Where Will MTS Bottom?

Where will MTS bottom?

My assessment is a pretty simple one...

MTS revenues have been going nowhere for the last 5 years (investors don't like that).

MTS marketshare is being eroded by competition.

Aldi is likely to take more marketshare as it expands into the rest of Australia, how much it manages to grab probably won't be better understood by the market for a year or two.

Incumbent Australian grocers are likely to try and defend market share and will hurt their margins in the process.

MTS has lower margins than WOW and WES and a much higher net debt to EBITDA ratio - a VERY poor combination going into a price war.

And on top of it all the overall economy is weakening and prospects of a recession are looming.

So it is going to be very difficult for MTS to pay down debt AND protect its marketshare.

I suspect this is what shorters are betting on.

That said, it's now trading on a trailing EV/EBITDA of 6.8 compared to WOW's 10.5 and WES 15.1.

Of course MTS forward earnings don't look so good relative to the competition. So there is probably some justification for this lower multiple.

But it's still cheap relative to the competition IF it can address its problems (and it's definitely got some problems).

So did MTS deserve to fall from $4 to $1.60... definitely.

Has the market the market oversold it... probably.

Will MTS grow it's way out of these debts... probably not.

Could MTS consider raising capital or selling assets to pay down debt and restore confidence... probably.

With the existing uncertainties will MTS share price fall lower from here... probably.

How low?

I'd be surprised if it got below $1 (but it might - especially if investors want to crystallize some capital losses against their capital gains coming into EOFY and shorters who need to buy back want to carry their capital gain into the new year).

Had a little "nibble" on MTS at $1.35 and today I took another "nibble" at $1.25.

Won't be taking a "bite" until I see some more concrete numbers and a change in sentiment (don't fight the trend)...

If the numbers are inline with expectations, they don't lose too much share to Aldi (ie if they can keep revenues/earnings stable for the next couple of years), pay down some debt and the overall economy doesn't go into recession, the cash rate stays low then I suspect the MTS share price will work its way back towards $1.60 within 6 - 18 months (but probably not before it goes lower).

I feel prices north of $1.30 at this stage are investors betting on better than expected news.

Thoughts?