How Domino’s Pizza, JB Hi-Fi and Kogan Turned ASX Pandemic Stars?

Summary

  • Reporting season is over now, and market participants must be finding the reasons for divergences in their anticipated numbers and actual numbers reported by companies.
  • As a result of the pandemic, expectations of market participants were already under pressure, which has helped many companies to deliver better-than-expected results.
  • Given the level of uncertainty, most of the firms have refrained from providing forward guidance this time.

All Ords, ASX 200 and other domestic indices have been buzzing, as reporting season is done and dusted. Domino’s Pizza, JB Hi-Fi and Kogan have delivered jaw-dropping full-year results amid the pandemic.

Investors have certainly gone berserk for Domino’s Pizza, JB Hi-Fi and Kogan shares, which are scaling to new highs day in and day out. There are many things about these companies that make them class apart from their peers.

Since share prices of these three companies have continued momentum, annual dividend yield has been suppressed for all these companies. Investors do not care whether the business is good or bad amid a widespread sell-off as seen in March this year – when share prices of these companies cracked extensively.

But the investors who believed in their process and executed rational decisions are sitting in a comfortable position, watching these three shares making lifetime highs. We must attempt to underline what are the similarities in these three ASX Pandemic Stars, which have disclosed full-year results (FY20) for the period ended on 30 June 2020.

Cash flows

Cash flows of a business are more important than revenue because it reflects the cash conversion of revenues. Cash generation in all three businesses is high due to the business model, which largely receives cash from customers instantly upon sale.

Kogan.com Limited (ASX:KGN) ended the year with a cash balance of $146.7 million, which included $100 million in proceeds from a placement. It recorded an operating cash flow of $45.6 million, while receipts from customers stood at $578 million.

Kogan’s net increase in cash held at the year-end was $119.3 million. Excluding the placement, the number would be $19.3 million. Importantly, it paid $7.9 million to acquire intangible assets, probably arising out of the Matt Blatt acquisition.

Domino’s Pizza Enterprises Limited (ASX:DMP) highlighted that free cash flow of $161.8 million was recorded before implementing AASB 16. After AASB 16, it reported free cash flow of $212.5 million. Notably, the company incurred $12.4 million in non-recurring expense.

Change in working capital was positive $63.6 million compared to positive $9.2 million in the previous year, reflecting bargaining power with its suppliers. DMP attributed working capital benefit to higher sales in Japan and extended payment terms relating to COVID-19.

JB Hi-Fi Limited (ASX:JBH) delivered a net operating cash flow of $981.3 million. Change in working capital was positive $402.1 million compared to negative $16.9 million (Pre-AASB 16) in the previous year.

Free cash flow for the period, including AASB 16, was $938.3 million. The net change in cash position was $132.5 million, largely due to repayment of lease liabilities and borrowing totalling just above $600 million.

Pandemic wings

Perhaps pandemic has given these businesses wings. The business of these companies was mainly benefitted from the repercussions of the pandemic. Kogan.com is likely preferred as one of the one-stop online shops for Australians, and the pandemic lockdowns have forced many consumers to shop online, which may well turn to a habit.

As people are staying at home, it has pushed up the need of consumer electronics, adding tailwinds for JB Hi-Fi. The world is transitioning to digital at an accelerated pace after the pandemic, and items like laptops and tablets are must for work and study.

Domino’s Pizza has also helped people staying at home and have delicious food. Although stores were closed during the peak pandemic in its market, it has delivered better-than-expected results for the year.

Total sales for JB Hi-Fi increased by 11.6% to $7.9 billion in FY20 compared to $7.1 billion in the previous year. Domino’s Pizza recorded growth of 12.8% in its network sales while underlying revenue increased by 33.8% to $1.92 billion against $1.43 billion in the previous year.

Kogan.com delivered an increase of almost 40% in gross sales to $768.9 million, while revenue increased by 13.5% to $497.9 million compared to $438.7 million in the previous year.

Earnings growth

Earnings growth remains one of the differentiators between quality business and normal business. It is important to grow earnings to justify the market multiples being priced by market participants. It is the growth in earnings that sets high-quality growth firm apart from normal growth firms.

Earnings per share form the basis for beloved price-to-earnings ratio, therefore, it becomes imperative for businesses to grow earnings sustainably and support the earnings multiples being priced by market participants.

Kogan delivered a net profit after tax growth of 55.9% to $26.8 million compared to $17.2 million in the previous year. JB Hi-Fi reported underlying NPAT growth of 33.2% to $332.7 million compared to $249.8 million in the previous year.

Domino’s Pizza reported statutory NPAT of $138.5 million compared to $115.9 million in the previous year. Its underlying NPAT for the period was $145.8 million (pre AASB16) compared to underlying NPAT of $141.2 million in the previous year.

On 2 September 2020, KGN last traded at $21.67, DMP settled at $83.2, and JBH last traded at $51.1.


 


Disclaimer

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Pty Ltd (Kalkine Media, we or us), ACN 629 651 672 and is available for personal and