Earnings Update: JB Hi-Fi and Bendigo

Two companies reported earnings yesterday on the ASX: JB Hi-Fi (JBH) and Bendigo and Adelaide Bank (BEN). Macrobusiness will be reporting on earnings and valuing the key companies throughout the earnings season. Remember to bookmark the overall update here.

JB Hi-Fi (JBH)
JBH reported a profit of $134.4 million in the 12 months ended 30 June 2011, down 7.5% from last year. Earnings per share now stand at 124.7 cents.

Total sales growth was 8% with increased market share over its competitors. Consumer electronics grew strongly, at 15%, whilst games/software sales declined by 9%.

Margins improved even during a period of heavy discounting whilst costs flat-lined – these are indications of excellent working capital management which we expect from JBH.

Online sales, although a small part of revenue, have grown 51% on the prior year and are now a key focus for the company with the rollout of new services and products. Watch this space closely, as we contend only JBH, out of the listed Aussie retailers has the ability to take advantage of this domain.

JBH conducted a share buyback – funded by debt, which is actually a good capital management decision, although this increases their exposure to debt. A one-off charge of $33 million was applied due to the re-structure of the Clive Anthony’s business.

Empire Investing considers JBH investment grade as has re-valued the company to $18.18 a share, with a full valuation forthcoming soon.

Bendigo and Adelaide Bank (BEN)

Bendigo and Adelaide Bank reported a net profit of $342.1 million, or 92.3 cents earning per share.

BEN announced a distribution agreement between its Rural Bank brand and Australia Post, offering agricultural loans and deposit facilities.

Lending growth was strong at 8%, but was outpaced by deposit growth at 12%, thus alleviating funding pressures, although net interest margins (NIM) were unchanged. A reliance on securitisation and wholesale funding has diminished, with retail funding making up over 75%.

Return on Equity (ROE) has increased from utility-like levels of 8% to just over 9.5%, whilst costs have
decreased marginally.

Provisions for bad debts have increased 4.8%, mainly business related, whilst residential mortgage arrears have increased from 0.7% to 1.1%, or approx. $2.5 billion in value. Business arrears increased from 1.1% to 2.5%

Empire Investing considers BEN non-investment grade due to the low ROE performance and the high risks associated with the banking sector.

Disclosure: The author is a Director of a private investment company (Empire Investing Pty Ltd), which has a current interest in some of the businesses mentioned in this article. The article is not to be taken as investment advice and the views expressed are opinions only. Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

Comments

  1. I like the JB retail model but could someone please explain to me what expertise they have in the online streaming media market?

    Is it their contracts with record companies (no), their expertise in streaming media technologies (no), their expertise in developing massive-scale dynamic websites (no), their distribution platform (no)…

    Much bigger companies have tried and failed to do what they are planning. I think I’d rather bet on Apple and Spotify than JB.

    • Fair call, but none of these players had any expertise at start up phase and all began as small nobodies.

      All the above you mentioned can be acquired: there are many good IT companies out there and some savvy managers to make a go at it.

      Or should Aussie retailers just call it game over and not try at all?

      • “Or should Aussie retailers just call it game over and not try at all?”

        Not at all, but streaming music is a completely different model to online retailing. I’m all for Aussie retailers moving online but I understand just how difficult digital music (or movie) distribution is and how many companies have tried and failed.

        Why don’t JB start off by building a more usable online store, and making sure all their products are sold there? Once they’ve done that, they could possibly look at digital downloads, see how they go there, and then possibly look at streaming.

        There are major issues when you move from simply selling physical products (in this case music) online versus selling the products digitally.

        Are they going to develop their own digital rights management (DRM) software or are they going to negotiate contracts with the record companies that allow them to distribute unprotected music (good luck!)

        If they develop their own DRM, are they really going to make it cross-device and platform like they talk about? So Windows, Mac OS, iOS, Android, Blackberry…?

        If JB can do it, why hasn’t any other company (and there are many companies that specialise in this area) been able to make a successful business by doing this?

        I hate to say “trust me”, but trust me, if JB do actually go down this road, it will be an expensive and painful lesson for them. I’ll be surprised if they actually do though.