JB Hi-Fi: Waiting to see where sales settle in 4Q21
About the author:
- Author name:
- By Josephine (Jo) Little
- Job title:
- Senior Analyst
- Date posted:
- 16 February 2021, 12:00 PM
- Sectors Covered:
- Consumer Discretionary, Industrials & Developers
- 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.
- 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.
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).
- consumer/economic sentiment/spending;
- elevated competitive intensity/margin pressure;
- management risk.
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