JB Hi-FI Ltd

All positives factors already priced in at current levels:JB Hi-Fi Limited (ASX: JBH) has via an ASX release declared its Q1 FY 2019 sales update. The company has witnessed a sales growth across all its segments, with the highest growth seen in their Australia operations by 5.3%. The company has remained consistent with its earlier stated sales guidance of circa $7.1 Bn for the FY 2019. This would be contributed by its Australian, New Zealand and Good Guys division in the proportions of $4.75 Bn, $0.22 Bn & $2.15 Bn, respectively.

For FY 2018, the company’s sales grew by 21.8% to reach at $6.9 Bn. This was driven on the back of the outperformance in their online platform and a full year contribution from The Good Guys. This growth was also on account of the robust hardware sales. The company’s EBIT was up by 14.50% on a YoY basis to reach at $350.60 Mn. This rise was seen on the back of increased volumes driven by the new products and the company’s continued attention towards productivity and cutting down unnecessary expenditures.

Going forth, the company will continue to focus on its investments towards the store network, online offering, and the solutions businesses. These initiatives along with strong promotional plans will place the company in a better position. The key drivers for the top line expansion continue to be the company’s biggest range and lowest prices. As per ASIC or Australian Securities and Investment Commission, as on 11 December 2018, JBH was shorted over 17.86%.
 

 
JBH Financial Key Parameters (Source: Company Reports)
 
As of now, the company is trading at a P/E multiple of 10.98x, while the Specialty retailer’s industry trades at 10.20x, which signifies that the company is trading at a premium. Also, the company is trading at a price to cash flow of 8.87 times while the median ratio for Specialty retailers is 7.40 times. Hence this also indicates that the firm is currently bit overpriced. Meanwhile, the stock price has fallen 2.28% in the past six months as on 14 December 2018. Thus, considering all positive developments have been discounted at the current juncture. We, therefore, suggest the market players avoid the stock at the current market price of $22.710 (up 1.839% on December 17, 2018).
 

Galaxy Resources Ltd

Healthy balance sheet coupled with expectations of recovery in mining volumes: Galaxy Resources Ltd (ASX: GXY) has stated via a recent release that it has completed (as at end October 2018) approximately a total of 25,555m of reverse circulation (RC) drilling and a multi-element assay has been completed in support of mining operations and resource re-estimation. A new pegmatite lode has been intersected beneath known lode in NW zone. Resource and reserve update work has been commenced, and outcomes are expected in Q1, 2019. For the quarter ended 30 September 2018, the firm had US$54.7 Mn in cash thanks to a healthy cash margin of US$ 411 per dmt and constant receipts from customers. The company is debt free as on date. This strong cash balance is constantly supporting the funding requirements for ongoing project development initiatives. Besides this, the company has registered lower production of spodumene at 31.2kt and cash margin per tonnes sold at US$411/dmt for the 3Q 2018 on account of the reduced recoveries. This was witnessed on account of permitting the delays in planned mining access on the east of floater road and the extraction of lower feed grade. However, the volumes are expected to recover in 4Q 2018 with improvements in head grade and the recoveries related with the associated mining in the east of floater roads.

Going forth, the rapid growth in lithium demand shall be driven by the penetration forecast which is expected to reach a level of 15% of the automotive segment by the year 2025. Also, the Energy storage systems (ESS) has emerged as a key component in managing the grid stability. Moreover, the high consumption of Electronic goods and its accelerated obsolescence will support the demand for lithium. As per ASIC or Australian Securities and Investment Commission, as on 11 December 2018, the stock was shorted over 17.19 %.
 

Production Trends of Electric Vehicles (Source: Company Reports)
 
Meanwhile, the stock price has fallen 25.08% in the past six months as on 14 December 2018 and trading at PE multiple of 39.87x. Thus, considering the strong balance sheet and anticipating recovery of mining volumes in Q4 2019, we maintain our “Hold” recommendation on the stock at the current market price of $2.560 (up 4.49% on 17 December 2018).
 

Orocobre Ltd

Strong top-line growth backed by underlying demand: Orocobre Ltd (ASX: ORE) stated via a recent release that the company has signed three significant agreements with its joint venture partner Toyota Tsusho Corporation (TTC). These three agreements are new Olaroz Shareholders Agreement, Sales and Marketing Agreement and Orocobre Management Agreement.

Moreover, the company has engaged engineering consultants GHD, Chile S.A. to start with early engineering. This is aimed & geared towards the completion of a Definitive Feasibility Study (DFS) on its Cauchari Project in Argentina. A report on this work will be prepared in accordance with NI43-101 standards of disclosure and is scheduled for completion in Q4 FY19.

The production for the quarter ended September 2018 was 2,293 tonnes of lithium carbonate, this implies a rise of 7% on PCP. However, the same was down 36% on a Q-o-Q basis due to the shutdown of the plant for the two weeks and seasonally lower evaporation rates. Further, the company has posted strong sales of US$32 Mn for the quarter, up 36% from the previous corresponding period. This was on the back of a rise in the average price realization per tonne which came in at US$14,699/tonne on an FOB basis. Also, the gross cash margins came in at US$10,059/ tonne, up by 62% on PCP, thanks to the higher average pricing realized driven by a better product mix. The company had an available cash balance of US$308.7 Mn as on 30 September 2018, thanks to the increase in the average price received per tonne.

Based on September quarter performance, the group expects full-year production for FY 2019 to be higher than that achieved in FY18. December quarter production is expected to be materially higher than the September quarter.  However, the company feels that the average price realization per unit may decline to go further due to the global price decline in lithium carbonate.


ORE’s sales Volumes (Source: Company Reports)
 
Meanwhile, the stock price has fallen over the past six months by 25.24% as on 14 December 2018 and is now looking attractive for the accumulation in this price range. As per ASIC or Australian securities and investment commission, as on 11 December 2018, the stock was shorted 14.12%.  However fundamentally, the company is sound enough which is evident from its balance sheet, thus considering the above rationale we maintain our “Buy” recommendation on the stock at the current market price of $3.990.
 

Syrah Resources Limited

Growth in Electric Vehicle Production- A Growth Catalyst:Syrah Resources Limited (ASX: SYR) has stated via a release that It has accepted the resignation of the Non-Executive Director Stefano Giorgini, who has given the same for personal reasons. The resignation had come into effect immediately, i.e., on and from the 7th of December 2018. The company had already started the search for an additional Non-Executive Director. Moreover, the company has advised that the production improvement plan for the Balama Graphite Operation is delivering strong results.Significant improvement in graphite recoveries and consistently high product quality have been achieved, post the resumption of production.

For the quarter ended 30 Sep 2018, Firm has achieved a production of 38.7kt which implies a growth of 83% versus Q2. This growth was on the back of the increased recovery and production achieved on account of the improvement plan undertaken by the firm in the month of July and August.

Going forward, the firm has guided that it expects to achieve a production 101kt-106kt for the FY 2018.During the recently reported quarter, the sales turned out to be 20kt. This was on the back of the fact that the firm enjoyed a better “weighted realized sale price”. Moreover, the Global electric vehicle sales grew phenomenally by 56% YoY during the Jan -Aug 2018 period. By this fact, it can be deduced that the demand for fines material for use in the battery is expected to remain robust in the coming quarters.


Electric Vehicles Sales Trends (Source: Company Reports)
 
Meanwhile, the stock price has fallen 36.63% in the past six months as on 14 December 2018. The group is also under the short-selling radar with over 16.94% short positions as on December 11, 2018 (as per ASIC or Australian Securities and Investment Commission). However, because there is a growing opportunity in the electric vehicles segment & the firm seems to be ready enough to reap the benefits of vehicle electrification, thus we maintain our “Hold” recommendation on the stock at the current market price of $1.715.
 

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