We recently recommended the JB Hi-Fi (ASX:JBH) in The Dynamic Investor. While the shares have mostly flat-lined since then, we still consider JBH to be fundamentally attractive. Are current levels an attractive entry point, or is it better to stay on the sidelines?

About JB Hi-Fi

JB Hi-Fi is a specialty discount consumer electronics and appliance retailer, operating in both the Australia and New Zealand (NZ) markets. JB Hi-Fi is the second-largest consumer electronic retailer in the Australian market, with an estimated market share of ~20%.

The JB Hi-Fi brand sells computers, tablets, TVs, cameras, hi-fi systems, speakers, games, recorded music and Blu-Ray and DVD movies. The Good Guys (TGG) brand sells home appliances including white goods, cookers, dishwashers, vacuum cleaners, air conditioning units and small kitchen appliances. TGG also sells consumer electronic products including computers, tablets, phones and cameras.

The Company has a total of 248 stores across Australia and NZ, including 206 JB Hi-Fi Australia stores and 107 The Good Guys stores.

Key Fundamental Drivers

Upside Risk to JB Hi-Fi Australia Sales

Several factors support the expectation for Like-for-Like (LFL) sales growth to remain strong in 1H26: i) JBH’s higher inventory position in FY25 (+13%) positions it well to benefit from elevated Black Friday/Cyber Monday sales, ii) Windows 10 support expires in October 2025, iii) Nintendo Switch 2 will be in demand at Christmas (as Nintendo Switch was in 2Q18 when JB Hi-Fi LFL sales growth reached +9.7%) and iv) Market feedback has been positive on the strength of the iPhone 17 launch, which occurred toward the end of the three months to 30 September 2025 (1Q26).

While LFL sales growth in FY26 is likely to be impacted by the diminishing benefit from Nintendo Switch 2, the medium-term growth drivers include next-gen laptop sales and the COVID replacement cycle. Also, JBH is well leveraged to the more resilient telco (~25% of sales) & computer (~20%) categories. These categories are estimated to account for ~25% and 20% of sales, respectively. They also have have short replacement cycles (~24-48 months for telco & ~4-5 years for computers), which provides sales resilience and are less sensitive to changes in interest rates.

Sales Momentum Growing for The Good Guys

Two factors underpinning upside risk to LFL sales growth expectations:

i. A key focus area for JBH in FY26 will be targeting business and education customers. In business, the group is seeking to grow its customer base in SMEs. Management added higher use of technology in education is also an opportunity. These are lower-margin channels, although given they are a small portion of group sales, JBH does not anticipate a material impact to overall margins.

ii. JBH has not seen a material uplift in sales relating to new housing creation, noting TGG has traditionally been focused on replacement products with greater immediacy. At the FY25 results release in August, management was hopeful that it will start to see an improvement over the course of FY26.

Future Operating Leverage

Operating leverage (at a group level) is expected in FY26, given the continuation of strong LFL sales growth momentum and improved labour costs. The latter is expected to be supported by a slight reduction in the general retail industry award wage growth (from 3.75% in FY25 to 3.5% in FY26). In addition, TGG has finished restoring labour/sales to a more sustainable level and is unlikely to need additional labour investment. Broadly, the Company is effective at managing its rostering to avoid over-staffing its stores.

Further, JBH (as well as the broader industry) are starting to see prices increases coming through and competition remains rational. New technology cycles typically bring higher average selling prices, which should complement replacement-driven demand.

Over the medium term, margin expansion is expected from JBH’s product mix becoming increasingly skewed towards larger, bulkier items less at risk of competition from online. While these are high-margin vs general goods, they typically have lower attachment rates vs higher-margin accessories.

Scope for Further Capital Returns & Increased Investment

A strong balance sheet as at 30 June 2025 allowed the Company to announce a special dividend of 100 cents per share (cps). This followed the 80cps special dividend in FY24. Given the strong franking credit balance and strong cashflow generation of the business, JBH has increased its dividend payout ratio from 65% to 70-80% from FY26.

The higher dividend payout ratio ensures more frequent return of cashflows to shareholders, while also maintaining funding flexibility for strategic investment.

Fundamental View

The recent weakness in JBH shares now sees the shares trading on a 1-year forward P/E multiple of ~20x. The current multiple is at the bottom end of the range over the last 12 months and below the recent peak of ~25x. It is also undemanding in the context of an EPS growth profile of ~7% over FY25-28 on a CAGR basis.

We consider that the risk-reward has become more favourable, given that the Company is well leveraged to factors such as the replacement cycle and new product development and technology. Importantly, these factors offer upside risk to consensus expectations for FY26 LFL sales growth. Key catalysts in this regard include sales performance during the Black Friday/Cyber Monday and Christmas/holiday periods.

Charting View

JBH has triggered a buy signal on the daily RSI by moving into, and then back out of oversold territory. Price action over the past few days has also looked encouraging as most days it has closed ahead of its opening price. It may still need to trade sideways for a bit longer and there is still some resistance near $100. JBH is a tentative buy here from a charting perspective, but more conservative investors may wish to first wait for a close above $100.

 

Michael Gable is managing director of Fairmont Equities.

 

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