JB Hi-Fi: ‘Heightened customer demand’ continues; Earnings estimates increased
About the author:
- Author name:
- By Alexander Mees
- Job title:
- Head of Research
- Date posted:
- 24 March 2022, 8:00 AM
- JB Hi-Fi (ASX:JBH) continues to experience strong sales growth driven by ‘heightened customer demand’. Its latest trading update shows comparable sales growth accelerated in February and March, with JB Hi-Fi Australia particularly robust.
- We have increased our comparable sales growth forecast at the group level by 200 bp from a decline of (0.3)% to positive growth of +1.7%. This, combined with higher margin estimates, pushes up our FY22 EBITDA forecast up by 5%.
- We reiterate our ADD rating, with an increased target price of (login to view).
Event
As part of the disclosure process around its buyback, which closes on 8 April, JBH has provided the latest comparable and total sales growth figures for the period of 1 January to 23 March (‘Q3 to-date’) and FY22 YTD.
All three of JBH’s divisions had a good February and March, with the company reporting a continuation of 'heightened customer demand and strong sales growth'.
Analysis
JB Hi-Fi Australia: The JB Hi-Fi brand in Australia had a very strong February and March, taking comparable sales growth into positive territory on a rolling year-to-date (YTD) basis. Comparable sales growth in Q3 to date was +10.5%, pushing FY22 YTD comparable sales growth to +0.9%.
This is an improvement on the (1.9)% comparable sales decline reported for 1H22. JBH reported in February that comparable sales growth in this division in the month of January was +3.6%, so the latest information implies comparable sales growth in February and March-to-date was around +14.5%.
JB Hi-Fi New Zealand: There was a good improvement in sales growth across the Tasman too. Comparable sales growth in Q3 to-date was +2.9%, taking the FY22 YTD comparable sales performance to a decline of (2.5)%, an improvement on the 1H22 decline of (4.5)%. The comparable sales decline in January was (1.8)%, which we estimate implies a positive performance in February and March-to-date of +5.6%.
The Good Guys: Not to be outdone, The Good Guys (TGG) saw a lift in its comparable sales growth as well. In Q3 to-date, comparable sales growth was +5.1%, taking FY22 YTD comparable sales growth to +0.5%, up from a decline in 1H22 of (0.8)%. Comparable sales growth in January was +1.9%, which implies the performance in February and March-to-date was around +7.0%.
Forecast and valuation update
We have increased our FY22 comparable sales growth forecasts to +2.0% for JB Hi-Fi Australia (up from a decline of (1.0)%); up to (2.5)% for JB Hi-Fi New Zealand (from (5.5)%); and to +1.5% for TGG (up from 0.0%).
At the group level, our comparable sales growth forecast increases by 200 bp from a decline of (0.3)% to positive growth of +1.7%. Our comparable sales forecasts for FY23 are largely unchanged.
With positive operating leverage working through the business as a result of higher sales, our post-AASB 16 EBITDA estimate increases by 5.3% to $898m in FY22 and by 3.7% to $821m in FY23. Our EPS estimates increase by 7.5% to 401.6c in FY22 and by 5.1% to 385.4c in FY23.
Our DCF and EV/EBIT-based target price increases from (login to view).
Investment view
We see JBH as a well-run retailer with good cost discipline, a robust balance sheet and a strong market position.
We regard JBH as undervalued at current multiples despite its good sales momentum and reiterate our ADD rating.
Risks
JBH is often regarded as a ‘COVID beneficiary’ and a material drop-off in customer demand would be detrimental to our positive recommendation.
Increased promotional activity and cost inflation may eventually see margins come up under more pressure than forecast.
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