HLG - Hallenstein Glassons Holdings

[Basil]

Very good sales update that exceeded my expectations of mid to late single digits. 
https://api.nzx.com/public/announcement/443493/attachment/433812/443493-433812.pdf

I think they have performed remarkably well delivering record profits and dividends despite what they have acknowledged as the toughest trading conditions last year, in decades.  Sales up ~ 10% year to date in what is still a very difficult retail environment is especially encouraging as is the gross margin being stable.

No debt, record levels of cash on hand (75 cents a share), strong committed management, low PE, high yield, proven history of quadrupling sales in Australia over the last 7 years with low penetration there and a long runway of growth ahead. Disciplined approach to new store openings based on specific targeted return on investment criteria is mentioned in the announcement and something I really like.   Using A.I. to enhance strategies now...what's not to like?

To me, they seem incredibly well positioned to continue to grow in the years ahead as we come off the bottom of the economic cycle.
I think HLG is arguably one of the two most compelling GARP, (growth at a reasonable price) stocks on the NZX.
The metrics they and TRA trade on, considering their very good prospects for growth in the years ahead, offer very deep value in a market which I consider having generally quite stretched metrics.  Happy to hold both for many years ahead and enjoy the ride.
TRA and HLG my #1 and #2 individual stock positions.  BRM is bigger but that's a fund of ~25 stocks so not a true individual stock position per se.

[lorraina]

As expected a very positive agm.
Technology.Starting in Australia all items will have a strip in the label.
This will identify the article.Will really help logistics keeping track of all stock,through HLG supply chain.
Should go a long way to stop shrinkages,and mistakes.
But the real beauty will be it should stop store theft,as it will only be deactivated as it is scanned at the checkout.

[Basil]

Sounds great. Thanks for sharing.  Any other matters from the annual meeting to share ?

[lorraina]

Growth is based on Australia.
2 to 5 new stores a year.
Plus expanding existing stores where warranted.
New warehouse to open in 2026 is having time spent on design,and is expected to improve logistics.
What is HLG point of difference to struggling retailers.?
They remain close to their customers.
James spends a good amount of time in stores at the coalface.
HLG speed of bringing  new designs to retail.
Strong stock turns.
Yet Tim Glasson did point out they had to back their own judgement.
And that only comes from experience.
With their strong cash position,excellent board and management,caution when expanding,always looking to improve all aspects of their business,including online,the next 5 years should be really exciting.
I was surprised that pay back from setting up a new store was under a year.
Aussie landlords remain a very tough breed.If they do not get you on the basic rent they will get you somewhere else.!
Doing business in Australia is a look more expensive than NZ,rents,wages,freight etc.

 

[winner (n)]

And they starting to use AI ....that's cool

[Dolcile]

The NZX is so frickle.  This was done at $7 yesterday and now back up to $7.34

Basil have you been feasting this morning?  I couldn't move cash around quick enough to take advantage of some low hanging fruit.

[Basil]

Bought a few more yesterday at $7.01.  Many thanks to the seller of those shares and merry Christmas to you lol

Thanks for sharing lorraina.  I agree the future is very bright and the metrics are so darn compelling.  Will you all please stop buying so I can get some more at $7.01 lol

[Basil]

And they starting to use AI ....that's cool

KW mentioned on the weekend to me a comparative retailer in Aus that was on a PE of 18, sorry, forgotten the name, perhaps she will share.
Apply that metric to HLG and the share price would be ~ 80% north of here.
Maybe if as she suggested, they list in Australia and start passing through franking credits on Australian tax, Australian institutions would jump on the bandwagon and rerate them?

[winner (n)]

Manage +10% sales for full year and stable margin is ~$25m higher Gross Margin than F24

Say expenses up $12m that gives NPAT increase of $9/$10m

FY NPAT going to be over $40m

Even if only $40m that's an EPS of ~66 cents

Apply a Briscoes PE of 16 and share price should be over $10

Where's the BUY button

[lorraina]

I found it interesting that Glassons is No.1 clothing retailer in all the Westfield Malls they have a store.

[KW]

I found it interesting that Glassons is No.1 clothing retailer in all the Westfield Malls they have a store.

An Aussie fund manager friend recently hung out at an Australian Westfields - he reported that it was the busiest store in the mall.  

UNI was the other retailer.

[Basil]

UNI PE 17.8, div yield 4.4%
Sales have grown from $112.2m in FY18 to $288.5m in FY24, 2.57 times but well shy of Glassons AU that have quadrupled over a year longer period.
Gross profit margin last year was just on 60%, very similar to HLG.  Bell Potter has a price target of $8.85 and see first half sales growing 10.5% and second half 6%, very similar growth rate to HLG but Glassons Au is where all the growth for the HLG group is so Glassons Au growth rate will be faster than UNI.

On a forward FY25 basis:-
I'm with Winner and think mid 60's eps is doable this year, say 65 cps.  I expect a similar result to last year for N.Z. operations about $15m after tax = 25.2 cps and I would ascribe a no growth PE of 10 to that = $2.52.  Its never grown over time and anyone who thinks it is in the future is way too optimistic.

I think Glassons Au can do 40 cps in FY25 and I think a fair PE is UNI's one as Glassons Au is slightly smaller than all of UNI in terms of sales but is growing faster.  Fair value is 40 cps x 18 = $7.20.

Sum of the parts is $9.72.  That's my price target one year hence.

[Dolcile]

Great analysis, Basil.  Thank you. 

The question I am wondering is whether we need to temper that AU valuation for the fact that we don't get the benefit of franking credits, whereas the AU shareholders of UNI would?

[lorraina]

Forbar
Financials: Aug/ 24A 25E 26E 27E
Rev (NZ$m) 435.6 467.5 490.5 515.6
NPAT* (NZ$m) 34.5 42.9 44.6 49.2
EPS* (NZc) 57.8 72.0 74.7 82.4
DPS (NZc) 50.5 61.0 63.5 70.0
Imputation (%) 75 75 75 75

Crikey.Target price $10.00...They are more bullish than Basil...

[winner (n)]

Forbar
Financials: Aug/ 24A 25E 26E 27E
Rev (NZ$m) 435.6 467.5 490.5 515.6
NPAT* (NZ$m) 34.5 42.9 44.6 49.2
EPS* (NZc) 57.8 72.0 74.7 82.4
DPS (NZc) 50.5 61.0 63.5 70.0
Imputation (%) 75 75 75 75

Crikey.They are more bullish than Basil...

Yep, they've lost the plot or did numbers after the Christmas piss up  ....even more bullish than me lol


That Dividend F25 of 61 cents at 75% imputed .... If one wanted a 8% gross yield you'd pay close to $10