JBH - JB Hi-Fi

[mr. jeff]

Yeah Value Snatcher I agree that there is more to JB than Apple stuff which sells itself, and provides very small margins. It's the extras that give them the cut when selling the apple gear anyway.

But JB will have to stop just blindly rolling out stores as their growth method and start innovating more for their sales. A lot of my friends who have grown up with JB and it's excellent prices all of a sudden found that their prices were no longer guaranteed the best in the area, which was their strength prior. I think that they may end up going the way of the other retailers and establishing a strong market share then get lazy. So far so good.

They should cut out all the glossy rubbish and stop trying to dress up everything - it may look better but JB was never about looking good, it was about having the latest gear with the young kids selling it who liked it, knew it and sold it at the very best prices. This sales model suits apple well and if they lose apple then they can still sell all the good accessories. The gloss just goes straight into the prices and cuts into the margins. Plus like for likes are not that pretty, which speaks quite plainly for their changes.

 

[VSntchr]

Lots of news this morning.
NPAT guidance confirmed but one off reduction due to a major restructure of Clive Anthonys.

Buy back of up to 10% (170m worth) announced, similar to BHP and WOW where it will be taken up by many due to the favourable tax outcomes - largely a franked dividend component and only a small capital component.
What I cant understand is why they are choosing to fund the buy back with debt, when the whole purpose of the capital review was because they have so much cash? why not use the cash??? Am I missing something here?

Does this mean that the equity figure should be reduced by $170m? Im still trying to figure this out - if it does, then even factoring in the one off reduction in NPAT produces a nice jump in ROE but also a big drop in equity/share

 

[McCoy Pauley]

An almost 6% jump in the first 5 minutes of trading. Looks like the market loves the news.

 

[skc]

An almost 6% jump in the first 5 minutes of trading. Looks like the market loves the news.

Certain class of investors (e.g. SMSF) are well ahead when it comes to off-market buybacks with generous tax incentives. Then you have traders who surf on that wave.
I expect a large fall on Friday (if not tomorrow) to bring it back down (if not below) where it all started.

And let's not forget the other announcement relates to an one-off downgrade in profit...

Speaking of Clive Anthony - I've shopped there a few times and they actually had decent customer service (compare with say Harvey Norman) plus they have good prices - but I suppose that's their downfall.

 

[ozbrit]

JB Hi fi

We're an early retired couple in our mid-fifties living off our modest savings and investments until our superannuations become tax free at sixty. for the past two tax years we haven't earned sufficient to pay any income tax and it's highly unlikely that we will for 2010/11 either.

In our portfolio we have 500 JBH shares. After yesterdays announcement of a company buy back of around 10% of shares, we wonder whether it'd be beneficial to partake in the buy back. Our policy is to invest in any share for only a short to medium term.

We don't have a financial adviser and deal through Commsec online so don't have a broker as such.

We purchased the JBH just before Christmas for $19.29 and they went backwards, we've picked up a 100% fully franked divi of 48c which we'll be refunded a further 30% tax by courtesy of the ATO. The share price today is around $20.

The JBH offer is outlined here: http://imagesignal.comsec.com.au/asxdata/20110329/pdf/01165843.pdf

So 8-14% discount to the market price of JBH for five days prior to the close of the offer. Tax wise that the buy back comprises a tax component of 58c a share and a fully franked dividend of 58c. Does that mean $1.16 all up? So supposing the average price per share is $20 less 14% = $17.20 + ($1.16 + 30% tax = $1.51) for a total nett worth to us of $18.71 p/share or a big loss to us - it seems.

I'm probably missing something here, but it looks a lousy offer to us, where are we going wrong?

 

[skc]

Re: JB Hi fi

So 8-14% discount to the market price of JBH for five days prior to the close of the offer. Tax wise that the buy back comprises a tax component of 58c a share and a fully franked dividend of 58c. Does that mean $1.16 all up? So supposing the average price per share is $20 less 14% = $17.20 + ($1.16 + 30% tax = $1.51) for a total nett worth to us of $18.71 p/share or a big loss to us - it seems.

I'm probably missing something here, but it looks a lousy offer to us, where are we going wrong?

That is not correct. Read it again

For Australian tax purposes, the Buy-Back price is expected to comprise the following:
a) a capital component of $0.58 per share; and
b) a fully franked dividend equal to the Buy-Back price less $0.58.
For capital gains tax purposes, the sale consideration received by JB Hi-Fi's shareholders will be the Deemed
Market Value2 less the dividend component.

 

[ozbrit]

Re: JB Hi fi

That is not correct. Read it again

Haha, you're correct, so would that make the offer worse by 58c?

I suppose I should also have stated in my original post, that I'm not actually seeking personal financial advice per se, but whether the offer in cases like ours make it worth pursuing.

 

[VSntchr]

Re: JB Hi fi

Im in the middle of making this decision for myself also.
Below is my interpretation, someone please correct me if I am wrong - which I very well could be as I haven't had much experience with taxation/buybacks/franking.

The factors that come into consideration are: you will be selling your shares back at a price of $0.58. This means that your making a huge capital loss...this is beneficial as it eliminates any capital gains tax on your JB Hi-Fi holdings...and what is left will be able to carry over and cancel out other capital gains tax which you may have to pay.

The other important thing is that the majority of the payout will come in the form of a franked dividend...the franking means that you can get even more money back from the ATO when you lodge your tax return.

So basically you have to weigh up whether the two above points will outweigh giving up your shares for perhaps a 14% discount...

 

[skc]

Re: JB Hi fi

Haha, you're correct, so would that make the offer worse by 58c?

I suppose I should also have stated in my original post, that I'm not actually seeking personal financial advice per se, but whether the offer in cases like ours make it worth pursuing.

Say the market price is $20, and buy back price is 14% lower = $17.2.

If you participate in the buy back you get:

a). $0.58 in capital.
b). $16.62 in fully franked dividend (being the buyback price - $0.58)
c). a capital loss (being your purchase price minus the capital component and some tax component of the buyback based on ATO ruling)
d). a franking credit of $7.12 from the fully franked dividend

Total value of the buyback to you is the sum of a) to d) but depending on your personal tax circumstances that value will change.

Don't forget selling on market and continue holding are 2 alternatives available as well. But if you want to sell on market you need to take commission and tax into account as well if you want proper comparison.

Usually in the buyback booklet there are detailed explaination and example calculations that you can follow. But if you can't understand them then getting some financial advice may not be a bad thing (rather than listen to some random guy on a forum!).

 

[skc]

Re: JB Hi fi

If you want more understanding have a look at the buyback booklet 7 March from BHP (who's doing the same thing right now).

P.24-25 contain worked examples.

 

[Spongle]

Re: JB Hi fi

As a novice I know very little about the ins and out of share buyback schemes and what not.

Nevertheless JB hifi looks to be an interesting stock right now at least in the short term... I was just about to buy some shares in it myself.

I'm going to post up a chart; trendlines and all that jazz for this stock and post it in another thread and see what info can get. Then I'll crunch the numbers you posted and compare them to the numbers of the chart that hopefully somebody will help me with.

NB i must point out please don't take what I'm saying/going to say as financial advice of any sort. I'm merley trying to get some figures and crunch them. Then you can do with that GENERAL INFOMATION as you wish.

oops... I had a competely different stock in my mind. Yes I am a gozzer. I'm still going to do all the stuff I mentioed prior so just bear with am and i shouldn't be long. Also as I am a total novice I wll be relying in the feedback of someone who actually knows what they are talking about and If I don't recieve any than my help probably won;t be very helpfull. I give it a go though... beats studying calculus which is what II'm meant to be doing right now haha

Will post here again soon ASAP

 

[ozbrit]

Re: JB Hi fi

Thankyou VSntchr and particularly skc. I was correct in one way by well n truly barking up the wrong tree.

My first posts on this forum today, I think i'm going to like it here and hopefully will get to contribute something of value to others.

Cheers - Phil

stop press: Spongle that'll be great.

 

[skc]

Re: JB Hi fi

Thankyou VSntchr and particularly skc. I was correct in one way by well n truly barking up the wrong tree.

My first posts on this forum today, I think i'm going to like it here and hopefully will get to contribute something of value to others.

Cheers - Phil

stop press: Spongle that'll be great.

Not at all and welcome to the forum.

It just so happened that I was working all this out for my brother-in-law's BHP shares on the weekend...

 

[Spongle]

JB hi fi

I had a massive spiel that went with this thread but then i lost it.

In a nutshell: couple own jb hi fi shares. Have been offered a buyback scheme. Stocks shot up in price. I made a few very simple charts. Opinions?



Most appreciated

 

[ozbrit]

Re: JB Hi fi

Say the market price is $20, and buy back price is 14% lower = $17.2.

If you participate in the buy back you get:

a). $0.58 in capital.
b). $16.62 in fully franked dividend (being the buyback price - $0.58)
c). a capital loss (being your purchase price minus the capital component and some tax component of the buyback based on ATO ruling)
d). a franking credit of $7.12 from the fully franked dividend

The franking credit of $7.12, is this correct? Isn't the company corporate tax rate a flat 30%.

When we've previously declared fully franked divis to the ATO we've only been refunded 30%, that's with us being under the threshold for tax.

Cheers again - Phil

 

[skc]

Re: JB Hi fi

The franking credit of $7.12, is this correct? Isn't the company corporate tax rate a flat 30%.

When we've previously declared fully franked divis to the ATO we've only been refunded 30%, that's with us being under the threshold for tax.

Cheers again - Phil

Assume $16.62 fully franked dividend
Gross up dividend = $16.62 / 0.7 = $23.74
Franking credit = $23.74 * 0.3 = $7.12

 

[ozbrit]

Re: JB Hi fi

Assume $16.62 fully franked dividend
Gross up dividend = $16.62 / 0.7 = $23.74
Franking credit = $23.74 * 0.3 = $7.12

Yes I was working on $16.62 being the gross figure But the new gross makes this even more attractive to us. Today's SP up another 30-40c atm. Very happy here.
Just one little question, Is it your dog at the PC computing the figures for you, when are the pups available? )

 

[skc]

Re: JB Hi fi

Yes I was working on $16.62 being the gross figure But the new gross makes this even more attractive to us. Today's SP up another 30-40c atm. Very happy here.
Just one little question, Is it your dog at the PC computing the figures for you, when are the pups available? )

Lol. I learned all my trading my this dog. She's in doggie heaven now...

No offsprings (de-sex operation can do that).

Don't take my words for everything and read your documents carefully as every buy back is slightly different. Also keep in mind that the current market price of JBH will certainly be different (up or down) by the time the buyback proceeds.

 

[ozbrit]

Sorry to hear about the demise of your dog.

Yeah I'll be going through the offer document with a fine tooth comb. We do have trading strategies in place. We have 10 grand in each of three stocks which we punted on in time for the so-called santa claus rally, early dec. JBH, Carsales.com and Westpac. We've had decent divis on all three but the SP values have been underwhelming. We don't need the cash for a couple of years, so we can wait but would prefer to grab a quick 10% on JBH & CRZ and 20% for WBC. Looks like we've well n truly nailed our JBH target, though in not quite the manner we expected. Unless JBH goes back to $18ish I don't expect to re-visit them but instead look for another prospect. We have started to re-look at Telstra with it's near 10% divis. One down, two to go.

 

[skc]

I expect a large fall on Friday (if not tomorrow) to bring it back down (if not below) where it all started.

Down 6% at today's low from yesterday's high. The simplest of short trades...

Sorry to hear about the demise of your dog.

She died at age 17 so definitely had a good run.