Why fund managers keep waiting on Metcash's hardware recovery
Metcash's defensive food and liquor wholesale businesses keep offsetting a hardware division recovery that has disappointed the market several times running.
29 Jun 2026 · 6 min read
In short
Metcash's first-half FY26 result missed expectations, driven mainly by slower-than-hoped margin recovery in its retail hardware businesses, Mitre 10 and Frame & Truss.
Maple-Brown Abbott notes the stock trades at a lower earnings multiple than the broader market and significantly below comparable defensive businesses, around 10 times earnings.
First Sentier Investors and Ten Cap both exited positions citing a slower-than-expected housing cycle recovery, tobacco sales decline and liquor demand headwinds.
Grocery, liquor and hardware wholesaler Metcash has repeatedly disappointed the market on the pace of its hardware division's earnings recovery, with Pendal Group's December 2025 Newsletter detailing a first-half FY26 result that missed expectations and triggered a 5% downgrade to FY26 and beyond, driven mainly by slower-than-hoped margin recovery in the retail hardware businesses, Mitre 10 and Frame & Truss.
A defensive food business offsetting a cyclical hardware recovery
Maple-Brown Abbott's March 2026 Quarterly Report detailed the investment case across Metcash's three divisions: the food business is well placed and defensive, benefiting from higher inflation; the liquor business, despite facing market-wide demand headwinds, should also prove relatively defensive; and the more cyclical hardware business is coming off a cyclical low with limited further downside risk, offering structural growth from the expanding Total Tools chain. The report noted the stock trades at a lower earnings multiple than the broader market and significantly below comparable defensive businesses, despite what it considers an improved quality of earnings from the shift in portfolio mix toward higher-growth hardware.
Metcash delivered a solid trading update despite the continuing structural tobacco decline. Liquor margins were higher and the Hardware business has stabilised defying the bears and highlighting the value at 10x PE and 6.5% fully franked dividend yield.
— Pengana Capital Group, Monthly Report, May 2026
Not every manager has been patient with the repeated hardware disappointments. First Sentier Investors' September 2025 Quarterly Report detailed exiting the position due to the prolonged weakness in the housing cycle taking longer to recover than initially anticipated, compounded by an accelerating decline in tobacco sales pressuring the IGA supermarket network and a structural decline in liquor consumption as people drink less alcohol. Ten Cap's November 2025 report similarly detailed selling ahead of the disappointing first-half result, citing concerns over the hardware recovery, growth challenges in liquor, heightened supermarket competition and ongoing tobacco weakness.
What managers are watching next
Pendal Group's May 2026 Newsletter detailed a subsequent preannounced FY26 result that came in line with consensus, a positive outcome given prior downgrades from peers Woolworths and Endeavour, with hardware sales improving into the second half, particularly at Total Tools, even though hardware earnings still missed consensus by 11% in the half, offset by better-than-expected margins in food and liquor. With Contact Asset Management and Maple-Brown Abbott both flagging the illegal tobacco trade as a persistent structural drag on the IGA network, the pace of hardware margin recovery against that backdrop remains the key variable managers are tracking.
Questions
Why has Metcash's hardware division disappointed repeatedly?
Metcash's hardware division, including Mitre 10 and Frame & Truss, has faced a slower-than-expected margin recovery tied to a prolonged weak housing and construction cycle, leading to repeated earnings downgrades and delayed recovery expectations.
Why do fund managers consider Metcash's food and liquor businesses defensive?
Maple-Brown Abbott notes Metcash's food business benefits from higher inflation and is well placed in the current environment, while its liquor business, despite facing demand headwinds, is also considered relatively defensive against economic cycles.
How is illegal tobacco affecting Metcash?
Contact Asset Management and Maple-Brown Abbott both note the illegal tobacco trade has had a material negative impact on Metcash's IGA supermarket network, representing an ongoing structural headwind to food division sales.
13 managers, 32 comments, with each manager's latest recorded position.
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