Should You Buy JB Hi-Fi Shares at this Price?

What happened to the JB Hi-Fi share price?

JB Hi-Fi Limited [ASX:JBH] is a speciality discount retailer of branded electronic goods, home entertainment and software. In addition, in 56 of their 194 locations (JB Hi-Fi’s HOME branded stores), they also sell home appliances. They have a total of eight new stores slated to open throughout the 2016 financial year.

Shares of JB Hi-Fi were down 42 cents, to $29.42, at the time of writing.

What now for JB Hi-Fi Ltd?

Unlike other retailers, it’s been an incredible year for share price growth. For the year to date, JBH shares are up 51%.

JB Hi-Fi shares traded at about $30 per share for the first time ever in September.

Prior to the share price spike in September, JBH announced impressive 2016 financial results.

Total sales were $3.95 billion, up 8.3% on last year. Net profit after tax (NPAT) grew by 10.1%, to $152.2 million. The final dividend was 37 cents per share, bringing the full-year dividend to 100 cents per share — 10 cents higher than in 2015.

The march to $30 per share was helped by the closure of Dick Smith stores. But it was the speculation that JBH will take over The Good Guys in early September which drove the share price above $30 per share.

JBH’s $870 million offer for the rival home electrical and white goods retailer has been approved.

Once the transaction is complete, JB Hi-Fi will control almost one-third of the home appliance market in Australia, on top of their incredible 24% share of the consumer electronics market.

JBH’s only true remaining competitor is Harvey Norman [ASX:HVN]. With HVN’s 24% control of the home appliance market, these two companies control just under half of the entire Australian home appliance market.

Australia is full of duopolies. We have two main supermarkets, two key discount retailers (Target and Kmart, both owned by Wesfarmers [ASX:WES]), and two upmarket department stores (David Jones, owned by South African retailer Woolworths Holdings Limited [JSE:WHL], and Myer [ASX:MYR]), to name just a few.

As Aussies, we have adapted to these duopolies in the market. In the day and age of internet shopping, I don’t believe this JBH-HVN duopoly will hurt consumers as much as the other ones do.

In saying that, the picture below demonstrates the company tracks consumer spending trends, and has broadened their product range accordingly.


Source: JB Hi-Fi Investor Presentation

The acquisition of The Good Guys will be short term winner for JBH. Keep in mind, though, when buying shares in JBH at this price level, the stock is now more exposed to downturns in consumer sentiment than before.

If you are looking to add JBH to your portfolio, the stock is volatile, and is hit hard when the broader market falls. This may present a buying opportunity for you.

Shae Russell,
Money Morning

Since starting out in the financial markets over a decade ago, Shae has extensive experience across various aspects of the industry. Shae cut her teeth in the derivatives industry, teaching clients basic trading techniques with technical analysis.

Joining Fat Tail Investment Research eight years ago, Shae has worked across a number of publications, such as Australian Small-Cap Investigator, Gold Stock Trader and Microcap Trader. She’s spent the past two years however, honing her macro analysis skills alongside Jim Rickards, showing Australians how to invest and profit form global macro trends.

Drawing on her extensive experience, Shae is a contributor to Money Morning, and lead editor of sister-publication Markets & Money, where she looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

Money Morning Australia