Is JB Hi-fi Done With The Stardom?

  • Apr 06, 2019 AEDT
  • Team Kalkine
Is JB Hi-fi Done With The Stardom?

JB Hi-fi Limited (ASX: JBH) is Australia’s leading home entertainment retailer. This company has three functional segments, JB Hi-Fi Australia, JB Hi-Fi New Zealand, and The Good Guys. JBH is a retailer of consumer electronic products and services, retailing products across wide gamut such as televisions, telecommunication products to white goods, cooking products, etc. The company sells its products through its branded retail shops spread across Australia and New Zealand.

The shares of JBH have delivered a positive return (absolute) of 107.15 percent and 26.40 percent in the past ten and five years, respectively. Further, as we consider the medium-term returns, we notice that the shares have delivered a flat return, providing returns of -4.65 percent and 0.78 percent in the past one year and six- months respectively. However, in the short-term, the shares have bounced back and provided 20.47 percent and 10.36 percent in the past three months and one month respectively.

The company has witnessed changes in the number of shares held by the substantial shareholders in the company for the past couple of months. Some of the changes witnessed are:

  • On 14 January 2019, H.E.S.T Australia Limited as Trustee for Health Employees Superannuation Trust Australia ceased to be a substantial shareholder in JBH.
  • BNP Paribas Nominees Pty Limited ceased to be a substantial holder on 15 February 2019 after it reduced its holdings in the company from 6,985,704 to 5,286,305.
  • Ellerston Capital Limited which held 12,262,159 voting shares representing 10.67 percent of the shares in the company, reduced its holdings by 355 basis points to 7.12 percent of shares and currently holds 8,175,120 shares in the company, effective 2 April 2019.
  • Further, Airlie Funds Management Pty Ltd which held 7,640,264, representing 6.65 percent holding, on its own behalf and on behalf of Magellan Financial Group limited also reduced its holding to 6,366,426, which stands at 5.54 percent in JBH as on 02 April 2019.

Market participants often consider it discomforting to see the major shareholders cut their stake in the company, since as per one school of thought the large holders know more about the company and its fundamentals.

So, Is JB Hi-fi done with the stardom?

On 25 February 2019 the Director Mr. Stephen Goddard increased his shareholding in the company from 1,500 shares to 4,500 shares by open market share purchase, it is considered a positive sign when the company’s insiders buy the shares from the open market.

The company reported a decent set of half-yearly results. The total sales for HY19 grew by 4.2% coming in at $3,843.7 million, and net profit after tax increased a tad better by 5.5% coming in at $160.1 million. Studying the company’s group performance overview could give a better picture of the performance drivers. Of the three segments of the company, JB HI-FI New Zealand saw a marked improvement in its sales growth, growing at 5.8% and reporting a positive EBIT vs. zero EBIT in the pcp. The EBIT margin saw an 84bps improvement. However, the major segment i.e, JB HI-FI Australia witnessed its EBIT margin remaining flat with a drop of 1bps.

The company is expecting its total group sales to be at $7.1 billion in FY19 and report a group NPAT in the range of $237 million to $245 million, an increase of 1.6% to 5.1% on pcp.

HY19 Group Performance Overview (Source: Company Report)

The company has identified five key enablers: 1) Scale: JBH is the number one player in the Australian market, which enables it to focus on its market share and tide over margin pressure during tougher conditions. 2) Low-cost operating Model: Gross margins are only ~21.5% and gives it the ability to compete effectively with conventional competitors and new market entrants. 3) Quality Store Locations. 4) Supplier partnerships: Strong partnerships with all major suppliers, and it scales on a global level. Better store location and higher website traffic augur well for supplier product visibility. Finally, 5) Multichannel Capability: This provides the customers with a choice on how to transact better with JBH.

The shares were last trading at A$24.500 on ASX as on 54 April 2019. As per the latest ASX declaration the company’s EPS stood at A$2.103, PE stood at 11.700x, and the dividend yield as 5.57%.


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