Analysts reward JB Hi-Fi with profit upgrades

JB Hi-Fi’s forecast of an 86pc profit spike has analysts predicting the benefits of a consumer spending spree could last two years.

Analysts are upbeat about JB Hi-Fi’s outlook. Picture: AAP

Strong demand from consumers for new electronic devices, computers, TVs and whitegoods, as well as a strong property cycle, is expected to underwrite continued earnings growth for JB Hi-Fi and its stablemate The Good Guys for the next two years, say analysts.

JB Hi-Fi shot the lights out on Monday when it revealed its trading performance for the first half of 2021, signalling that segments of the retail sector were enjoying boomtime conditions despite COVID-19 and the recession as government stimulus and bloated personal savings fuelled a sales boom.

The retailer, which also owns The Good Guys, said it expected first half profits to spike by 86.2 per cent to $317 million and The Good Guys to report a thumping 142 per cent profit gain to $126.5m. The preliminary results for JB Hi-Fi come as the retailer has squeezed far larger profit growth from its sales, which lifted 23.7 per cent to $4.94bn, according to the unaudited figures released on Monday.

And the good times could be here until at least 2023.

Citi analyst Bryan Raymond suggested that this level of rampant growth may have peaked but considers further upgrades to consensus likely as a return to earnings normalisation is two years away.

Citi has upgraded JB Hi-Fi earnings by 16 per cent in fiscal 2021 and by 10 per cent in fiscal 2022-23 driven by operating leverage and gross margin expansion. The analyst has maintained his neutral rating with a $53 target price, it said.

The performance of The Good Guys was a standout.

“We expect The Good Guys to have generated around 120 basis points of gross margin expansion, part of which is likely sustainable through the medium-term,” Mr Raymond said.

He said there is potential for positive like-for-like sales growth in the second half of 2021.

“Previous expectations were that second half 2021 sales presented an unsustainable base to cycle. This reflects strong underlying demand, an accelerating housing cycle, and improving inventory levels.

“We expect sales and earnings to normalise by fiscal 2023.”

Goldman Sachs analyst Andrew McLennan, who has a 12 month price target of $51.60 and a neutral recommendation, said JB Hi-Fi has benefited from a strong spending trend in “stay at home” products, but also continues to execute strongly in store and online, remaining at the forefront of technology categories as they continue to deliver growth.

These upbeat conditions should remain through 2021.

“We anticipate conditions to remain elevated over the second half of 2021 before normalising back to a more sustainable trend over fiscal 2022 and 2023. However, the underlying level of earnings have also been revised upwards in fiscal 2022 reflecting the slower decline in conditions than previously anticipated in our forecasts as the outlook for other spending alternatives (e.g. international travel) remain constrained.”

Goldman Sachs has revised profit forecasts by 36.9 per cent and 12.9 per cent over fiscal 2021 and 2022 respectively.

Aryan Norozi at UBS said he believes JB Hi-Fi is one of the best run electronics retailers globally, with a strong balance sheet (around $252m net cash) and high return on invested capital (around 25 per cent pre-COVID).

“Near-term, the consumer backdrop is favourable, with potential benefits also in 3-5yrs as COVID sales drive a replacement cycle.”

Macquarie Bank has upped its 12 month share price target to $53.10 from $49.50, and upgraded its profit forecasts, but believes there could be better investment opportunities elsewhere in the sector.

“We continue to prefer Harvey Norman over JB Hi-Fi given its strong exposure to regional

Australia where electronics, furniture and home upgrades spend has been most elevated.”