METRO INC. $64 (Toronto symbol MRU; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 96.2 million; Market cap: $6.2 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.6%; TSINetwork Rating: Average; www.metro.ca) is Canada’s third-largest supermarket operator after Loblaw (see page 21) and Sobeys. The company has about 600 supermarkets in Quebec and Ontario. It also operates 260 drugstores under the Brunet, The Pharmacy and Drug Basics banners.
Couche-Tard sale brings a windfall
The company recently sold roughly half of its stake in Alimentation Couche-Tard Inc. (Toronto symbol ATD.B), which operates convenience stores in North America and Norway. (Couche-Tard is a recommendation of Stock Pickers Digest, our newsletter that focuses on aggressive investing.) That left Metro with a 5.7% economic interest and a 17.0% voting interest in Couche-Tard.
Metro received $412 million (after tax) for its Couche-Tard stake. The company will use some of that cash to buy back 2 million of its shares from private sellers at a discount to the market price. It aims to complete this purchase by April 30, 2013.
Like Loblaw, Metro continues to benefit from store upgrades and small acquisitions. Sales rose 12.0%, from $10.7 billion in 2008 to $12.0 billion in 2012 (fiscal years end September 30). Earnings jumped 67.6%, from $280.8 million in 2008 to $470.6 million in 2012.
The company is an aggressive buyer of its own stock. Because of fewer shares outstanding, pershare earnings rose at a faster pace of 87.5%, from $2.48 in 2008 to $4.65 in 2012.
Metro’s balance sheet remains strong. On December 22, 2012, its long-term debt was $991.6 million, or just 16% of its market cap. It also held cash of $27.9 million, or $0.29 a share.
The stock trades at just 12.6 times Metro’s likely 2013 earnings of $5.06 a share. The company also recently raised its quarterly dividend by 16.3%, to $0.25 a share from $0.215. The new annual rate of $1.00 yields 1.6%.
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