JB Hi-Fi Reassures Market, Trading Update Within Market Expectations

After the recent profit downgrades from Super Retail Group and The Reject Shop, JB Hi-Fi released a first-half trading update to reassure the market that, despite weakness from other retailers, it will report a 10% increase in net profit after tax, or NPAT, of AUD 90.3 million. This is in line with our expectations and we make no material change to our fair value estimate of AUD 11.00, pending more details from management, which will be released at the first-half result. At this result, scheduled for the 3 February, management will discuss details surrounding market conditions which will enable us to get a more informed sense of the company's operating environment. We do not view the company as having a sustainable competitive advantage or economic moat and that, over time, its returns will become increasingly competed against by other market entrants. We consider the company as overvalued, with the share price trading above our fair value estimate.