JB defies the retail gloom and tops expectations

James Gerrish

Market Matters

A reasonable day for local stocks with the market overcoming much of the early weakness to end the session largely flat, the Health Care sector was best on ground, while the Materials provided most weight. Reporting steps up a gear this week, with ~50 companies out with results - 7 of them reported today.

JB Hi-Fi (JBH) did well today after reporting FY19 numbers, trading up by 9.98% at the close. While they produced reasonable top line sales growth (+4.1%), the big improvement came from better margins across the business as competitive pricing pressures eased from the end of 2018 and a number of their efficiency programs started to reap benefits. Harry covers the result below however it was a decent one given the tough environment.

Bendigo (BEN) was also out with their FY19 result which was slightly better than the downbeat market expectations, however the trends remain muted at best for regional banks generally and some form of consolidation / corporate activity is the only real reason to remain positive on the sector.

Overall, the ASX 200 gained 6pts today or +0.09% to 6590. Dow Futures are currently trading up 40pts / +0.15%.

ASX 200 Chart

ASX 200 Chart


Reporting: Kicks up a gear this week with 7 companies having reported results today with another ~40 odd out over the week. Of particular interest we have: Challenger Group (CGF) reporting tomorrow along with Magellan (MFG), Pact Group (PGH) & Tabcorp (TAH) report full year numbers on Wednesday (CBA goes ex-dividend that day) while NAB also provide a trading update, Thursday is a huge day with the ASX, CWY, IVC, QBE, TLS, WHC & WPL of particular interest while Healius (HLS) & Newcrest (NCM) are out on Friday.

For a full list, click here & I’ll back in the morning with First Reactions…click here for past episodes.

JB Hi-Fi (JBH) +$2.79 / 9.98% to $30.75: Crashed through to a new 52-week high early in the session today, rallying on a better than expected result at the full year announced this morning. The consumer goods group saw profit rise 7% despite the tough retailing conditions, surpassing market expectations.

The result was driven by The Good Guys improving profit margin which rebounded from a steep decline in FY18. In fact The Good Guys accounted for more than half of the 7% rise in profits for the full year. The Australian JB division held firm with a small 3% rise in EBIT with the online push helping support sales growth. JB NZ performed well, reducing the EBIT loss by more than 30% however this remains a small contributor to the group’s numbers.

JBH has a reasonably strong balance sheet so the profit beat also drove a dividend beat which shareholders have welcomed. The outlook was a little mixed here. The company gave a July 2019 sales update which showed a steady rate of growth compared to July of 2018, albeit off a low base there, FY20 guidance was given for sales to be “circa $7.25 billion,” which was marginally below consensus at $7.295b however if JB can continue to keep costs under control it may mean another beat at the profit line.

Overall, a good start to reporting season for the retailers which many expected to find it tough this time round, given the slow retail sales momentum and lack of inflation anywhere in the market. The outlook seems on the conservative side given how well JBH is executing both online and in store. There could be some benefits seen if/when they bring in the BNPL partner. Still though, it’s on a reasonable multiple below 14x with ~4.5% ff yield and some decent execution.

JB Hi-Fi (JBH) Chart

Bendigo Bank (BEN) +$0.36 / +3.35% to $11.11: At the top line income fell by 1% from the first half to the 2nd while expenses increased by 6% over the period on a cash basis. That expense growth was expected given higher regulatory costs, but it wasn’t expected to be that high. Credit quality was fine and their tier 1 capital was okay at 8.9%. The dividend was kept at 35cps, taking the full year payout to 70cps fully franked putting it on a yield of ~6.3%, which is the reason to hold the stock.

Bendigo Bank (BEN) Chart

Broker moves;

• Alliance Aviation Downgraded to Hold at Ord Minnett; PT A$2.60
• James Hardie GDRs Upgraded to Buy at UBS; PT A$23.80
• A2 Milk Co Upgraded to Hold at Morningstar; PT A$13.60
• REA Group Upgraded to Neutral at JPMorgan; PT A$90
• Austal Downgraded to Neutral at JPMorgan; PT A$3.60

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2 stocks mentioned

James Gerrish
Portfolio Manager
Market Matters

James is the Lead Portfolio Manager & primary author at Market Matters, a digital advice & investment platform with over 2500 members that offers real market intel & portfolios open for investment. He is also a Senior Portfolio Manager at Shaw and...

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