Shares in consumer goods retailer JB Hi-Fi Ltd (ASX: JBH) have come down from levels well above $100 recently, which the team at RBC Capital Markets says creates a buying opportunity.
The shares closed at $113.52 the day before the company's annual general meeting on October 30, when the company also released a trading update which said sales for the first quarter were "in line with the group's expectations".
The market did not appear to like the numbers in the update, however, which showed that comparable sales at JB Hi-Fi Australia were up 5% compared with the same period the previous year, and sales at The Good Guys were up 2.4%.
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Performing well on costs
RBC Capital Markets has initiated coverage of JB Hi-Fi with a sector perform rating, and is positive on the company's outlook, saying the company has an "industry-best cost base efficiency".
In terms of competition, however, they are forecasting heavy market share gains for online competitor Amazon.
RBC analysts had this to say about JB Hi-Fi:
JB Hi-Fi runs one of the leanest cost of doing business margins and capex/ sales ratios in global consumer electronics retail. JB Hi-Fi's seamless omnichannel experience is a competitive advantage, in our view. Surveys indicate about 85% of consumers still want to shop in-store to varying extents, and we forecast about 60% – 70% of JB HiFi's sales growth to come from bricks and mortar over the next three years.
In terms of specific products which will provide a boost, the end of support for Windows 10 "is a hard catalyst for a refresh with Microsoft's own support stressing security risks following end-of-support''.
RBC also notes that there is room for further growth in the robot vacuum sector, with penetration being low in Australia and forecasted to grow at a rate of up to 16.2% year over year.
Amazon looms as major competitor
On the downside, Amazon "poses a material and growing competitive threat'', RBC said.
Amazon now has the levers of range, price and fulfilment in place to facilitate a large step-change in market share, in our view. We estimate Amazon's share of total Australian online retail will about double over the next 5 years, to about 24%. Relative to comparable markets, this level of penetration is still low.
RBC stated that, over the Black Friday sales period, Amazon was approximately 2.3% cheaper than JB Hi-Fi on average across the nine categories they surveyed.
RBC has a price target of $101 on JB Hi-Fi shares, compared with the company's closing price of $92.92 on Tuesday.
JB Hi-Fi also pays a fully franked dividend of about 4% according to the ASX website.
