Purchase of JB Hi-Fi (ASX: JBH)

3rd November 2023

Across the Australian Equity component of investor portfolios we have bought JB Hi-Fi (ASX: JBH).

JB Hi-Fi is the leading electronics retailer in Australia. It also has a small business in New Zealand and owns The Good Guys which is a household appliances retailing business.

We are attracted to JB Hi-Fi for the following reasons:

It is the leading electronic retail brand in Australia.
It is an extremely well managed retail business and has been for a long period of time. We are particularly impressed with their incentive structure for sales staff and the level of proactive engagement with suppliers and their both of these factors contribute materially to the businesses strong performance.
Lower risk to margins relative to weaker retailers as suppliers wear the cost of discounting or promotional activity.
Strong balance sheet that is currently in a net cash position.

JB Hi-Fi has two key levers for value creation that we would like to highlight:

Ongoing growth in store numbers and improvements to their omnichannel offering driving sales growth.
Margin expansion due to good store level cost management and utilization of their scale to ensure good terms with their suppliers.

We think JB Hi-Fi is suited to the portfolio because of its high dividend yield and strong balance sheet.

We have funded the purchase of JB Hi-Fi through the sale of Downer (ASX: DOW). Downer’s operations in the last few years have been affected by wet weather, labour costs, and project mismanagement. This has led to Downer having elevated gearing, lowering dividends, and undergoing a business restructuring. Downer is no longer suitable for the portfolio given its lower income yield and elevated risk of adverse earnings outcomes.

As always, thank you for your ongoing support, it is very much appreciated. If you have any questions or would like more information, please contact your adviser.

Warnings and disclosures

This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. You will find further details of the service we provide and any cost to you within the Financial Services Guide. Any references to past investment performance are not an indication of future investment returns. Prepared by EP Financial Service Pty Ltd ABN 52 130 772 495 AFSL 325 252 (“Elston”). Although every effort has been made to verify the accuracy of the information contained in this material, Elston, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information.