Will electronics retailer JB Hi-Fi Limited (ASX: JBH) be able to keep its amazing run going in FY21?
Can JB Hi-Fi keep going?
Well first, let me tell you about how it has already been running.
Between 10 February 2020 and 25 March 2020 the JB Hi-Fi share price plunged 47.5%. That’s a painful fall in a month and a half. However, since that bottom the shares doubled in value to $47 today.
Would you expect an electronics retailer to rocket like that during a recession and a global pandemic? I certainly didn’t – but it has.
It benefited from two key themes after COVID-19 hit the country. There was a large amount of people needing home office equipment so that they could work at home rather than at the office. JB Hi-Fi also seemingly benefited from the large amount of government stimulus that has been handed out over the past six months.
JB Hi-Fi revealed that in FY20 its total sales increased by 11.6% to $7.9 billion. ‘Underlying’ EBIT (click here to learn what EBIT means) increased by 30.5% to $486.5 million and underlying net profit after tax (NPAT) rose by 33.2% to $332.7 million. Statutory/reported NPAT increased by 21% to $302.3 million.
JB Hi-Fi’s Board decided to declare a final dividend of 90 cents per share, up 76.5%. That brought the final dividend to $1.89, up 33.1%. The FY20 payout only represented 65% of underlying net profit.
That’s the past. What about FY21?
In July 2020 the company saw 42.1% sales growth for JB Hi-Fi Australia with comparable sales growth of 44.2%. JB Hi-Fi New Zealand grew sales by 9.1% last month with comparable growth of 9.1%. The Good Guys grew sales by 40.4% in July 2020, with comparable growth of 40.4%. August and September may not be as good because of COVID-19 restrictions in Melbourne and Auckland.
Why I’m not sure that growth can continue
JB Hi-Fi is one of the best retailers in the country, there’s no doubt about that. The FY21 half year result is likely to be good. But I think JB Hi-Fi shares are already priced for that.
For me, the problem is that a lot of this growth may be a once-off. People won’t need to fitout their home office again and government stimulus is now going to start slowing down. Will people still feel like spending with less money in their pocket? I’m guessing no.
However, I think it’s important not to underestimate JB Hi-Fi. Many Aussies need computers/tablets to do work and a smartphone seems like a necessity these days. JB Hi-Fi (and The Good Guys) are probably two of the best places to get devices from. I’d say at least half of my electronics purchases have come from the JB Hi-Fi group over the past few years.
Looking at CommSec and the JB Hi-Fi share price right now, the retailer is valued at 19 times the estimated earnings for the 2022 financial year.
I believe JB Hi-Fi is a good business and may not be a bad buy in total returns terms (including the dividend) for the medium term, but there are other ASX dividend shares I would rather buy like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which are less reliant on ‘discretionary’ consumer spending which I covered here. ASX growth shares could generate more growth like Pushpay Holdings Ltd (ASX: PPH).
