The Metcash Limited (ASX: MTS) share price has defied the market selloff and edged higher on Monday.
In afternoon trade the wholesale distribution and marketing company's shares are up 0.5% to $2.97.
Why are Metcash's shares on the rise?
Metcash has avoided being dragged lower with Woolworths Group Ltd (ASX: WOW) and the rest of the market thanks to a positive announcement this morning.
According to the release, Metcash has entered into an agreement with Drakes Supermarkets to supply its stores in Queensland for a further five years. This follows the expiration of its existing supply agreement June 2.
This five-year deal is a big positive for the company as there had been concerns that Drakes Queensland might follow the lead of its South Australian business by not committing to a long-term arrangement.
In May of last year Drakes Supermarkets told Metcash that it would not commit to its supermarkets in South Australia being supplied by Metcash's new distribution centre, which is under construction in Adelaide.
Whilst it had planned to exit the supply agreement when it expired this month, this morning Metcash revealed that Drakes South Australia has entered into a new agreement to supply its Foodland supermarkets in South Australia until September 30 2019.
This agreement may, at the option of Drakes Supermarkets, be extended up to September 30 2020 if necessary.
What now?
That certainly is one less thing for shareholders to worry about, but it's not necessarily onwards and upwards from here.
As I mentioned here this morning, Metcash remains one of the most shorted shares on the Australian share market right now with 11.35% of its shares held short.
Short sellers appear to be targeting the company on the belief that it is more likely to be negatively impacted by the expansion of Aldi, Lidl, and Kaufland in Australia than supermarket giants Woolies and Coles Group Ltd (ASX: COL).
