JB Hi-Fi Limited

Highest Total Sales from JB Hi-Fi Australia: JB Hi-Fi Limited (ASX: JBH) is engaged in the retail of home consumer products with focus on consumer electronics, software, whitegoods, and appliances.

FY19 Results: During the year, the company reported total sales amounting to $7,095.3 million, up 3.5% on FY18 sales of $6,854.3 million. EBIT for the period was reported at $372.8 million, up 6.4% on the previous year. During the year, the company reported NPAT amounting to $249.8 million, up 7.1% on FY18.


FY19 Group Results (Source: Company Reports)

JB Hi-Fi Australia witnessed 4.1% growth in total sales at $4,726.0 million, followed by The Good Guys reporting growth of 2.2% at $2,147.9 million and JB Hi-Fi New Zealand with growth of 2.0% at total sales of NZD236.2 million.

Impact of AASB 16 Leases: The company will see a significant change in reported results pursuant to the implementation of new lease accounting standard AASB 16 Leases.As a consequence, EBIT and EBITDA will increase materially as a result of the replacement of operating lease expenses by depreciation and finance costs. This will lead to a reduction of $4.9 million - $6.3 million in NPAT.

FY20 Guidance: The company expects total group sales in FY20 to be approximately $7.25 billion, comprising $4.84 billion from JB Hi-Fi Australia, $2.18 billion from The Good Guys and remaining $0.24 billion from JB Hi-Fi New Zealand.

Stock Recommendation: The stock of the company generated returns of 22.74% over a period of 1 year. As per the Australian Securities and Investments Commission (ASIC) report, the short position for JBH’s share was reported at ~14.35% as on August 06, 2019.Currently, the stock is priced close to its 52-week high level of $31.600 and has a market capitalisation of ~$3.21 billion. The company delivered another record performance in FY19 and is looking forward to under successful year in FY20. However, the company’s results will be significantly impacted by the implementation of AASB 16 Leases, which will lead to a reduction in NPAT and Net Assets. The company will include a bridge between the results under the new and old standards in its investor presentations for 1HFY20 and FY20. Given the above scenario, we have a wait and watch stance on the stock at the current market price of $30.750 per share (up 9.979% on 12 August 2019, owing to the release of preliminary FY19 results).

Domino’s Pizza Enterprises Limited

Recent Events Likely to Impact FY19 Earnings: Domino’s Pizza Enterprises Limited (ASX: DMP) operates retail food outlets and also provides franchise services. The company recently updated that Mitsubishi UFJ Financial Group, Inc became a substantial shareholder of the group with the voting power of 7.53%.

Update on Class Action: The company has recently been in the news regarding the legal proceedings in relation to Domino’s misleading franchisees who paid their employees in accordance with a number of industrial agreements instead of making payments under the Fast Food Industry Award 2010. The documents allege that the franchisees relied upon Domino’s presentations and conduct in doing so and have been brought forward on behalf of an alleged group comprising in-store workers or delivery drivers employed between 24 June 2013 to 23 January 2018. The company has rejected the allegations made and intends to defend the action.

Acquisition: The company has recently entered into an agreement to acquire Master Franchise rights for Domino’s Pizza in Denmark for a consideration amounting close to €2.5 million. The company now expects to restart its operations in Denmark with approximately 20 stores within the next year. This calls for an additional investment in store equipment, IT systems, and other central support.

Financial Results Update: During the half-year ended 30 December 2018, the company reported network sales amounting to $1,430.9 million, up 14.6% on prior corresponding period. EBITDA for the period amounted to $137.2 million, up 12.1% on prior corresponding period.


1HFY19 Financial Highlights (Source: Company Reports)

Stock Recommendation: The stock of the company generated returns of -22.60% over a period of 1 year and has a market capitalisation of ~$3.31 billion. As per the Australian Securities and Investments Commission (ASIC) report, the short position for DMP’s share was reported at ~11.79% as on August 06, 2019. The company is planning to open new stores in Denmark to restart its operations in the country, which will require additional investment expenditure. However, the business will take some time to contribute to the earnings of the business. Moreover, the ongoing legal proceedings regarding payments made to employees of its franchisees also pose uncertainty regarding future events. Considering the aforesaid factors, we put our wait and watch stance on the stock at the current market price of $39.660, up 2.481% on 12 August 2019.
 

Ansell Limited

Market Conditions to Impact FY20 Performance: Ansell Limited (ASX: ANN) is involved in the development, manufacture and distribution of gloves and protective personal equipment in the industrial and medical end markets. The company recently declared a dividend on ordinary fully paid shares, amounting to USD 0.260 per share to be paid on 05 September 2019.

Financial Highlights: The company recently released the financial results for full-year ended 30 June 2019. Sales for the period amounted to US$1,499.0 million, up 0.6% on the previous year. Statutory EBIT for the period stood at US$157.3 million, down 0.3% on the previous year. During the year, the company generated statutory profit amounting to US$111.7 million, declining 19.5% in comparison to the prior year.

 
FY19 Financial Summary (Source: Company Reports)

Segment Information: The company’s healthcare division delivered 4% organic growth across its portfolio. The Global Business Unit accounted for 53.1% of revenue and 56.9% of EBIT in the segment. The company’s Industrial division reported an overall soft top-line performance. The Industrial Global Business Unit accounted for 46.9% of revenue and 48.6% of EBIT of the Industrial segment. Organic revenue for Industrial GBU went down by 0.4% due to the continued deceleration of European market demand.

Outlook: The company expects its business to grow across some markets despite the deteriorating market conditions and prolonged uncertainty around trade. The company expects to return to organic sales growth of 3-5% in FY20. FY20 EPS is expected to be adversely impacted by a higher effective tax rate in the range of 22.5% - 23.5%. FY20 EPS is expected to be between US 112 cents to US 122 cents.

Stock Recommendation: The stock of the company generated negative returns of 3.69% and 3.14% over a period of 1 month and 3 months, respectively. In FY19, the company focused on delivering strong outcomes on the face of heightened uncertainties and increased trade tension. As suggested by the outlook for FY20, economic performance will be impacted by the continued deterioration of external market conditions and prolonged trade uncertainty. FY20 EPS will see an unfavourable impact from a higher effective tax rate between 22.5% and 23.5%. On the backdrop of the above factors, we suggest investors to keep a close watch on the stock at the current market price of $27.410, up 5.953% on 12 August 2019, owing to the release of preliminary FY19 results.  

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