JB Hi-Fi Limited

Robust Growth in Sales YoY: JB Hi-Fi Limited (ASX: JBH) ended FY 2018 with total sales amounting to A$6.8 billion which implies the growth of 21.8% on the YoY basis. With respect to the JB Hi-Fi Australia, the sales of the Hardware and Services in FY 2018 witnessed favourable momentum thanks to the audio, computers, communications, games hardware as well as Drones categories. However, the negative momentum was witnessed in the sales of the software in FY 2018 due to the unfavourable momentum in regard to Movies category. The unfavourable momentum in regard to software sales got partially offset by the favourable momentum with respect to the category of the games software.

     









JB Hi-Fi Australia (Source: Company Reports)
With respect to the JB Hi-Fi Australia, the cost of doing business or CODB witnessed a fall to 14.82% in FY 2018 from 14.96% in FY 2017. These of the cost of doing business has been kept as the company has aimed towards reducing the expenses which are of no use as well as towards productivity.

Decline in Gross Margins but Net Margins Grew: JB Hi-Fi Limited posted gross margins of 21.4% in FY 2018 which implies a fall on the YoY basis as in FY 2017 the gross margins stood at 21.9%. However, the company’s net margins managed to witness a rise on the YoY basis. In FY 2018, JB Hi-Fi Limited recorded net margins of 3.4% while in FY 2017, the net margin was 3.1%.

The company also witnessed an improvement in its operating margin as, in FY 2017, operating margins were 4.6% while in FY 2018 this margin was 4.9%.

Plans of the opening of JB Hi-Fi Australian Stores: At the FY 2018 results presentation, JB Hi-Fi Limited stated that in FY 2019, the company would be coming up with 2 stores of The Good Guys, 5 stores of JB HI-FI Australia. Moreover, in the same presentation, it also stated that it would be shutting down 1 JB Hi-Fi New Zealand store.

On October 25, 2018, the management of the company believes that they would be posting total sales amounting to approximately $7.1 billion.The company believes JB Hi-Fi New Zealand would be contributing NZ$0.22 billion while The Good Guys might contribute $2.15 billion. However, JB Hi-Fi Australia is expected to contribute $4.75 billion.

Stock Recommendation and Analysis: On the daily chart of JB Hi-Fi Limited, two technical indicators have been applied (Moving Average Convergence Divergence or MACD and Relative Strength Index or RSI) and default values have been considered. As per the observation, the MACD line has crossed the signal line and is moving downwards. However, the 14-day RSI is trending towards the oversold region and might reach there. After it reaches the oversold region, the upside momentum is expected. As per ASIC, on December 04, 2018, the short selling of JB Hi-Fi Limited stood at 18.86%. Therefore, it would not be wrong to say that the stock is little “Expensive” at the current price of A$22.170 per share.

Syrah Resources Limited

Robust Progress in Balama Production in Q3 2018: In October 2018, Syrah Resources (ASX: SYR) posted results related to the September 2018 quarter. In regard to the Balama production, robust momentum was witnessed, and the throughput witnessed a rise and in the month of July as well August the company also witnessed improvement in regard to the recoveries. The production levels, with respect to the Balama Graphite Operation, witnessed a rise in Q3 2018 of 83% to 38.7kt as compared to the Q2 2018. On December 04, 2018, as per ASIC, the short selling of SYR stood at 16.31%.
 
 
Balama Production (Source: Company Reports)

Talking about the finances of Syrah Resources, the company ended September 30, 2018 with total cash of US$100.3 million. However, this amount excludes the proceeds as a result of the SPP or the share purchase plan.

The key ratios like EBITDA as well as Operating margin have witnessed in FY 2017 on the YoY basis. Syrah Resources posted EBITDA margin of -1,010.2% in FY 2017 representing a decline as in FY 2016, the company posted -857.6%. The company ended FY 2017 with the operating margin of -1,033% while in FY 2016, the operating margin stood at -886.4%.

Increased Demand of Graphite Could Support Syrah Resources: As per the presentation of Syrah Resources, the favourable momentum is being witnessed in the transport sector. That is to say that the process of reducing the carbon-dioxide with the help of electric vehicles has been witnessing uptrend. The company’s presentation also stated that the demand in regard to the natural graphite has reached the growth phase.

Stock Recommendation and Analysis: On the daily chart of SYR, exponential moving average or EMA has been applied and default values have been considered. As per the observation, the stock price is trending slightly towards the EMA and crossover might occur. After the crossover, the stock might witness an upward momentum. Based on robustprogress in Balama production in Q3 2018 and current trading scenario, we maintain our “Hold” rating on the stock at the current market price of A$1.595 per share.
 

Orocobre Limited

Increase in Production from Olaroz Lithium Facility YoY: Orocobre Limited (ASX: ORE) ended FY 2018 with 12,470 tonnes in regard to the total production of the lithium carbonate with respect to Olaroz Lithium Facility which implies a rise of 5% on the YoY basis. The company generated a statutory net profit amounting to US$1.9 million in FY 2018. The press release related to the FY 2018 results also stated that the company happens to have a robust balance sheet. The company ended June 30, 2018 with US$316.7 million cash. On December 04, 2018, Orocobre Limited saw short selling of 13.85% as per ASIC.
 

ORE’s Operating Activities (Source: Company Reports)
The company witnessed US$112.7 million with respect to the receipts from the customers in FY 2018. As per the FY 2018 results presentation, the robust cash inflows were witnessed on the back of Olaroz because of increased average prices.

Development of Methods Might Support ORE: In the FY 2018 annual report, Orocobre Limited stated that they witnessed negative impacts on the production levels because of the unfavourable climatic conditions.As a result, the company stated that they are coming up with the methods which would help in managing the unfavourable weather conditions. These methods expected to support the company moving forward.
Stock Recommendation and Analysis: On the daily chart of Orocobre Limited, Relative Strength Index or RSI has been applied and default values have been considered. As per the observation, the 14-day RSI has been moving towards the oversold region and once it reaches that region, an upward momentum in expected. Moreover, the company’s net margin stood at 11% in FY 2018 while the industry median stands at 12.8% which represents that the company has been trying to maintain its net margin close to the industry median. Hence, we maintain our “Buy” rating on the stock at the current market price of A$3.920 per share.
 

Galaxy Resources Limited

Exploration Update on its Mt Cattlin Project: Galaxy Resources Limited (ASX: GXY) has recently provided an exploration update for its Mt Cattlin Project. As at end October 2018, the company has completed around 25,555m of grade control and resource development drilling in 543 new drill holes. Of which, 108 drill holes for 12,275m were of the resource development type. The objective of the drilling was to target infill in the northwest and northeast parts of the Mt Cattlin orebody and support mining approvals to extend mining operations east of Floater Road. According to the release, a new pegmatite lode has been intersected beneath known lode in NW zone, both remain open at depth and to the west. The recent round of drilling has shown wide widths with zones of high grade and coarse grained mineralised pegmatite. Drill hole NWRC028 intersected 11m of pegmatite from 78m to 89m @ 1.8 % Li2O, which included 7m from 78m to 85m @ 2.3% Li2O and further included 1m from 79m to 80m 4.3 % Li2O. As per ASIC or Australian securities and investment commission, as on 4 December 2018, GXY was shorted over 16.45%.

Lithium Carbonate Demand (Source: Company Reports)

On the analysis front, the company has reported positive net margin of 13.0% in 1HFY18 from the negative net margin of 43.3% in 1HFY17. As a result, RoE for 1HFY18 came in at 2.6%. Operating margin, on the other hand, has increased by 20.1% compared to negative operating margin of 10.8% in 1HFY17. Meanwhile, the share price has fallen 23.98% as on December 07, 2018 and is trading close to lower level. Based on its decent financials in 1HFY18 and exploration update on its Mt Cattlin Project, we maintain our “Hold” recommendation on the stock at the current market price of $2.460.   

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