Question 1: What did you make of the JB Hi-Fi profit report? Are they a buy?
Answer: JB Hi-Fi, as befits Australia’s best retailer, predictably delivered a strong profit result that was at the top of the range of broker forecasts, and an outlook statement that was a touch better than expected. Because it trades at a realistic multiple (i.e., about 14 times forecast earnings), it is not that difficult to get positive market reaction if it delivers to forecast.
Most of the analysts remain “bearish” about JB Hi-Fi because they are worried about the state of the economy and slowing retail sales. According to FN Arena, there are 3 ‘neutral’ recommendations and 3 ‘sell’ recommendations, with a consensus target price of $44.82, about 4.7% lower than the last ASX price of $47.03.
I wouldn’t rush into buy JB Hi-Fi at the moment because I have seen before what happens when everyone is worried about consumer spending. However, I wouldn’t be too greedy either – they are unquestionably Australia’s best retailer and on most valuation metrics, not overpriced. I would target an entry price around $45.00.
Question 2: I am a holder of Core Lithium (CXO) and with the disappointing results coming out and share price taking a dive, I would like to know what you think. Is it worth holding on to?
Answer: I must be honest and say that I am no expert when it comes to the lithium stocks. Partly because of hype, but also experience, my preference is to play markets like these through the “bigger”, more established producers, rather than the “up and comers”.
Accordingly, when I look at the lithium market, I consider Pilbara Minerals (PLS) or Allkem (AKE). According to FN Arena, the current upside (from ASX price to consensus target price) is 15.4% for PLS and 32.2% for AKE.
With Core Lithium (CXO), the broker consensus price of $0.71 is 26.5% higher than the last ASX price of $0.55. However, there is quite a material range of targets, from a low of $0.50 by Citi through to a high of $0.90 by Macquarie.
Now it is near the bottom of the range, I would be inclined to hang on. It is, however, not my top pick.
Question 3: If I wanted to follow the growth and income model portfolios, is this a good time to start given that we are in the midst of the reporting season? Or should I wait till the portfolios are reset at the beginning of 2024?
Answer: I think if you are an investor, I would put more faith in the adage that goes: “time in the market, rather than timing”. I have never been good at picking short term “tops” or “bottoms”, but I can follow a trend. I think the long-term uptrend still holds quite solidly.
Question 4: Why isn’t CSL’s next dividend fully franked?
Answer: CSL will pay a final dividend of US$1.29 per share, or approximately A$2.00 per ordinary share. The exact amount of the dividend (in A$) will be determined on 13 September based on the USD/AUD exchange rate. It is expected to be 10% franked, with payment made on 4 October 2023.
The dividend is partly franked because CSL earns most of its revenue in the USA and Europe (less than 10% in Australia). Companies can only frank their dividends if they pay Australian company tax. In CSL’s case, it is paying tax in the USA and in Europe, but because Australian revenue is so “low”, insufficient company tax in Australia.
The system of dividend imputation (and franking credits) is unique to Australia. So, a number of our multinationals, who pay tax overseas, can’t frank their Australian dividends because they just don’t pay tax locally.
