For more on JB Hi-FI see our earnings summary.

Johannes Faul: JB surprised on the upside – JB Hi-Fi, we're talking – in terms of their earning crunch. So, earnings were still down a lot, but just not by as much as we had expected of the market and shares rallied on the back of it. 

The stock though looks really expensive to us. And where we differ from the market, we think, is the outlook for their earnings growth and where that's all going to head. So, we still think the consumer is very vulnerable in the near term, and that's just going to weigh on the medium-term growth outlook for that whole sector. And we're talking about consumer electronics. So, the market obviously has a different perspective on where things are heading. And the reasons for that we believe is the outlook on interest rates, that the market is increasingly seeing interest rates cuts coming in, and that supporting demand for non-essential goods that JB Hi-Fi sells, we still believe that it's going to be all set by higher savings rate, and even more than all set.

The other factor that might come into play there is consumer sentiment, that that's generally turning around, whereas that's all connected. The outlook on interest rates also feeding into consumer sentiment. Recessionary levels are very, very low, but it's improving. And the market is seeing that and seeing slightly better-than-expected earnings, slightly better-than-expected sales growth and rewarding those companies for it, whereas we're a bit more cautious, I would say, than the market.

So, Wesfarmers, a large Australian conglomerate, came out with their results, and the big, big standout to us was the Kmart Group. And the Kmart Group is mainly the Kmart chain, it also incorporates Target. And sales were dramatically better than what we had expected, better than ABS numbers for the department store sector, but also better than where we see Big W trading. Wesfarmers outperformed significantly in the department store segment, and that was upside surprise. However, there were a few drawbacks on that. One was on bunnings, that's the biggest business, it's about two-thirds of the group's earnings. And we saw there is that top-line growth still remains quite sluggish. We're talking low-single digits. We had expected a bit more sales growth there. So that was a drawback. We also saw a greater-than-expected decline in sales and also earnings with their chemicals and fertilizer business called WesCEF, that was down almost by half, those earnings, that was greater, that decline, than what we had expected.

So, put together, the increase in earnings that we have seen for the half, that was bang in line with our full year estimates, we left that unchanged. Going into the second half, one of the takeaways from the results were that for its lithium project, given where lithium prices are currently at, today management flagged that it most likely will be loss making for the very near term. Having said that, that lithium project at our estimates or forecasts in terms of pricing will be a material contributor to earnings long-term and is actually the key growth engine for Wesfarmers' earnings going forward. So, we still think that that lithium mine has a lot of potential, just at prevailing lithium prices, it doesn't look great, especially against a ramping mine concentrator and hydroxide plant, but that's as to be expected generally in the industry.