Metcash Limited (ASX: MTS) has continued its violent slide today. After plummeting almost 18% yesterday, down from Wednesday's closing price of $1.385, the stock has lost another 5.7% to trade at just $1.075, its lowest price in more than 14 years.
Metcash's troubles have been well documented in recent years – particularly those brought on by the intense competition from rivals Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES). This has seriously dented the profitability of Metcash's core Food & Grocery Pillar.
As a result of these tough trading conditions, Metcash was forced to book a massive $640 million worth of impairments, which will seriously dent the company's end-of-year bottom line figure. An impairment of $507 million will be made to intangible assets ($442 million to goodwill and $65 million to other intangibles), in addition to a further charge of $133 million due to other assets and obligations within its Food & Grocery Pillar.
So although the company confirmed underlying earnings before interest and tax (EBIT) for the year being between $315 million and $330 million, the actual result will be more like a loss of $300 million, give or take.
Although it is a necessary move, Metcash has also opted against paying a final dividend this financial year and expects not to pay a dividend in FY16, either. Metcash's generous dividend yield was seen as one of the stock's most attractive features so it's understandable that investors have reacted so harshly.
The company's CEO, Ian Morrice, said: "While we are making progress with the Group's strategic priorities, the Food and Grocery Pillar is operating in an increasingly competitive environment. We have completed the first year of our transformation plan and these capital management initiatives will provide a foundation from which the Group will continue to deliver the priorities in our strategic plan."
Although it might seem tempting to buy the stock at such a discounted price, strong headwinds could continue to batter the stock for the foreseeable future. While the company will deliver its full-year results on 15 June 2015, investors should focus their attention on some of the market's more promising dividend prospects.
