JB HI-FI Limited

JBH Details

3QFY21 Sales Update: JB HI-FI Limited (ASX: JBH) is engaged in retailing of home consumer products in Australia. The company offers a range of brands with a focus on consumer electronics, software, including music, games and movies, whitegoods, and appliances. JBH has updated on its 3QFY21 sales performance recently. JBH Australia has seen a sales growth of 10.4% in 3QFY21 as compared to 11.5% in 3QFY20. JBH New Zealand has seen a sales growth of 16.0% year over year in 3QFY21. Similarly, sales growth for The Good Guys in 3QFY21 was 5.8% on pcp. 

Change in Interest of Substantial Holder: The company has reported a change in interest of substantial holder. Magellan Financial Group Limited has increased its holding to 6.04% from 5.02% as reported on 4 May 2021. 

Management Rejig: JBH has informed regarding the appointment of Biag Capasso as a new Managing Director for its subsidiary The Good Guys. Biag is associated with The Good Guys since November 2011 in several other roles. 

1HFY21 Financial Highlights: JBH has registered an increase in revenue to $4,941.2mn in 1HFY21 against $3,995.2mn in 1HFY20. The company has registered a significant increase in profit to $317.7mn in 1HFY21 against $170.6mn in 1HFY20. The liquidity position of the company has improved with higher cash reported to $472.8mn as on 31 December 2020 against $251.5mn as on 30 June 2020.

Revenue and Profit Growth (Source: Analysis by Kalkine Group)

Key Risks: The company is mainly engaged in providing consumer products. Thus, any disruption in the supply chain may impact the performance of the business. The company operates in a highly competitive environment. Therefore, losing market share to its competitors may affect the financials of the company. 

Outlook: The company has invested in its e-commerce platforms to enhance its products’ sales amid Covid-19 situation. The company continues to expand the category of products within its existing products and introducing new product line to its customers for sales growth in future.

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of JBH gave a return of ~3.78% in the last one month and a return of ~5.35% in the last three months. The current market capitalisation of JBH stands at ~$5.52bn as of 2 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$37.54~$55.25. On the technical analysis front, the stock has a support level of ~$45.84 and a resistance of ~$50.13. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at some premium as compared to its peer median, considering an increase in revenue in 1HFY21, a significant increase in online sales in March 2021 and optimising cost to enhance profit margins. For this purpose, we have taken peers Breville Group Ltd (ASX: BRG), Vita Group Ltd (ASX: VTG), Myer Holdings Ltd (ASX: MYR), to name a few. Considering the company has registered a significant increase in its profits in 1HFY21, improved liquidity position with higher cash balance as on 31 December 2020, current trading levels and valuation, we recommend a “Hold” rating on the stock at the current market price of $48.11, down by ~0.042% as on 2 June 2021.

JBH Daily Technical Chart, Data Source: REFINITIV

StarPharma Holdings Limited

SPL Details 

VIRALEZE Becomes Active in the UK: StarPharma Holdings Limited (ASX: SPL) is engaged in the development of dendrimer products for pharmaceutical, life science and other applications. SPL has informed its product SPL7013 (VIRALEZE active) has antiviral attributes against the UK SARS Cov-2 coronavirus mutant. The product has showcased its ability to reduce the effect of infectious virus by more than 98%. The product is complementing the Covid-19 vaccines and likely to be relevant where social distancing is not feasible. 

Update on Quarterly Activities: SPL has announced an agreement with Merck to utilise SPL’s proprietary DEP technology for dendrimer-based ADCs. The company has signed a commercial arrangement with LloydsPharmacy/McKesson UK for VIRALEZE on 25 March 2021. The company has reported a cash balance at $64.29mn as on 31 March 2021 against $70.27mn as on 31 December 2020. 

1HFY21 Financial Highlights: SPL has registered a decline in its revenue to $638k in 1HFY21 against $5,671k in 1HFY20. SPL has incurred a loss of $10.43mn in 1HFY21. The company has seen an improved liquidity position with an increased cash balance to $70.27mn as on 31 December 2020 against $30.05mn as on 30 June 2020.

Revenue Volatility (Source: Analysis by Kalkine Group)

Key Risks: The company is present in the pharmaceutical industry. Therefore, the company requires regular regulatory approvals for the smooth functioning of the business. Further, the company is exposed to adverse change in foreign exchange prices, which may affect the financials of the company. 

Outlook: SPL is expecting further orders from LloydsPharmacy by the end of FY21. SPL has invoiced LloydsPharmacy for $1.2mn for the launch supply of VIRALEZE in the UK. SPL is progressing well with the launch of VIRALEZE to other parts of Europe. SPL is looking for marketing approvals for VIRALEZE in other countries, including Australia.

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of SPL gave a return of ~-1.52% in the last one month and a return of ~35.30% in the last six months. The current market capitalisation of SPL stands at ~$726.87mn as of 2 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.950~$2.520. On the technical analysis front, the stock has a support level of ~$1.60 and a resistance of ~$1.944. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low double-digit downside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering the company’s product VIRALEZE is active in UK markets and signed a commercial arrangement with LloydsPharmacy. For this purpose, we have taken peers Suda Pharmaceuticals Ltd (ASX: SUD), Medical Developments International Ltd (ASX: MVP), Antisense Therapeutics Ltd (ASX: ANP). Considering the company’s product VIRALEZE is active in UK, almost doubled its losses in 1HFY21, volatile price movement in the past months, current trading levels and valuation, we believe the positive news related to VIRALEZE has already been discounted at the current trading juncture. Hence, we suggest investors to wait for better entry levels and give an “Expensive” rating on the stock at the current market price of $1.765, down by ~1.397% as on 2 June 2021.

SPL Daily Technical Chart, Data Source: REFINITIV

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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