Company Overview
JB Hi-fi was established by John Barbuto (JB) in 1974 and opened its first shop in Melbourne. In 1983, it was sold to Bouris and Rodd who expanded the company and, later on, sold the majority of their holding to a private equity, Next Capital Pty Limited. The company’s share was floated in Australian Stock Exchange in 2003 at IPO price of $1.55.
JB Hi-Fi, has diversified its business from predominantly selling music CDs, and is now a major retailer for televisions, audio/visual, photography, portable audio, in-car entertainment, computer/video games, DVD movies, gadgets and information technology equipments.
By 30 June 2009, the company currently has 123 stores in Australia and New Zealand and management has …show more content…
For comparison, we try to measure 18 month performance of companies in the retailing industry. We include Thorn Group (TGA), Harvey Norman (HVN) and David Jones (DJS). TGA is an electronic appliances rental and retailer, while both HVN and DJS is a multiline retailer. Monthly Stock Performance JBH TGA HVN DJS
Apr-08 6.59% 1.43% 2.22% 4.87%
May-08 7.84% -9.86% -16.26% -23.22%
Jun-08 16.44% -6.25% 5.18% 21.00%
Jul-08 13.71% 20.00% 14.15% 27.94%
Aug-08 -11.62% -16.67% -16.71% -1.15%
Sep-08 -28.43% -16.67% -16.50% -28.60%
Oct-08 -5.25% -8.00% -16.67% -18.57%
Nov-08 16.87% 2.17% 23.26% 27.20%
Dec-08 -3.61% -2.13% -19.62% -27.04%
Jan-09 13.90% -2.17% -10.33% 0.86%
Feb-09 8.17% 8.89% 34.55% 19.66%
Mar-09 18.40% 16.33% 15.95% 8.21%
Apr-09 -8.43% 19.30% -1.68% 19.14%
May-09 23.30% 1.47% 12.63% 26.04%
Jun-09 9.74% 8.70% -0.61% 12.97%
Jul-09 5.27% -8.00% 20.12% -2.92%
Aug-09 11.64% 23.19% 9.14% 17.03%
Sep-09 -2.67% 5.88% -1.40% 0.00%
Average 5.10% 2.09% 2.08% 4.63%

By using the average monthly performance of the 4 companies (3.48%), we came up with cost of equity of 41.72% (12 x 3.48%).
Another method to find cost of equity is using CAPM. To derive cost of equity, we first find beta by running a regression for the equation: r JB,t – r f,t = αJB + βJB (r m,t – r f,t). While for equity