ACCC may have cleared the runway, but other planes are circling.
The Head of Research at Fat Prophets, Greg Smith, believes that the ACC approval of the JB Hi-Fi takeover of The Good Guys does not mean that it is a ‘done-deal’ by any means.
“It is interesting that the ACCC has approved it and saying that there is not a lot of overlap,” Smith told Appliance Retailer.
“But be that as it may, the runway is clear now. But the test is that it is not a done deal and there are other vultures circling. Other analysts have estimated that Steinhoff would pay $1 billion to $1.2 billion based on the other acquisitions it has recently made.”
Smith said that the Dick Smith collapse provides some important background to the current position of JB Hi-Fi in the market.
“The JB Hi-Fi stock price has been running up ahead of this potential acquisition, and it wasn’t that long ago that we were talking about the collapse of Dick Smith in a similar segment of the market.
“As we all know, it was a big balance sheet issue and JB Hi-Fi does not have the same issue. For example Dick Smith had 400 stores for around nine per cent of the market and JB Hi-Fi has half of that for around 25 per cent of the market.
“With Dick Smith leaving the landscape, that has been to JB Hi-Fi’s benefit and that has led to JB Hi-Fi being re-rated on an earnings basis with the organic growth from a competitor going under and the potential for acquisitive growth from the Good Guys deal.
“The wider question is how much growth is there in the category given the challenges in the retail segment with the cash-strapped consumer facing little to no wages growth. This was a point made in Glenn Stevens’ departing remarks in stepping down from the Reserve Bank this week.
“We are quite negative on the retail sector at the moment and have put a price target of $10 on Woolworths within a three year period. They have been at $10 before and there is a chance they could be there again.”