AUSTRALIA HVN AU Price (at 06:10, 09 Sep 2015 GMT) Underperform A$3.96 Valuation - EV/EBIT A$ 4.16-4.56 12-month target A$ 4.36 12-month TSR % +12.0 Volatility Index Low Market cap A$m 4,523 30-day avg turnover A$m 18.6 Number shares on issue m 1,111 Investment fundamentals Year end 30 Jun 2015A 2016E 2017E 2018E Revenue m 1,617.2 1,680.6 1,783.0 1,819.5 EBIT m 393.5 451.5 460.8 456.8 Reported profit m 268.1 292.8 299.5 294.3 Adjusted profit m 262.0 292.8 299.5 294.3 Gross cashflow m 340.5 370.5 377.3 372.0 CFPS 31.1 33.3 33.9 33.5 CFPS growth % 12.4 7.2 1.8-1.4 PGCFPS x 13.1 12.2 12.0 12.2 PGCFPS rel x 1.47 1.41 1.51 1.61 EPS adj 23.9 26.3 26.9 26.5 EPS adj growth % 17.4 10.1 2.3-1.7 PER adj x 17.0 15.5 15.1 15.4 PER rel x 1.09 1.03 1.13 1.24 Total DPS 34.0 19.6 20.1 19.7 Total div yield % 8.4 4.8 4.9 4.8 Franking % 100 100 100 100 ROA % 9.4 10.3 10.4 10.2 ROE % 10.5 11.4 11.4 10.9 EV/EBITDA x 10.5 9.5 9.4 9.4 Net debt/equity % 20.0 18.5 16.2 13.8 P/BV x 1.8 1.7 1.7 1.6 JBH AU Price (at 06:10, 09 Sep 2015 GMT) Neutral A$18.28 Valuation - EV/EBIT A$ 19.15-23.37 12-month target A$ 21.26 12-month TSR % +18.7 Volatility Index Low/Medium Market cap A$m 1,864 30-day avg turnover A$m 25.1 Number shares on issue m 99.58 Investment fundamentals Year end 30 Jun 2015A 2016E 2017E 2018E Revenue m 3,652.1 3,835.5 4,046.0 4,266.0 EBIT m 200.9 209.0 218.2 228.2 Reported profit m 136.5 143.1 150.6 157.2 Adjusted profit m 136.5 143.1 150.6 157.2 Gross cashflow m 175.6 184.7 194.8 204.0 CFPS 177.4 186.7 196.8 206.2 CFPS growth % 8.2 5.2 5.5 4.8 PGCFPS x 10.6 10.0 9.5 9.1 PGCFPS rel x 1.18 1.15 1.20 1.20 EPS adj 137.9 144.6 152.2 158.8 EPS adj growth % 7.4 4.9 5.2 4.4 PER adj x 13.6 12.9 12.3 11.8 PER rel x 0.87 0.86 0.92 0.95 Total DPS 90.0 95.0 99.0 104.0 Total div yield % 4.8 5.1 5.3 5.6 Franking % 100 100 100 100 ROA % 22.9 22.3 21.4 20.8 ROE % 42.8 38.6 35.4 32.7 EV/EBITDA x 8.1 7.8 7.4 7.1 Net debt/equity % 26.3 8.3-0.1-7.4 P/BV x 5.4 4.6 4.1 3.6 10 September 2015 Macquarie Securities (Australia) Limited AUD dials up sales growth Event We have analysed the impact on electronic retailers (JBH, HVN) of Apple s latest flagship products Smartphones (iphone 6s and iphone 6s+). Both products will be available in Australia from 25 th September. Impact +20% currency driven ASP increase to boost sales for retailers. While the lack of major upgrades and currency-driven price increases across electronics are likely to reduce volumes we expect that the decline will be more than offset by the increase in ASP with expectations that value across Smartphones can increase ~5-10% in 2H15. Price: The iphone 6s will be priced at a premium of ~22-24% compared with the iphone 6 at its release date in Sep 2014 as a direct result of the depreciation of the AUD/USD. We note the iphone 6 has already been repriced by 15% over the year following the launch in Sep 2014. The iphone 6s is priced at a ~6-8% premium to the current iphone 6 price. Volume: Prior to the release of the details around the new iphones, consumer electronics research firm, Telsyte, predicted a ~10% decline in 2H15 in volumes vs pcp across the smartphone category as a result of a combination of increased prices and declining repeat purchases due to less material incremental changes to existing phones. iphone price movements a direct result of currency RRP at release date ($) 1,600 1,400 1,200 800 600 400 200 0 3G Jul 08 Source: Macquarie Research, September 2015 Mix shift from outright to plan margin-accretive for retailers. As prices increase across the Smartphone category, the relative value of plans increases for consumers, given the large initial outlay needed. This will benefit retailers such as JBH and HVN as it is more GP-accretive than selling outright. Outlook Avg. USD/AUD over release month Cheapest model ~22-24% increase in Most expensive model RRP driven by currency 3Gs Jun 09 4 Jul 10 4s Oct 11 5 Sep 12 5s Sep 13 6 Sep 14 6s Sep 15 USD/AUD 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 While the net benefit to electronics retailers from the release of the latest iphone will not be as pronounced as last year, value growth is still expected across the category in 2H15 as the expected decline in volumes will likely be more than offset by the increase in the currency driven ASP. This will be GPaccretive for electronics retailers, JBH and HVN. Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Read-through from US Tech analyst Product review from our US Tech analyst, Ben Schachter: Overall, more disappointments than positive surprises, but nothing game-changing. We are lowering AAPL FY 16 revenue and EPS estimates by 3%. In the near term, the stock will have trouble getting past the tough iphone comp issue. However, longer-term, we continue to believe that the app ecosystem, smartphone dominance, & innovative new devices in the pipeline should be compelling (based on AAPL s track record). As for today s event: Positives: iphone: New direct leasing program interesting, 3D touch adds unique functionality, Live Photos. Apple TV: TV specific App Store, Siri integration, touch and motion reactive remote, potential for casual games (LT potential for cloud-based core gaming). ipad: ipad Pro size and functionality. Higher-than-expected price point will increase overall ipad ASP (though will limit volume). Focus on enterprise and creative. Keyboard accessory. Pencil may be useful for certain users. Apple Watch: Incremental changes. New OS, new apps, and new styles. Other: ios 9 improved Siri functionality. We are quite bullish on voice UI. Negatives: iphone: Solid improvements, but not as impactful as last year s increased size. Apple TV: Interesting, but not revolutionary. Casual gaming potential, but initial titles relatively weak (not going to challenge PS4/XB1 anytime soon). Remote is biggest improvement, but copies elements from AMZN Fire TV and NTDOY Wii. No bundle, no must-have app, high price point, No AMZN video. ipad: High ipad Pro price point. No improvements for other ipads. Apple Watch: Still don t see must-have use cases. Other: Apple Music still doesn t matter for the stock. No updates on Apple Pay. Relatively unenthusiastic press response. No China-specific update. As expected, nothing new on Macs or VR/AR. ATVI mentioned only in passing (Guitar Hero) and nothing from EA. A full copy of the report is available here: Apple - iphone Comp the Issue for the Stock Australian market read-throughs The iphone 6s will be priced at a premium of ~22-24% compared with the iphone 6 at its release date in Sep 2014 as a direct result of the depreciation of the AUD/USD. We note the iphone 6 has already been repriced by 15% over the year following the launch in Sep 2014. The iphone 6s is priced at a ~6-8% premium to the current iphone 6 price. Fig 1 iphone prices have remained relatively stable with movement coming directly as a result of changes to currency RRP at release date ($) 1,600 1,400 1,200 800 600 400 200 0 3G Jul 08 Avg. USD/AUD over release month Cheapest model ~22-24% increase in Most expensive model RRP driven by currency 3Gs Jun 09 4 Jul 10 4s Oct 11 5 Sep 12 5s Sep 13 6 Sep 14 6s Sep 15 USD/AUD 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Source: Macquarie Research, September 2015 10 September 2015 2
Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May- Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May- Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Macquarie Wealth Management The price of the iphone 6 released in September 2014 has increased ~15% over the last 12 months as a direct result of currency movements. At current prices the iphone 6s is ~6-8% more expensive than its predecessor iphone 6, $1,079 - $1,529 vs $999 - $1,449. Fig 2 iphone 6 price has increased ~15% over last 12 months as a direct result of currency movements Fig 3 At current prices, the iphone 6s is ~6-8% more expensive than the iphone 6 RRP ($) 1,600 1,500 1,400 1,300 1,200 1,100 900 800 700 iphone 6 (at release date) iphone 6 (current) 1,529 iphone 6s 1,448 1,379 1,379 1,296 1,296 1,229 1,229 1,249 1,149 1,129 1,149 1,129 1,079 999 999 999 869 16GB 64GB 128GB Plus 16GB Plus 64GB Plus 128GB Change AUD (%) 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 8.0% 24.2% iphone 6s (Sep 15) vs. iphone 6 (Sep 15) iphone 6s (Sep 15) vs. iphone 6 (Sep 15) iphone 6s (Sep 15) vs. iphone 6 (Sep 14) 23.0% 22.1% 23.0% 15.0% 15.0% 14.8% 15.0% 14.8% 7.0% 6.4% 7.0% 6.4% 22.1% 22.4% 5.6% 15.9% 16GB 64GB 128GB Plus 16GB Plus 64GB Plus 128GB Source: Macquarie Research, September 2015 Source: Macquarie Research, September 2015 While a drop-off in value across telecommunications is expected post the release of a product upgrade, the value of imports in the telecommunications space has remained strong post the release of the iphone 6 in September 2014. This is representative of the strong sales growth reported by the electronic retailers over that period in the telecommunications space. Fig 4 Import data shows the impact that the iphone 6 had on the telecommunications with overall value levels remaining strong in the months post release Customs value ($m) 3,500 Telecomunication imports (inc. parts) - Rolling 3m iphone 6 3,000 iphone 5 iphone 4S iphone 5C & 5S 2,500 2,000 iphone 3G iphone 3GS iphone 4 1,500 Notes: 1. The red bars correspond with the timing of an iphone launch. Source: ABS, Macquarie Research, September 2015 10 September 2015 3
The specific Australian release dates, prices and telecommunications import activity data for iphone 6s predecessors is presented in the table below. Fig 5 iphone model Smartphone releases pre-christmas have rebased sales expectations Australian release date Price at launch (AUD) Monthly 1 telecom (inc. parts) imports YoY 3M 2 telecom (inc. Parts) imports YoY 12M 3 telecom (inc. Parts) imports YoY 3G 11-Jul-08 700-1000 -2.5% 3.0% 8.3% 3GS 26-Jun-09 879-1,039 7.5% 5.3% -5.3% 4 30-Jul-10 859-999 3.8% 11.7% 14.7% 4S 14-Oct-11 799-999 42.3% 18.0% 14.1% 5 21-Sep-12 799-999 32.3% 8.9% 1.0% 5C & 5S 20-Sep-13 5S: 869-1,129 5C: 739-869 8.8% -4.5% 1.6% 6 & 6+ 19-Sep-14 6: 869-1,129 6+: 999-1,249 11.4% 22.0% 25.3% 6S & 6S+ 25-Sep-15 6s: 1079-1379 6s+: 1229-1529 n/a n/a n/a Notes: 1. Month of iphone release. 2. Month of iphone release and 2 months after. 3. Month of iphone release and 11 months after. Source: ABS, Macquarie Research, September 2015 The telecommunications category has experienced strong growth of >20% over the 6 months to June 2015, while the overall electronics industry in Australia has increased ~8.5% over the same period. Fig 6 Telecommunications grew at +27.4% in the June quarter according to GfK data Growth YoY (%) 30.0% 25.0% 20.0% Teleco Total consumer electronics 24.6% 27.4% 15.0% 10.0% 5.0% 9.9% 11.5% 7.9% 0.0% (5.0%) 1.1% 2.9% (1.8%) 1.6% (4.6%) (10.0%) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 Source: GfK, Macquarie Research, September 2015 10 September 2015 4
The recent strength across telecommunications relative to other categories has increased its share of overall electronics in Australia from ~23% to ~30% over the last 3 years. Fig 7 Telecomms have increased market share from 23% to 30% over the last 3 years Implied market share (%) 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Office Equipment & Consumables (OE) Information Techonology (IT) Major Domestic Appliances (MDA) Consumer Electronics (CE) 26% 23% 24% 27% 26% 26% 25% 27% 27% 26% 27% 30% 31% 30% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 Source: GfK, Macquarie Research, September 2015 Telecommunication (TC) Small Domestic Appliances (SDA) Photography (PH) 10 September 2015 5
Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie First South - South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 60 100% in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 30 June 2015 AU/NZ Asia RSA USA CA EUR Outperform 46.23% 58.36% 47.27% 44.20% 60.65% 43.01% (for US coverage by MCUSA, 9.68% of stocks followed are investment banking clients) Neutral 37.67% 25.65% 29.09% 49.29% 34.19% 40.93% (for US coverage by MCUSA, 5.53% of stocks followed are investment banking clients) Underperform 16.10% 15.99% 23.64% 6.52% 5.16% 16.06% (for US coverage by MCUSA, 1.38% of stocks followed are investment banking clients) HVN AU vs ASX 100, & rec history JBH AU vs ASX 100, & rec history (all figures in AUD currency unless noted) (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, September 2015 12-month target price methodology HVN AU: A$4.36 based on a Sum of Parts methodology JBH AU: A$21.26 based on a EV/EBIT methodology Company-specific disclosures: JBH AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of JB Hi-Fi Limited's equity securities. MACQUARIE SECURITIES (AUSTRALIA) LIMITED or one of its affiliates managed or co-managed a public offering of securities of JB Hi Fi Ltd in the past 24 months, for which it received compensation. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures. Target price risk disclosures: HVN AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. JBH AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Analyst certification: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd (ABN 94 122 169 279, AFSL No. 318062) ( MGL ) and its related entities (the Macquarie Group ) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN 58 002 832 126, AFSL No. 238947) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Equities Limited (ABN 41 002 574 923, AFSL No. 237504) ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN 46 008 583 542, AFSL No. 237502) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. 10 September 2015 6
None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Any MGL subsidiary noted in this research, apart from MBL, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures. Macquarie Group 10 September 2015 7