JB Hi-Fi’s fiscal 2025 underlying net profit after tax increased 9% to AUD 476 million. Solid trading conditions across all segments drove a 10% increase in group sales, marginally sweetened by the small E&S acquisition.

Underlying earnings were in line with our estimate. Sales growth was very strong. But operating leverage, or fractionalisation of fixed costs, was negligible. Operating margin was flat.

Markets worried about leadership transition?

CEO Terry Smart announced that he will retire in October. Smart will be succeeded as CEO by COO Nick Wells.

We expect Wells, with JB Hi-Fi (ASX: JBH) since 2009, to keep with the longstanding company strategy and maintain its low-cost operating model and global brand offering.

The market appears to be more concerned about the leadership change than we are.

Although the result was broadly in line with FactSet consensus, and sales growth held up in the mid single digits in July, the stock dropped 8% on the day of the news.

Fair Value up but shares still look expensive

We increase our fair value estimate for no-moat JB Hi-Fi by 3% to AUD 45.50, due to slightly greater sales lifting our profit forecast by 3% on average over the next decade.

The shares appear materially overvalued. We think the market is much more optimistic about long-term operating margins.

We expect intense competition to constrain margins at JB Hi-Fi, which operates without a moat in the highly commoditised consumer electronics market.

Online pure plays are likely to take share from brick-and-mortar retailers; we believe Amazon Australia poses the largest threat.

We forecast JB Hi-Fi’s EBIT margin to average 6.1% over the next five years, down from 6.7% in fiscal 2025. We would need to assume EBIT margin of 13% to lift our valuation to current share price levels, all else equal.

The board raised the target dividend payout ratio to 70%-80% from fiscal 2026, from 65% prior. We increase our fiscal 2026 dividend outlook by 24% to AUD 3.31, fully franked. This reflects a 3.1% yield at current prices.

JB Hi-Fi

  • Moat rating: No Moat
  • Fair Value estimate: $45.50 per share
  • Star Rating: ★

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Terms used in this article

Star Rating:Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.