HLG - Hallenstein Glassons Holdings

[Ferg]

It's astonishing they have traded so well through the bottom of the retail cycle with the well-known cost of living crisis and ongoing currency and freight headwinds.

{snip}

No debt, proven brand value even in extraordinary tough times, stable ownership structure, e.t.c.... lots to like

Lots to like indeed - especially the no debt and no CR parts.  For a 'cyclical' company they have managed to grow sales per share (noting the share count has not changed) through a couple of financial troughs; the 'cyclical' part appears to impact costs and the % of sales that drops out as NPAT the bottom.

NPAT as a % of sales has bounced between 6.1% and 10.1%.  There was no (aka negative) growth in EPS from 2010-2017; it has only really improved over the last 7 years.  Nice to see managed growth with no debt and a NZ company doing well in Oz.

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[winner (n)]

Nice chart Ferg

Yes those cyclical factors like margin and costs ...but jeez just imagine what profit will be when that NPAT/Sales gets back around 10% mark .....on ever increasing sales  ....maybe 2026

[Ferg]

just imagine what profit will be when that NPAT/Sales gets back around 10% mark .....on ever increasing sales  ....maybe 2026

Nice to imagine: assume modest sales growth in FY25 of 2% and growth in FY26 of 5% which is less than all 5/10/15 year measures for compound annual sales growth.  Assuming NPAT in FY25 is 8.5% and 9.0% in FY26:

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Time for a crazy beautiful song:

P.S. Promise me you will stop making irrelevant comparisons to sports teams and fans and I will keep sharing my work.

[winner (n)]

Hey Ferg. Sales up 10% to start the year and things looking better in OZ so let's assume they maintain that. That Manawa Mall might do that on its own lol

Basil says forex and supply chain looking favourable so let's say 9% profit margin

Could looking at $7.30 sales plus 10% equals about $8.00 at 9% margin gives F25 EPS of 73 cents

Imagine that ....and thats not being really optimistic...just a bit of catching up after a few challenging years

No wonder Basil happy Az

[Basil]

Just for you Basil ...Glassons AU market share trend

Not even 1% of total retail clothing sector innOZ .....imagine the potential

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Tripled their market share in Australia since 2017.  Hmmm.
To me, 2018 was a transformative year.  I hesitate to use the term but it was indeed a point of inflection for HLG.

From a valuation perspective I have long held the view its best to look at HLG as the sum of two parts.
Glassons N.Z. and Hollensteins are combined, no growth divisions of the company and always have been.
Net profit from these divisions was $15.6m in 2017 and is $16.1m in 2024.  I think fair value on a market cap basis with equity risk premiums lower these days is 10 times those earnings = $161m

Market cap as at the time of this post is $369.8m @ $6.45 so you are paying $369.8m - $161m = $208.8m for Glasson's Au operations that earned $19.5m last year, (historical PE of just 10.7 times) on $218m sales, up from just $1.4m profit on $50m sales in 2017.

Since James Glasson was appointed to lead the Australian operations, (forgive me was that 2017 or 2018, I forget), sales have a 23% CAGR since 2017.  After hitting critical mass with the brand and store numbers their profitability has grown very strongly there over the last 7 years.

Maybe this (divisional profitability methodology), is a simplistic way to lo0k at it but to me, it makes no sense that the strong growth part of the business, is at just 10.7 times historical earnings, say 10 times forward earnings, is being priced by the market as a no growth division.

Indeed since 2017, despite all the challenges with Covid and recessionary conditions prevailing, eps has doubled from 28 cps to 58 cps, a CAGR of just over 10%, yet overall, the company is priced like a no growth pure cyclical.

I find it very easy to hold GARP stocks, and wait for the growth when being paid a 10% gross yield.  You can easily garner a lot of patience when being paid handsomely like that.

Ferg, I reckon your sales growth assumptions are a bit too conservative, but I really appreciate your input into this.  Any chance you could find the time to do a 10 year analysis of Turners ?

[Popeye]

There is a lot to be said for having cash on hand to fund an expansion or shore up the supply chain when debt laden competitors are battening down the hatches.  Looks a bit like a lazy balance sheet in the good times, but boy does it pay off when times are tight.  Briscoes and Hallensteins conservative, deliberate approach are really paying dividends.  The less said about The Warehouse the better, other than they offer an apt contrast, going down the toilet at a time when consumers are focused on value. 

[winner (n)]

Di Humphries came back in 2015 and sorted a troubled Glassons out and instigated the Oz expansion. She was a genius

What she had set up (a booming Glassons AU) was handed over to James late 2017 with instructions like 'don't stuff up what Di has left you'

He's hasn't stuffed up what was handed to him on a golden plate ......Di wil be pleased

[Basil]

I knew you'd mention Di Humphries lol.   He's more than quadrupled sales in the last 7 years since he took over but it was all handed to him on a golden plate you reckon...Hmmm, okay, let's just agree to disagree on that.  Fact is Glassons Au sales only really took off when James came on board, but I will concede Di laid the foundations.   Di will be very pleased with how he's performed over the years, we agree 110% on that !    I think James knows he stands to inherit a large chunk of Tim Glasson's 20% stake in due course so it's fair to say he's highly motivated!

[Ferg]

Ferg, I reckon your sales growth assumptions are a bit too conservative, but I really appreciate your input into this.  Any chance you could find the time to do a 10 year analysis of Turners?

You're welcome.  I purposely went conservative....I thought I read somewhere that sales was up nicely since year end but there was a warning to not assume that was the case for the rest of the year, unless that was another company.  Sales CAGR has been impressive but it can be hard to shift the dial on NPAT % without significant volume and/or structural changes - I am conscious/wary of the hockey stick effect of multiplying 2 increasing numbers and don't want to appear as though I am ramping.

Re TRA: I am slowly making my way through a number of companies; I have done 13 so far.  TRA is on the list to do, but we sold the lifestyle block 2 weeks ago and are moving in about 4 weeks so things are a bit hectic at times, interspersed with periods of inspiration where I work on this sort of stuff.  Keep in mind, those graphs are really just a high level view without the nuts and bolts - like a brutal American filter of 'show me the money'.  No flowery words of what companies are going to do, just raw 'proof of the pudding' numbers.  It is very 'Captain Hindsight' which I use as a filter.  Any significant investment decisions would require a nuts and bolts analysis.  I will get onto it though because TRA is on the list.

[Ferg]

Di Humphries came back in 2015 and sorted a troubled Glassons out and instigated the Oz expansion. She was a genius

What she had set up (a booming Glassons AU) was handed over to James late 2017 with instructions like 'don't stuff up what Di has left you'

Looking at the graph, there was a significant increase in sales in 2017 & 2018.  So if Di came back in 2015, that confirms for me that strategic plans and/or appointments can take multiple years to pay dividends.

[winner (n)]

I knew you'd mention Di Humphries lol.   He's more than quadrupled sales in the last 7 years since he took over but it was all handed to him on a golden plate you reckon...Hmmm, okay, let's just agree to disagree on that.  Fact is Glassons Au sales only really took off when James came on board, but I will concede Di laid the foundations.   Di will be very pleased with how he's performed over the years, we agree 110% on that !    I think James knows he stands to inherit a large chunk of Tim Glasson's 20% stake in due course so it's fair to say he's highly motivated!

Di is a genius and if it wasn't for her Glassons AU wouldn't be where it is today

James is pretty good but no genius

And if take out 2018 growth of 57% and credit that to Di as James was settling in your quadruple in 7  years is more like threefold in 6 years

That's the past but aren't you looking forward to F25 EPS of 73 cents.

[Basil]

Thanks, Ferg and of course you are quite right there was a warning to that effect so it's good to be conservative but 2% does seem a little too much, given loosening central bank policy restraint forecast on boat sides of the Tasman, but time will tell.

13 companies a VERY strong effort, (how do you find the time ?). and I really appreciate the work you are putting in.  I really love the objective decade long helicopter view you are providing on these companies.  So much talk and creative corporate "speak" by companies...just let the numbers do the talking I reckon.  Really looking forward to your thoughts on Turners.  Best wishes with moving house.

From memory Di Humphries came and went in the 2010's decade, like a revolving door and I can't remember the overall timing of her comings and goings, but I'll follow suit and let the numbers do the talking.  Glassons Au sales in 2011 were $36m and that grew at only just on a 5% CAGR through to 2017 to $50m and since James was appointed sales have more than quadrupled from $50m to $218m and grown at a 23% CAGR.  Who is responsible for the recent growth, I think the numbers speak for themselves but acknowledge others will have a different view that foundations were laid that were vital for the recent growth and that's fine.  All that really matters to me as a shareholder is the Australian growth is working and its strong even at the bottom of the retail cycle.

That said, Winner me Ol mate, you make a fair point about FY18 growth, and I accept Di laid the foundations for that but threefold sales growth in 6 years is very impressive to.  Perhaps you underrate James's skills a little?

I think it's a bit too early to be making estimations of FY25 eps.  My investment thesis is quite simple, I'm in like a hungry dividend hound for the 10% gross dividend yield and very confident of earnings / dividend growth in the years ahead as the economy recovers, translating into the share price hopefully heading north over time.  They're in a VERY strong position with just on 75 cents per share in cash on the balance sheet.  Take that out from the current share price and the metrics look even more compelling.  As I see it, you're paying a no growth PE of about 9.5-10 times, (about 8.5 times adjusting for cash on the balance sheet), forward earnings for a company with a well proven history of strong growth in Australia and all this at the bottom of the economic cycle. 

[winner (n)]

Glassons AU sales per store have doubled since 2018

Testament to their expansion and upgrade plans .....James doing lol

[Basil]

Testament to their expansion and upgrade plans .....James doing lol

Very impressive doubling same store sales and adding some more. I fixed that and put it in proper sized font and colour for you lol
20% return on capital with new stores...gosh, maybe they should open a few more really soon.

[lorraina]

With James Glasson firing up Glasson the huge side effect will be more Malls wanting him to open up a store in their Mall.