Is the Metcash (ASX:MTS) share price being smoked by the Federal Budget?

The Metcash Limited (ASX:MTS) share price has been under pressure today after the company released a response to yesterday's Federal Budget.

| More on:
A mature aged man looks unsure, indicating uncertainty around a share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Metcash Limited (ASX: MTS) shares have been under pressure today after the company released an update in response to yesterday's Federal Budget.

After spending most of the morning in the red, the Metcash share price is currently trading 1.16% higher at $3.48. In comparison, the S&P/ASX 200 Index (ASX: XJO) is down 1.14% at the time of writing.

Let's take a look at what the wholesale distributor announced. 

Tobacco excise

The Metcash share price is under pressure today after an update to investors in response to yesterday's Federal budget.

In the update, Metcash flagged a $10 million hit to its earnings, noting that the budget did not include an increase in tobacco excise duty for September 2021.

Metcash advised that it has historically recognised a share valuation gain in its food pillar based on the value of tobacco stock on hand at the time of the excise duty and the related sales price increase. As a result, Metcash noted that this gain flowed through to earnings as the tobacco was sold.

With no excise increase in September, Metcash expects a net adverse impact in fiscal 2021 of $10 million in earnings before interest and tax (EBIT). The company noted that the impact would be reflected in its financial statements for the first half of FY22.

Metcash added that should the government reduce or discontinue its 12.5% tobacco excise, the company would work with tobacco suppliers to ensure appropriate remuneration.

About the Metcash share price

Earlier this year, the Metcash share price hit a new 52-week-high of $3.84 per share. Shares in the company went flying after Metcash reported strong retail sales and market share growth in March. The conglomerate highlighted strong sales momentum for all business segments in the second half of 2021.

As a result of a strong balance sheet and underlying cash flow, Metcash also announced an increased target dividend payout ratio. As a result, the company announced that 70% of underlying net profit after tax would be paid to investors effective FY21.

However, the Metcash share price has fallen more than 11% since hitting a new 52-week high in March. Its shares continue to be targeted by short-sellers. According to ASIC's short position report, Metcash has a short interest of 7.3% with investors predicting a drop in the company's market share.

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Person pretends to types on laptop drawn in sand.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a disappointing end to the trading week for investors this Friday.

Read more »

A young boy points and smiles as he eats fried chicken.
Share Gainers

3 ASX All Ords shares smashing the benchmark this week

Investors are sending these three ASX All Ords shares rocketing 18% to more than 29% this week. But why?

Read more »

watch
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Disappointed man with his head on his hand looking at a falling share price his a laptop.
Share Fallers

Why APA, Flight Centre, Reece, and Transurban shares are falling today

These shares are having a tough finish to the week. But why?

Read more »

a young woman raises her hands in joyful celebration as she sits at her computer in a home environment.
Share Gainers

Why Alliance Aviation, BHP, Boss Energy, and Orthocell shares are racing higher

These shares are ending the week on a positive note. But why?

Read more »

Mum playing with her baby boy holding him on her tummy as she lays down while smiling about the Bubs share price going up today
Broker Notes

Following two unfortunate incidents, what's Macquarie's price target on Monash IVF shares?

Is Monash IVF a buying opportunity?

Read more »

A happy male investor turns around on his chair to look at a friend while a laptop runs on his desk showing share price movements
Broker Notes

Macquarie tips 18% return for this ASX 200 stock

The broker thinks this blue chip's profits are going to rebound in FY 2026.

Read more »

Three happy office workers cheer as they read about good financial news on a laptop.
Broker Notes

Bell Potter names more of the best ASX 200 shares to buy in FY26

These shares are among the best to buy in the new financial year according to its analysts.

Read more »