Australia | Dec 13 2006
By Greg Peel
Following increased petrol prices and three interest rate rises we were meant to stop buying consumer goods with the gusto we had shown earlier. Petrol prices may have come off somewhat, but that is still not enough to justify what seems to be Australia’s insatiable appetite for televisions, stereos and computers.
JB Hi-Fi (JBH) has defied the odds in 2006, rising from $4.00 to $6.00 when every strategist worth his salt was saying to steer well clear of consumer discretionary. Continuing with a local store roll-out program, JBH has recently made a move into computers and has met with further success. Merrill Lynch has described the company as having a “compelling category killer format in the broader consumer electronics space”.
UBS is also impressed by JBH’s competitive push, noting “Incumbent players such as Betta Electrical and Retravision buying groups are losing members mainly to [Harvey Norman] HVN. In our view, JBH is the retailer of choice for shopping centre landlords which should underwrite the roll out for several years”.
Now JBH has made a move on New Zealand, and analysts are impressed with the pure simplicity of the assault. In acquiring Hill & Stewart, JBH has secured an electrical business established since 1951, with existing customers, suppliers, and a head office in Auckland. At the equivalent of 7x EBIT, and EPS neutral, JBH has not paid over the top.
JBH now has the platform to begin rolling out its success story for the Kiwis, and the analysts are more than impressed. If anything, the acquisition announcement has forced them to shake off a few hangovers and take another look at a stock that’s been quiet since reporting in August. What they have found is a sales momentum that seems set to roll right into a bumper Christmas.
Analysts have not made major increases to earnings forecasts, but they have reassessed their target prices. Five out of eight brokers have had a Buy rating on JBH, so they can at least rest easy. Of the five, Macquarie has taken its target from $5.30 to $6.20, UBS from $5.80 to $7.15, Merrill Lynch from $5.50 to $7.20, and the winner is…ABN Amro with a jump from $6.25 to $8.00. GSJB Were does not set targets.
Credit Suisse released a positive report this morning, but only managed a target increase from $5.85 to $6.25. That price has already been achieved in trading today and CS retains a Neutral rating. SB Citigroup (Hold, $5.08) has been quiet, as has Aspect Huntley, who’s “Hold under $4.80 and look for share price weakness” in August might be looking dated.
The average target has thus jumped from $5.63 to $6.65 and the B/H/S ratio of 5/3/0 remains intact.