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Mid-Cap

JB Hi-Fi Limited – Is this retailer still in buying zone?

October 19, 2015 | Team Kalkine
JB Hi-Fi Limited – Is this retailer still in buying zone?

Delivered results better than the estimations and issued positive outlook:



JB Hi-Fi Limited (ASX: JBH) reported net profit of $136.5 million in fiscal year of 2015, better than the estimated guidance range of $127 million to $131 million. The EBIT has witnessed a growth of 5.1%. The sales rose to $3.65 billion from $3.48 billion reported in 2014, indicating a 4.8% surge. The earnings per share also rose 7.4% to 137.9 cents per share (cps) from 128.4 cps. Total dividend was also reported to be up 7.1% to 90 cps. Sales in Australia grew by 5% while New Zealand witnessed a drop of 0.1% in sales. The JB Hi-Fi HOME performance is on track and also improved the overall online sales by over 17% year on year (yoy).


Result Overview (Source: Company Reports)

Management estimates a better sales growth of 5.4% to $3.85 billion in fiscal year of 2016, driven by improving housing market leading to home appliances demand. The group intends to open six new stores in FY16, with 5 in Australia and 1 in New Zealand. Moreover, management targets to convert over 16 present JBC Hi fi stores to JB HI FI home stores with 13 in Australia and three in New Zealand. The company expects HOME store target of 75 to be achieved in FY17.
 

Factors impacting performance:

The electronic retailers including JBH may benefit to some extent from the release of the latest flagship products in the smartphone segment by Apple. Further, the sector primarily is driven by factors relating to consumer electronics and domestic appliances, wherein the latter has an impact from the housing cycle. Other risks affecting the growth include softer returns from the HOME conversions, price inflation and fall in AUD. On the other hand, technological developments and better consumer sentiments may work towards positive outcome.
 

Stock Outlook:

The market sentiments have been upbeat up till now but with a subduing housing cycle wherein prices are forecast to fall going forward, the retail sector may face some headwinds in Australia. It is also important to note that JBH’s cost of doing business (CODB) has been almost increasing in a steady manner which is likely to affect the profits. The group reported a buyback program of over $15.2 million of its shares. The shares of JBH delivered a year to date return of over 15.16% (as of October 19, 2015) but in the last one month the price has fallen by 2.32%.

 
Sales performance over the years (Source: Company Reports)

The stock is trading at a relatively cheaper P/E of 13.1x in comparison to peers and we note that the average P/E ratio for the sector is of the order of 24.7 and market average is about 21.5. Further, JBH has a solid dividend yield of 4.98%. However, we do not see a great surge in earnings until sure that there will be a great surge in sales so suggest a wait and watch approach. Based on the foregoing and the cyclical conditions, we give a “hold” recommendation for the stock at the current price of $18.05.


JBH Daily Chart (Source: Thomson Reuters)

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The information given by Kalkine Pty Ltd ABN34 154 808 312 (Australian Financial Services License Number 425376) on this website is general information or advice only.

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