financial Adviser (AFA)
0800 437 8489, 09 304 0232,
**A disclosure statement is available, on request and free of charge.

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