Following the release of its recent 2015 annual report, here are 10 reasons why I think JB Hi-Fi should be in your portfolio.
JB Hi-Fi Limited (ASX: JBH) is an Australia-based home entertainment retailer. The company is engaged in retailing home consumer goods from stand-alone destination sites, shopping centre locations and its online stores. The company offers a range of brands with a focus on consumer electronics, software including music, games and movies, and appliances.
JB Hi-Fi offers a range of products, including light emitting diode (LED), liquid-crystal display (LCD), plasma, LCD and 3-dimensional (3D) televisions (TVs), computers, laptops, Ultrabooks and Tablets, iPods, iPads, headphones, wireless speakers, mobile phones and home theatre. JB Hi-Fi also offers music and movies, games and game consoles, car sound and entertainment, global positioning system (GPS) navigation, digital cameras, printers and ink, memory cards, accessories and musical instruments, and JB Hi-Fi HOME has a range of whitegoods and appliances. The company operates in Australia and New Zealand.
Here are the 10 reasons:
1. Revenue trend
Its revenues are positive and growing.
| Amounts in Millions | 2012 | 2013 | 2014 | 2015 |
| Revenue | 3,127 | 3,308 | 3,483 | 3,652 |
2. Net profits trend
Its net profits are positive and growing.
| Amounts in Millions | 2012 | 2013 | 2014 | 2015 |
| Net Profit | 104.6 | 116.4 | 128.4 | 136.5 |
3. Return on equity (ROE)
It has had a high ROE in the past 10 years. Here's a summary of the last four years:
| Amounts in Millions | 2011 | 2012 | 2013 | 2014 |
| ROE % | 56 | 47 | 43 | 40 |
4. Debt to Equity Ratio
It has a decreasing debt to equity ratio. The debt-to-equity ratio is calculated as debt less cash divided by equity.
| Amounts in Millions | 2012 | 2013 | 2014 | 2015 |
| Equity | 184 | 243 | 294 | 343 |
| Debt | 149 | 124 | 179 | 139 |
| Debt to equity ratio % | 60 | 23 | 46 | 26 |
5. Margins
It has solid margins compared to its competitors.
| Amounts in % | Net Profit | Operating Profit |
| JB Hi-Fi | 3.74 | 5.35 |
| Myer Holdings Ltd | 3.60 | 5.85 |
| Dick Smith | 1.62 | 2.34 |
6. Cash flow
It has had positive free cash flow in the past 10 years. Here's a summary of the last four years
| Amounts in Millions | 2012 | 2013 | 2014 | 2015 |
| Operating cash flow | 215 | 156 | 41 | 179 |
| Capex | 44 | 38 | 38 | 44 |
| Free cash flow | 170 | 118 | 3 | 135 |
7. Earnings per share (EPS)
Its earnings per share have grown and are forecast for growth.
| Amounts in cents | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Earnings per share | $1.05 | $1.17 | $1.28 | $1.37 | $1.44 | $1.52 |
8. Dividends per share (DPS)
JB Hi-Fi's dividends per share have grown and are forecast to continue to grow. The dividend yield is around 4-5 per cent, and is 100% fully franked. The dividend is sustainable due to its positive free cash flow.
| Amounts in cents | 2012 | 2013 | 2014 | 2015 |
| Dividends per share | $0.65 | $0.72 | $0.84 | $0.90 |
| Dividend Yield % | 7.3 | 4.3 | 4.6 | 4.6 |
9. Competitive advantage
JB Hi-Fi's competitive advantages include:
- one of Australia's and New Zealand's largest ranges of home entertainment, consumer electronics products, whitegoods and small appliances at discounted prices, positioned to appeal to all
- positioned as a discount retailer with the ability to consistently offer everyday low JB Hi-Fi is able to do this through the scale of its operations, high stock turnover and low cost of doing business
- reputation for taking the deal and price
- distinctive brand
- stores have relatively high sales per square metre when compared to many local competitors and comparable international
- high level of loyalty and trust from customers – 3rd in the 2015 Corporate Reputation Index released by AMR and the Reputation Institute (1st in 2014, 3rd in 2012 and 2013)
- established and successful online platform with sales growing approximately 9% from the previous financial year and accounting for approximately 2.4% of FY2015 sales.
10. Undervalued
Based on my DCF calculations, JB Hi-Fi is currently trading below its intrinsic value with a good margin of safety.
Verdict
That's 10 great reasons why JB Hi-Fi remains one of the best stocks on the ASX. It's a great company trading a discount to its intrinsic value, and that's why I think it's a 'buy'.
