JB Hi-Fi: Waiting to see where sales settle in 4Q21

About the author:

Josephine (Jo) Little
Author name:
By Josephine (Jo) Little
Job title:
Former Senior Analyst
Date posted:
16 February 2021, 12:00 PM
Sectors Covered:
Consumer Discretionary (Retail)

  • JB Hi-Fi's (ASX:JBH) 1H21 result was in line with recent guidance (NPAT +86%).
  • Key positives – 1) strong Jan trading update; 2) TGG GM +167bp; 3) net cash balance sheet (factoring in working capital rebuild); and 4) online sales not dilutionary to group margins.
  • Key negatives – 1) modest GM contraction in JB Aust/NZ (largely mix).
  • There is little not to like about the JBH investment case. However, we prefer to see where sales rates settle throughout the 2H as the group navigates cycling an extremely high base. We maintain our Hold rating (clients can login to view detailed reports and price targets here).

1H21 result pre-released; NPAT +86%

JBH's strong result was in line with recently provided guidance.

Key highlights:

  • Sales +23.7%;
  • EBIT +76%;
  • NPAT +86%.

As flagged at the January trading update, gross margins were marginally lower in both JB businesses (mix related) while TGG saw strong expansion (+167bp).

JBH exited 1H21 in a A$473m net cash position, although over-stated somewhat give working capital will normalise to more historical levels during 2H21 as stock availability improves/payment timing normalises.

An interim dividend of 180cps was declared with yoy growth (82%) slightly lagging NPAT (+86%).

Off to a strong start in 2H21

JBH provided its typical total sales/LFL sales growth trading update for January, comprising:

  • JB Aust. +17.3%/18.6% (cycling 6%);
  • JB NZ +21.7%/21.7% (cycling +-1.6%);
  • and TGG +14.1%/14.1% (cycling 1.4%).

This represents a continuation of strong sales trends across the business, albeit with some softening vs recent trends (largely in TGG which was impacted by stock shortages, particularly in TVs).

As at mid-Feb, JBH described its inventory position as 'healthy'.

No FY21 guidance as expected

Given ongoing COVID uncertainties, JBH elected not to provide FY21 sales/NPAT guidance. Clearly it is difficult to determine how long these tailwinds will persist for and the group will start to cycle a very strong base from late-March.

From this time the group will cycle never before seen LFL sales growth (+30% in both JB Aust and TGG March-June). We lower our FY21/22/23 forecasts by 5%/3.7%/2.1% on more conservative LFL sales growth assumptions in 2H21.

At this stage we forecast relatively flat revenue (-ve in JB Aust) in 2H21 and slightly lower earnings.

Hold maintained

Our DCF/PE valuation falls (Morgans clients can login to view detailed reports and price targets) and we maintain a Hold rating.

We think the market will be focused on how the group cycles the incredibly strong base from late March (sales growth never seen before).

That said, we think more normalised trading patterns for the group will be at levels well above those pre-COVID (step-change in more flexible working etc).

Key risks:

  • COVID-19;
  • consumer/economic sentiment/spending;
  • elevated competitive intensity/margin pressure;
  • management risk.

Find out more

Download full research note

You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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