Jb Hifi

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Company Overview
JB Hi-fi was established by John Barbuto (JB) in 1974 and opened its first shop in Melbourne. In 1983, it was sold to Bouris and Rodd who expanded the company and, later on, sold the majority of their holding to a private equity, Next Capital Pty Limited. The company’s share was floated in Australian Stock Exchange in 2003 at IPO price of $1.55. JB Hi-Fi, has diversified its business from predominantly selling music CDs, and is now a major retailer for televisions, audio/visual, photography, portable audio, in-car entertainment, computer/video games, DVD movies, gadgets and information technology equipments. By 30 June 2009, the company currently has 123 stores in Australia and New Zealand and management has reiterated its intention to continue expanding and opening more stores to support company’s growth. JB Hi-fi (JBH) Free Cash Flow to the Firm 2005 -2009 (Historical)

$ '000$ '000$ '000$ '000$ '000
Change in NWC14,85923,42015,35517,01711,730
*EBIT = Net Income – Taxes – Net Interest Expense (Income) **FCFF = EBIT – Taxes + Depreciation – Capex - Change in NWC JB Hi-Fi (JBH) Free Cash Flow to the Firm 2010 -2015 (Forecasted) 201020112012201320142015

$ '000$ '000$ '000$ '000$ '000$ '000
Sales2,961,9783,769,7954,585,4335,330,5205,922,2356,288,229 EBIT157,037199,865243,108282,611313,982333,386
Change in nwc7,5138,0638,6549,2889,96910,699

Our Assumptions
Company Forecast
Several assumptions that we used to construct the forecasted FCFF: 1.Long-term growth rate at 6.18% (Long term growth of Australia’s retail spending, Bloomberg Resources) It is not realistic to think JBH or any company would be able to maintain the rapid growth rate indefinitely. We think that the company’s long term growth rate will be more or less in line with the overall spending growth of customers in Australia. We obtained data of Australia’s monthly retail spending from 1991 to 2009 from Bloomberg and measured the YoY growth in value for each period. We then use the average to determine the long term growth rate of the indicator to measure the terminal value. 2.Sales for the next 2 years will grow will continue at 27.27% and then will decrease gradually to reach long-term growth rate in 2015. For the last few years, JBH has consistently book strong growth in its business. Since 2005, revenue has grown by 35.3% CAGR while maintaining EBIT margin at 5 – 6% level. HistoricalSales GrowthEBIT Margin


Even during 2008 and 2009, the company still managed to book strong growth in revenue while improving margin. Therefore, we believe that the company can maintain the momentum and keep growing its business for the next couple of years. With the expectation of improving economic condition, there is possibility that the company can experience another period of extended rapid growth. However we choose to be conservative and assume the growth rate to be constant at 27.27% for the next 2 years and then gradually decline to long term sustainable growth level. ForecastedSales Growth

2015 (terminal)6.2%

3.EBIT Margin will remain constant at 5.30% (historical 5 year average) Historically, the company’s EBIT margin is relatively stable at 5 – 6%. We believe it is safe to assume that company will be able to maintain profitability at this level....
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