Consumer Discretionary

JB Hi-Fi rides elevated consumer spending

Mon 20 Dec 21, 5:23pm (AEST)
JB Hi-Fi to reap the benefits of cashed-up shoppers this Christmas

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Key Points

  • JB Hi-Fi has benefitted from structural shifts
  • Inventories satisfactorily stocked going into the Christmas trade
  • Lockdowns only staunched pent-up buyer demand

Assuming the retail sector’s recovery narrative continues into 2022, despite omicron, Ord Minnett expects JB Hi-Fi (ASX: JBH) to be a key beneficiary, and last Friday (17 December) upgraded the stock to a Buy from Hold.

The broker expects structural shifts including online retail market share gains, a housing cycle peak and flexible work arrangements - plus a slower than expected recovery in travel spending and supply chain issues - to play to the retailer's strengths in 2022.

Re-rating

The recent re-rating by Ord Minnett, follows an upgrade to Outperform from Neutral by Macquarie Group late October.

With lockdowns only holding up demand from buyers with abnormally high savings accounts, Macquarie expects the Christmas surge to be big, regardless of supply chain issues. 

While the NZ business remains weak, the broker has witnessed improving sales trends locally since the August.

To the retailer’s credit, JB Hi-Fi managed to ensure inventories were stocked satisfactorily going into the Christmas trade quarter. However, the broker notes issues with third party brands that are experiencing strong demand globally.

Recovery tailwinds

Meantime, Credit Suisse, which has an Outperform rating on JB Hi-Fi, believes the retailer continues to be one of the strongest brands in Australian retail. 

The broker cites what it regards as an outstanding first quarter sales result, with the period the company only reported a 6-8% year-on-year sales drop, despite 60% of stores closed during the period.

Adding a potential additional kicker to discretionary retailers (including (JB Hi-Fi) tailwinds, Tribeca Investment Partners portfolio manager Jun Bei is the possibility of tax cuts to be pulled forward.

What also positioned JB Hi-Fi well for both Black Friday and Christmas sales, adds Bei is the company’s ability to buy products from local wholesalers.

By comparison, she notes retailers with private label products are more susceptible due to many of them struggling to find shipping out of Asia.

Consensus on JB Hi-Fi is Hold.

Based on Morningstar’s fair value of $38.53 the stock looks Overvalued.

Written By

Mark Story

Editor

Mark is an award-winning investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics, a diploma in journalism and has completed the Institute of Directors course. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content.

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