JB HI-FI Limited

Strong performance on Y-O-Y basis, driven by fundamentals: The JB Hi-Fi Group (ASX: JBH) is a listed holding company, with two of Australia’s best known and most trusted retail brands, JB Hi-Fi and The Good Guys together. The Group sells an extensive range of consumer electronics, whitegoods, appliances and home entertainment at great prices combined with genuine personal service from its specialist staff. The Group also services the commercial, insurance and education sectors, and offers information technology and consulting services, through its JB Hi-Fi Solutions business.

Key Highlights:

• 2018 result was driven by a combination of growth in sales, low cost of doing business, and focus on customer service.
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• The company has 311 stores in Australia and New Zealand, comprising of the Good stores, JB Hi-FI Australia Store, and Hi-FI New Zealand Store in the proportion of 103, 193, and 15 respectively. During FY18, eight new stores opened in Australia, one closed in New Zealand. Good Guys net increase in store count is one for the period.
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• The group’ sales guidance for FY 2019 reaffirmed as $7.1 billion comprising ofAustralian, New Zealand and Good Guys division in the proportion of $4.75 Bn, $0.22 Bn & $2.15 Bn, respectively.
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• To open five new stores of JB Hi-Fi in Australia, two new Good Guys stores.
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Historical Financial Metric (Source: Company Reports)

The sales grew by 21.8% Y-O-Y and stood at $6.84 billion in FY 2018. The EBIT stood at $350.6 million in FY 2018 an increase by 14.5%. The net profit rose by 12.3% Y-O-Y and stood at $233.2 million. The net assets stood at $947.6 million in FY 2018 an increase of $94.1 million from FY 2017. The new debt repayment structure requires a payment of $248 million in September FY 2019, $60 million in FY 2020 and $242.0 million in FY 2021. Financial and operating leverage remains low supported by lower fixed charges and interest coverage ratios of 2.9x and 21.1x in FY 2018 as compared to 3.2 and 28.8 respectively in FY 2017. The net cash inflow increased by 53% Y-O-Y driven by higher profits and increase in a receipt from customers. The asset turnover decreased significantly by 15% Y-O-Y, the pre-tax ROA decreased by 1.5% and the ROE decreased by 1.5% Y-O-Y. The ROE is continuing its downward trend over the past few years; however, the pre-tax ROA and asset turnover is under pressure since the last couple of years.

Meanwhile, the stock has produced a negative YTD return of 10.32% and has produced a negative return of 11.67% over the period of past three months. It is currently trading at reasonable PE multiple of 10.96x with an EPS of AUD 2.031. As per ASIC or Australian Securities and Investment Commission, as on 21 December 2018, the stock was shorted over 17.57%. With a positive long-term fundamental outlook and current short-term selling pressures, we suggest to investors that they should wait and watch the stock at the current market price of $ 22.140 (down 0.494% on December 31, 2018).
 

Inghams Group Limited

Decent Outlook: Inghams Group Limited (ASX: ING) is the largest integrated poultry producer across Australia and New Zealand expanded through a combination of organic growth and acquisitions. It maintains its good quality and customer service, supplying to major retailers.

The outlook for FY 2019

• Demand for poultry products continues to grow.
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• Strategy implementation remains on track, with opportunity pipeline is strong.
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• Expect a continuation of market price increases, reflecting increases in energy and feed costs.
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• New Zealand market dynamic remains challenging in FY18 and expectation is this will continue to FY19.
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FY18 P&L Statement (Source: Company Reports)

From the financial front, the sales dropped marginally by 2.2% Y-O-Y and stood at $2.37 billion in FY 2018. The underlying EBITDA have seen a growth of 7.1% to $208.9 million in FY 2018. The net profit after tax grew by 12.4% to $114.6 million. On the balance sheet front, the Group had consolidated net assets of $261.0 Mn (FY17: $216.5 Mn) which included the cash reserves of $273.7 Mn (FY17: $149 Mn). The current ratio and quick ratio stood at 1.78x and 1.16x, respectively in FY18. The asset turnover ratio decreased by ~10.8% Y-O-Y, however, the pre-tax ROA increased by 6.1%. RoIC substantially increased from 9.1% in FY17 to 16.0% in FY18. Meanwhile, the stock price has risen over the past six months by 18.54% as on 28 December 2018 and is trading at a reasonable PE level of 13.63x. While, as per ASIC or Australian securities and investment commission, as on 21 December 2018, the stock was shorted over 13.19%. Based on a decent outlook despite short selling, we maintain our “Hold” recommendation on the stock at the current market price of $4.130 as the group has the potentiality to grow further.
 

OROCOBRE LIMITED

Positive fundamentals driven by strong liquidity:Orocobre Limited (ASX: ORE) has a portfolio of lithium, potash and boron assets, and it is building a substantial Argentine based industrial chemicals company. Recently, the company has reported an update on commercial and production estimate for the December half-year wherein the group stated that it will deliver production of 6,000 tonnes lithium carbonate equivalent (LCE) in the December half, with sales volumes of 5,000 tonnes at an average realized price of US$12,470 per tonne lithium carbonate equivalent. This result remains in line with the previous guidance for FY19 where production will be higher than FY18.

Key Highlights:

• The lithium market experienced strong demand during FY18 encouraged by upward revisions to key forward indicators.
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• Battery capacity expansions and growing government investment supporting EV uptake and ESS development.
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Future Lithium Demand under Various Scenario (Source: Company Reports)

The Group produced a net profit from continuing operations after tax of US$1.9 million in FY 2018 as compared to US$4.6 million in FY 2017, driven by impairment write-down of Borax assets of US$8 million, whereas revenue marginally increased by 1%.The net assets of the Orocobre Group increased to US$502.1 million as at 30 June 2018 compared to US$218 million FY 2017, including cash balances of US$316.7 million as compared to the cash balance of US$51.6 million in 2017. The net cash outflow from operating activities stood at US$13.974 Mn in FY 2018 as compared to US$6.413 Mn in FY 2017. The current ratio and quick ratio substantially increased from 8.64x to 8.03x in FY17 to 42.57x and 41.83x, respectively in FY18 on the back of increased cash & cash equivalents. The group is under the short-selling radar with over 13.55% short positions as on 21 December 2018 (as per ASIC or Australian Securities and Investment Commission). Meanwhile, the share price has fallen 40.52% in the past six months as at December 31, 2018 and is trading close to lower level. Given the backdrop of increased cash and decent fundamentals, we maintain our “Buy” recommendation on the stock at the current market price of $ 3.230 (up 1.254% on December 31, 2018).
 

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