ASX Market Darlings Hold Firm After Results
JB Hi-Fi (ASX: JBH)
Down 8.4% on 11 August after full-year results, which looked unwarranted. Had risen 10% in a week, which often gives traders an excuse to take profits. One of our rare dual holdings in Growth and Income – and you can see why: 4.5% yield with 9% earnings growth.
The result ticked all the boxes – sales and revenue slightly beat expectations, special dividend announced, and although a retiring CEO is always cause for concern in market darling stocks, the successor is viewed as quite capable.
Brokers said the reaction on results day was overdone and the stock responded, up 6% on the open the following day. Both margins and sales are expected to remain strong thanks to market share gains. Although profit slightly missed, earnings forecasts have been raised by 5% on average across its three segments and additional market share gains are expected. Electrical consumer spending is forecast to keep outperforming the broader retail sector. Target prices were slightly raised on average.
JBH’s valuation is the only source of disagreement. UBS says it’s justified. CLSA says it’s fairly valued. No doubt it is expensive – now trading on a 10-year forward PE high of 23x. That’s above HVN at 16x, which is reflected in the average target price (implies 5% downside). Market darlings command a premium. There’s a reason it has achieved 750% total return in the last ten years (HVN sits at 150%).
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The numbers from 11 August:
Sales up 10% to $10.6bn. Underlying earnings (excludes The Good Guys ACCC payment) up 9.4%. $476m profit has slightly beaten the consensus. Australian sales up from 7.2% to 7.5%, driven by phones, small appliances, computers and games. NZ strong, up 21%. Good Guys up from 6.5% to 6.9%. Big news comes from the dividend. Ordinary 275c declared (65% payout ratio) would have missed save for a 100c special dividend, bringing the total yield to 4.5% (inc. franking). Not bad for a stock up 78% in a year. Management have also decided to raise the payout ratio to 70–80% from FY26. Indicates a very strong balance sheet. No earnings guidance given for FY26, but sales in July are up in all segments vs last year.
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Car Group (ASX: CAR)
A quieter result compared to JBH. Finished up 0.5% on 11 August and up another 4.5% the following day on positive broker commentary. Numbers were in line with pre-released guidance, so no surprises.
South America and Asia were the highlight segments with 26% and 16% earnings growth. Webmotors in Brazil recorded another year of earnings above 20%, and the US business is showing signs of renewed momentum. Margins slightly missed consensus but are forecast to expand next FY. These numbers gave analysts enough confidence to concur with management’s 10–13% earnings growth guidance. Citi even called it conservative.
Target prices were either raised or kept unchanged, with the average implying 8% upside. No change to ratings. Trading at 33x forward earnings, CAR isn’t expensive for a tech stock. Its 10-year total return at 380% is nearly as impressive as JBH – another market darling.
The numbers from 11 August:
Earnings excluding one-off items (proforma) up 12% YoY. NPAT of $377m has slightly beaten estimates. Growth achieved across all key markets. Margins maintained at 56%. 41.5c dividend (1.2% yield) is up slightly from last year. Australian dominant market share maintained. Latin America the highest growth segment once again (up 26%) thanks to market share gains. Asia also impressed, up 16%. Guidance in line with estimates. Proforma earnings growth of 10–13% forecast (>15% would have been best case scenario). Australian revenue growth to hold steady between 8% and 9%.