JB Hi Fi Not For Sale After Wesfarmers Speculation
JB Hi Fi stock rose today after speculation emerged that the cashed-up Wesfarmers Group, who earlier this week sold down their shareholding in Coles could see JB Hi Fi and The Good Guys as a potential acquisition target.
Insiders are saying the business is not for sale.
Wesfarmers already own Officeworks and Bunnings and the potential acquisition of JB Hi Fi which is already being talked about among investment bankers is seen as a “smart investment” according to one analyst.
Macquarie Analysts claim that Wesfarmers could afford to borrow $10 billion, taking group gearing or net debt to EBITDA to just 1.7 times.
Earlier today the Australian Financial Review claimed that the Perth-based retailer who also owns Kmart and the struggling Target, is searching for acquisitions after raising $2.2 billion by selling two-thirds of its 14.9 per cent stake in Coles.
Wesfarmers chief executive Rob Scott is seen by bankers as being spoilt for choice after selling down the Coles stake.
Wesfarmers’ chief executive Rob Scott told The Australian Financial Review on Tuesday the group had been approached by several companies facing funding issues.
“There may be opportunities where our balance sheet can be put to work to support companies that are finding themselves with funding trouble and would also make good sense for our shareholders,” Mr Scott said.
“Our view at the moment is that there are still a lot of risks in the coming environment and you need to be very selective and discerning with investment,” he said.
Macquarie’s strategy team has identified 38 potential targets which might be attractive to Wesfarmers and one of them is JB Hi Fi.
Back in 2016 JB Hi Fi completed the $870 million acquisition of The Good Guys resulting in the group becoming a major player in the Australian appliance market.
At the time CEO Richard Murray said the deal would increase JB Hi-Fi’s share to 29 per cent of the appliance market compared to Harvey Norman’s 24 per cent stake.
And in consumer electronics, its combined network of 295 stores will boast a 24 per cent slice of the pie, compared to 15 per cent at Harvey Norman.
The big attraction for Wesfarmers is the JB Hi has consistently delivered growth and profitability, at The Good Guys Terry Smart the former CEO of JB Hi Fi has already done the heavy lifting in rebuilding the appliance retailer who is also witnessing growth during the COVID 19 downturn.
A senior JB Hi Fi source said “Wesfarmers don’t need any more retail they would be better served going after another market than retail. The business is doing extremly well”.
Macquarie claim that another attraction is that the shares of the Companies that they have identified as potential takeover targets have fallen more than 30 per cent from three-year highs, and that they have a current enterprise value of less than $5 billion and a structural return on equity above 12 per cent.
Macquarie also identified another 12 potential targets including Qantas, and Super Retail Group.
On the question of capital raising the Macquarie analyst said.
“We believe Wesfarmers is likely to be conservative given current economic uncertainty and looming risk of shutdowns,” the analysts said.
JB Hi Fi management have not officially commented.
Earlier today JB hi Fi shares rose 2.32% to $31.71.
During the past 52 weeks the shares in JB Hi Fi have gone from $20.790 to $46.09