Financial Analysis: Stock Valuation of JB Hi-Fi & Harvey Norman Ltd

This report presents a stock valuation analysis of JB Hi-Fi Limited and Harvey Norman Holdings Limited using the Discounted Cash Flow (DCF) model. A two-staged DCF model is employed, incorporating future cash flows and a terminal value calculation to determine the equity value of each company. For JB Hi-Fi, the analysis projects future cash flows for 2018-2022, discounts them at a rate of 8.55%, and calculates a terminal value, resulting in an equity value per stock of $35.57, also using a price earning model the share value is $24.96. Similarly, for Harvey Norman, future cash flows are projected and discounted, leading to an equity value per stock of $5.12 and share value using price earning model is $3.40. The report references annual reports and financial data from sources like Yahoo Finance and Simplywall.st to support the valuation process.

Stock Valuation Models
JB Hi Fi Limited
Discounted Cash Flow
Model
Two Staged Model
First Stage
Amounts in AU$
million
Discounted Cash Flows
Model 2018 2019 2020 2021 2022
Future Cash
Flows( Leveraged)
$
211.25
$
231.23
$
235.45 $ 236.05 $ 269.32
Discounting Rate @ 8.55% 0.921 0.849 0.782 0.720 0.664
Present value of Cash Flows
$
194.61
$
196.24
$
184.08 $ 170.01 $ 178.70
Total Present Value
$
923.64
r= 8.55% Cost of Equity, Yahoo Finance, 2018
g= 2.8% 10 year Government Bond Rate
Second Stage
Terminal Value
Calculation (FCF2022 x ( 1+ g))/ (r-g)
(269.32x (1+ 2.8%))/ (8.55%-2.8%)
Terminal Value
$
4,814.97
Present Value of Terminal
Value (4814.91/(1+8.55%)^5)
$
3,194.81
Equity Value
Total Present Value of FCF + Discounted
Terminal Value
Equity Value of Company $

4,118.45
Number of Shares (Annual Report, 2018) (in million) 115.8
Value per
Stock
Equity Value/ Outstanding Number of
Shares $ 35.57
Price Earning Model:
EPS (Annual Report, 2018) $ 2.01
PE
Ratio (Yahoo Finance, 2018) 12.42
Share
Value PE Ratio x EPS $ 24.96
Harvey Normal Holdings Limited
Discounted Cash Flow Model:
Two Staged Model
First Stage
Amounts in AU$
million
Discounted Cash Flows
Model 2018 2019 2020 2021 2022
Future Cash
Flows( Leveraged)
$
419.00
$
411.00
$
443.09 $ 325.07 $ 350.45
Discounting Rate @ 8.55% 0.921 0.849 0.782 0.720 0.664
Present value of Cash Flows
$
386.00
$
348.80
$
346.42 $ 234.13 $ 232.53
Total Present Value
$
1,547.88
r= 8.55% Cost of Equity, Yahoo Finance, 2018
g= 2.8% 10 year Government Bond Rate
Second Stage
Terminal Value
Calculation (FCF2022 x ( 1+ g))/ (r-g)

(350.45x (1+ 2.8%))/ (8.55%-2.8%)
Terminal Value
$
6,265.44
Present Value of Terminal
Value (6265.44/(1+8.55%)^5)
$
4,157.21
Equity Value
Total Present Value of FCF + Discounted
Terminal Value
Equity Value of Company
$
5,705.09
Number of Shares (Annual Report, 2018) (million) 1114.73
Value per
Stock
Equity Value/ Outstanding Number of
Shares $ 5.12
Price Earning Model
EPS (Annual Report, 2018) $ 0.34
PE
Ratio
(Yahoo Finance,
2018) 10.10
Share
Value
PE Ratio x
EPS $ 3.40

References:
Harwey Norman. (2018). Annual Report: 2018. Retrieved from:
http://clients.weblink.com.au/news/pdf2/02027865.pdf
JB Hi Fi. (2018). Annual Report: 2018. Retrieved from: http://member.afraccess.com/media?
id=CMN://3A498121&filename=20180813/JBH_02008547.pdf
Simplywall. St. (2018). An Intrinsic Calculation For Harvey Norman Holdings Limited
(ASX:HVN) Shows It’s 27.53% Undervalued. Retrieved from:
https://simplywall.st/stocks/au/retail/asx-hvn/harvey-norman-holdings-shares/news/
an-intrinsic-calculation-for-harvey-norman-holdings-limited-asxhvn-shows-its-27-53-
undervalued/https://simplywall.st/stocks/au/retail/asx-jbh/jb-hi-fi-shares/news/an-
intrinsic-calculation-for-jb-hi-fi-limited-asxjbh-shows-its-35-83-undervalued/
Simplywall. St. (2018). An Intrinsic Calculation For JB Hi-Fi Limited (ASX:JBH) Shows It’s
35.83% Undervalued. Retrieved from:

https://simplywall.st/stocks/au/retail/asx-jbh/jb-hi-fi-shares/news/an-intrinsic-
calculation-for-jb-hi-fi-limited-asxjbh-shows-its-35-83-undervalued/
Yahoo Finance. (2018) . Estimating The Intrinsic Value Of Harvey Norman Holdings
Limited (ASX:HVN). Retrieved from: https://finance.yahoo.com/news/estimating-
intrinsic-value-harvey-norman-230908404.html
Yahoo Finance. (2018) . Harvey Norman Holdings Limited (HVN.AX). Retrieved from:
https://finance.yahoo.com/quote/hvn.ax?ltr=1
Yahoo Finance. (2018) . JB Hi-Fi Limited (JBH.AX). Retrieved from:
https://finance.yahoo.com/quote/JBH.AX?ltr=1
Yahoo Finance. (2018) a. Harvey Norman Holdings Limited (HVN.AX). Retrieved from:
https://finance.yahoo.com/quote/hvn.ax?ltr=1
Yahoo Finance. (2018). How JB Hi-Fi Limited (ASX:JBH) Delivered A Better ROE Than Its
Industry . Retrieved from: https://finance.yahoo.com/news/jb-hi-fi-limited-asx-
215109832.html