HLG - Hallenstein Glassons Holdings

[winner (n)]

Deserves its own thread

Glassons Australia the start of the group. Over a couple of tough years they have performed remarkably well and been the saviour of the Group with F22 profit of $19m with the rest of the Group (mainly NZ) making only $6m

Glassons annual sales were $157m and over the last 5 years have grown at 26% pa - very impressive. And they are off to a flying start this year with Aud/Sep sales probably up 60% or more.

Importantly F22 saw them increase Gross Margin by 1.2% points to 60.9%

So selling heaps more and making greater margin on those sales - the way to go

Glassons AU increased their market share in a fast growing market as well. Their share of Australia Clothing retail sales is still less than 1% which highlights the opportunity for them in a market size of about $40m.

So the future looks bright for Glassons AU as the retail normalises and they should make $25m/$30m in F23.

The rest of the Group ,,, NZ ,,,, will probably do better in F23 as they recover from a bad F22. .... and in spite of that they remained profitable

So we could see HLG Group making record profits in F23 - somewhere near $35m and $40m not beyond the bounds of possibility.

No wonder they held the F23 dividend at 42 cents - with a strong balance sheet and good outlook giving them confidence to do that.

I'm looking forward to next update in December

Cool chart of Glassons AU sales below

You cannot view this attachment.

[winner (n)]

HLG always make a point of saying 'inventories are well controlled'

F22 stock turns came out at 4.9

Down a fraction from the 5.1 in 2019 (pre-covid)> Considering all the supply chain disruptions etc etc over the last 2 years the F22 number was pretty good

Did you know that for every $ of stock they generate $6.60 of margin over the year ....amazing eh an that even better than what guru Rod can achieve

[Basil]

Must admit, HLG have travelled through this pandemic pretty well in no small part due to the caliber of their management.  Interestingly we're seeing a real dichotomy between how Australian women are embracing Glassons as a fairly new brand to them and how N.Z. women are responding to it arguably being quite a mature brand here, (notwithstanding the same product offering).

The size of the market in Au is roughly six times here so Glassons as a brand is just scratching the surface of market penetration in Australia.  Very impressive growth in Australia in the face of serious headwinds last year and you can't argue with their 5 year CAGR there which is also deeply impressive.

Watching the TA closely....I think I kind of regret selling my modest stake recently before the annual result.  (Blaming it on Covid brain fog)

28% of all sales now online - very impressive indeed, surely this is best of retail breed ?

Future Outlook

The first eight weeks of the new financial year have seen Group sales improve
by +68.49% on the prior year.

WOW - Off to a roaring start to FY23.

Have to say I am very impressed they are paying 42 cps in divvies on trough year earnings.  Classic dividend hounds stock.  Their track record of dividends even in the most difficult of all conditions like Covid years and the GFC is second to none.

Trades on just 12.5 times what's now clear is trough year earnings.  Vast majority of profit is now in Australia which is growing strongly.  Should be able to particularly impute the April dividend which I am hoping comes in at 23 cps.

Annual dividends about 47 cps appear sustainable going forward and with partial imputation this brings the yield up to ~ 10% Gross.  The way Glassons Australia has grown before Covid and especially during Covid, frankly, you have to take your hat off to them.  300,000 Glassons app downloads last year, 850,000 this year.  Hmmm...why did I sell ?

So the future looks bright for Glassons AU as the retail normalises and they should make $25m/$30m in F23. Winner

Hmmm...I think you are right.

 

[Waltzing]

 Time to get the pastels out and draw those lines under the bottom of chart and over lay AUS retail sales variances for all retailers .

surprised winner has not already done so.

One imagines people are busy gardening as spring forces everyone back outside and tend to the exploding greenery.....

The news the world was going to end might have seen the veterans like MR B building up cash.

Seem to remeber cash reserves being built up earlier in the year.

Fed likely to press ahead breaking the market and next autumn should see the market turning the corner..

Winners graph certainly refocuses the case for the company.

continuing sales growth is AUS mean investor have to go back to reading the market updates carefully.

Certainly appear this could be a near term bottom for the SP.

[Basil]

Stock turn at 4.9 times is crazy good considering there are only 4 seasons in the year and taking into account the severity of supply chain challenges last year.  Lot of talk on CNBC about shipping rates coming down.  On the flip side the exchange rate will cause them some challenges and customers will simply have to get used to paying more but I think customers are pretty accepting of that given inflation is embedded at this point.

Selling recently when I sold out of WHS was a mistake.  Throwing the baby out with the bathwater.  Wasn't thinking straight at the time.

Glassons Au growth before and especially during the pandemic blows my mind to be honest about it.
Disc: I did buy the ones I sold back and a few more extra as well and am on the bid for more.  Expecting 47 cents in divvies in the next 6 months.

[Waltzing]

well the support 4.80 level held ....

and is undervalued but HB side of the business is barely Profitable and suppose shows that NZ is a different market THAN Aus women clothing market.

[Basil]

Let's normalize this and see what's possible for FY23.
Sum of the parts is the way to value HLG. Before last year's heavily Covid impacted result the Hallensteins side of the business was making ~ $5m and Glassons N.Z. was making ~ $11.5m.  Total $16.5m and on 59.65m shares that's 27.6 cps.  Provided they can stablise those two business's that suggests future dividends can be imputed to about a 55% level.
I think there's a compelling case to say these two parts of the business are ostensibly very mature and no growth, so I would value them on a recovery to normalised earnings at a no growth PE of 8.5 = 8.5 x 27.6 cps = $2.35.

Glassons Au is by far and away the rock star segment of this company and has a proven history now of very strong sales growth both before and during the pandemic and in my opinion deserves a PE commensurate with the growth rate given the size of the opportunity in Australia and the minimal market penetration there to date.  Also growth in the US being served ex Australia.  If Winner is right and they can do $25-30m net profit there, call it $27.5m in FY23 that's 27.5 / 59.65m shares = 46.1 cps.
Choose your own PE but something in the mid to late teens with their proven growth rate there seems totally appropriate to me.  If you use a PE of 17.5 times FY23 estimated earnings, my goodness that suggests Glasson's Australia is worth 17.5 x 46.1 cps = $8.07.

Sum of the parts is north of $10.  If they can pay 47 cps and impute that by half going forward that's 47 / 0.86 = 54.5 cps gross.

Conclusion.  I think it's quite plausible HLG will recover back to over $7 in the forseeable future and as the market gets more history about Glasson's Au growth and Glassons N.Z. and Hallensteins recovery the shares will head north from there.  In the meantime there's the ~ 10% gross yield to enjoy.

As you say, it appears to have built a base at just over $5 over the last 4-5 months so the TA looks quite encouraging too.

[Waltzing]

A compelling case from MR B  and unlike MHJ no buy back that managment and others can sell into.

Instead more likely to increase its dividend and let the SP reflect the fact that retained earnings are for special dividends and not for off market transfers....

[winner (n)]

Might need to increase my forecast for F23

Looking at the 5 Period sales model I have when they say the first 8 weeks sales are 68.5% ahead of last year in $ terms that's about $30m

Gross Margin on those sales about $17m - allow for an increase in expenses and you'd you have to say EBIT is already $15m ahead of least year ($11m after tax)

Looking at retail sales data it seems NZ has contributed its fair share to this increase - that's a sign things are looking brighter over here - and of course Glassons AU will continue to power ahead

I'll do some more sums but with NZ operations pivoting (for the better) and AUstralia looking good the forecast profit will probably be better than I what I came up with earlier - could even see H1 profit in $20m/$25m range

[winner (n)]

From BusinessDesk (prob get into trouble for copying)

Is the Bell tolling at Hallenstein's? 

Veteran doesn't even begin to describe the tenure of Hallensteins Glassons' long-serving chair, Warren Bell.  The former Deloitte audit partner and occasional Boris Johnson lookalike has been chair at the retail chain predating the 1987 share market crash, carbon-dating him to that unfortunate period known now as the Stubbies Era.

It's not generally thought to be good governance practice to stay in place for quite so long and Bell attracted criticism from the NZ Shareholders' Association a few years back about the firm's lack of succession planning. So, when On the Money noticed Bell sold his last 1,143 shares on market for $5,755, we had to wonder whether he was finally signalling an end to his 36 years of involvement in the rag trade.   

We'll get a clue at the upcoming annual meeting, which should be in December, although we also note he was elected for another three-year rotation at last year's meeting.   Given Bell's diligent attendance at board and committee meetings, OTM expects he'll be taking a belt and braces approach to any such move.

Read more - see i'm promoting them eh
https://businessdesk.co.nz/article/on-the-money/on-the-money-cam-wallace-hallensteins-chair-andrew-thorburn-and-more

[Waltzing]

FB posts from the Doyan's of financial market blogging...

[Basil]

Might need to increase my forecast for F23

Looking at the 5 Period sales model I have when they say the first 8 weeks sales are 68.5% ahead of last year in $ terms that's about $30m

Gross Margin on those sales about $17m - allow for an increase in expenses and you'd you have to say EBIT is already $15m ahead of least year ($11m after tax)

Looking at retail sales data it seems NZ has contributed its fair share to this increase - that's a sign things are looking brighter over here - and of course Glassons AU will continue to power ahead

I'll do some more sums but with NZ operations pivoting (for the better) and AUstralia looking good the forecast profit will probably be better than I what I came up with earlier - could even see H1 profit in $20m/$25m range

Sssshhhh...I haven't finished backing up the truck yet.
I'm just looking forward to a full year or normal trading without all the silly lockdowns like last year.

[Waltzing]

Dont worry when the market realises that there may be an ACT / Nat government the market will have a melt down and should be able to get them for 4 again...

They will declare a GST reduction of 5 percent. and a top rate of 20 cemts  across all entity types and interest deduction for property.

WHole market will melt down and they will fire 25 % of all government staff and float anything that moves on thte stock market...

[Basil]

LOL - Take it easy on the drinks tonight mate.

[Waltzing]

Off topic.. almost.

Centre right taking  local elections... just wait could be the start of whole new NZ market...

Should sell all MHJ and any shares under water and buy HLG....

instead of a Managed BB where the retail investor is not invtited till the deal is done HLG invites you to take the DIVIDEND in whole not in part.....

Follow the HOUND!!!!