Equity Method of Investment Analysis 2022

JB HI FI
Equity Method of Investment

JB Hi Fi
• JB hi fi was established in 1974, where the equity floatation
occurred in 2003, while it is currently ranked as the seventh largest
consumer electronics and home appliance retailer in the world.
• The company relatively falls under the retail industry where its
major products are consumer electronics, big appliances and small
appliances.
• The organization has witnessed an overall net income of $249.80
million in 2019 in comparison to 233.20 in 2018.
• The overall net income of the company grew by 7.12% in one year,
whereas the revenue increment was only 3.52%
(Investors.jbhifi.com.au 2019).
• This indicates that the growth in net income was fuelled by the
reduction in expenses conducted by the organization over the
period of time

Competitors
• Amazon increasing the presence in Australia
• Harvey Norman moving to online business and using
business models to acquire additional customer base
• Big W getting less competitive due to increase in major
players in the industry

Method used Free cash flow (fcf)
Fair value per share Perpetuity EBITDA
Enterprise value 5,269 6,611
Less: Net debt -320 -320
Less: Trapped cash 0 0
Equity value 4,949 6,291
Diluted shares 114.883 114.883
Equity value per share $43.08 $54.76
Market premium / (discount) to fair value (19.9%) (37.0%)

CAPM
Cost of capital assumptions
Cost of debt 3.3%
Tax rate 30.0%
After tax cost of debt 2.3%
Risk free rate 1.0%
Beta 0.74
Market risk premium 13.9%
Cost of equity 10.6%
Capital weights
% of total
Market value of equity 92.5%
Net debt 7.5%
Cost of capital (WACC) 9.9%

Why should you invest in flt
• The financial analysis of JB Hi Fi directly helps in
understanding the current progression of the company,
which is relatively used for projecting future incomes.
• In addition, the industry overview and competitive
positioning of JB Hi Fi is also detected to be positive, which
will contribute to the future incomes of the organization.
• Thus, investments in JB Hi Fi would be attractive and
strategic move by an investor, as it would ensure high
growth and future income.
• The DCF model has indicated that the current share price
value of the organization is at a discount, which would help
investors generate higher returns in the long run.

Cons of investing
• High competition of e-retailers
• company does not have a business model, which
incentivizes for consumer loyalty
• Unfavourable political stance in form of tariff, import tax
and quotas
• Changing landscape of physical stores and increasing
demand for online stations
• Reduced growth in net income and revenues

References
• Investors.jbhifi.com.au. 2019. [online] Available at:
https://investors.jbhifi.com.au/wp-content/uploads/2019/08
/4E_FY19.pdf [Accessed 29 Sep. 2019].
• Investors.jbhifi.com.au. 2019. [online] Available at:
https://investors.jbhifi.com.au/wp-content/uploads/2018/10
/Annual-Report-2018-with-Chairmans-CEOs-Report.pdf
[Accessed 29 Sep. 2019].