MARKETS SPECTATOR: JB's heights
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Credit Suisse have upgraded JB HiFi (JBH) to neutral from underperform ahead of its 1H13 results on February 11 after discretionary retailers have seen a re-rating over the past three months.
The broker has upped its sum of parts valuation on the stock to reflect this re-rating and, combined with a discount cash flow valuation it has arrived at a new target price of $10.45, up from $9.70 for the stock.
Credit Suisse believes there is scope for a positive gross margin surprise at its result next week. "We have observed less industry discounting during the back-end of 1H13 than occurred in the pcp and our price monitor showed stable price trends through the December period. We forecast gross margin to be flat on pcp. There is upside risk of ~20bp to that forecast”, the broker reported.
The broker also notes that JB HiFi has recently underperformed in both absolute and relative returns against other discretionary retailers. For example, JB is currently trading at 5.8 times FY13 EV/EBITDA versus 7.8 times for Harvey Norman. Credit Suisse also highlights the approximately 18 per cent short position in the stock and believes there could be a significant pressure on those short positions should results show stable trading.
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