We have an average spot valuation for MTS of $3.72 per share. Our 12-month target price is $3.90 per share. Our target price is derived by rolling forward our valuation at the cost of equity of 11%.

We calculate our valuation as the average of our DCF valuation of $3.18 per share, PE relative valuation of $4.04 per share, and our sum-of-the-parts valuation of $3.92 per share.
Using a PE relative measure, we value MTS at a 25% discount to the ASX 200 ex-Resources, reflecting MTS's historical discount to the market and the further potential for contract losses.
Our DCF valuation is derived using an equity beta of 1.0 and a WACC of 10%. We use a risk free rate of 4%. We use a terminal growth rate of 3.5%. 
Our sum-of-the-parts valuation is derived comparing MTS to international peers. We apply a discount to the median of international peers in supermarkets given the competitive risks the company faces and the soft growth outlook. Our fair value EV/EBIT multiple is 10.1x FY26e.

Downside risks to achieving our target price include:
• A price war in supermarket retailing. Future margin growth relies on a rational supermarket industry.
• Lower food inflation. MTS's business model generates revenue based on the nominal value of orders. If food inflation subsides, MTS revenue will come under pressure.
• Rapid industry-wide supermarket store rollout in Australia. The rapid store rollout by the major chains is likely to dilute the returns for all supermarket operators.
• High petrol prices. High petrol prices hurt convenience store sales as price-conscious consumers avoid paying the premium for convenience.
• A downturn in the Australian housing market impacting the Mitre 10 and Home Timber and Hardware businesses.
 
Upside risks to achieving our target price include:
• Further potential industry consolidation, benefiting MTS.
• Increased share of sales in fresh produce and direct sales. 
• Consolidation of liquor wholesaling, improving returns for the remaining operators. 
• Capturing beer volumes through ALM's DCs. If the beer producers are forced to relinquish their own distribution of beer by the retailers, then ALM could be the key beneficiary.