HLG - Hallenstein Glassons Holdings

[entrep]

Entrep's AI got that bit wrong. HLG has just reported for 1HY26 which includes the Christmas/summer season and is their best half. Their FY ends on August 1st.

The perils of AI... thanks for pointing that out. Humans win!

[Dolcile]

 I couldn't help myself, had to buy some more today.

[Basil]

I swear I'm not trying to pollute the forums with AI information but I just do find it interesting to see what it comes up with and what it latches on to when I feed it previous posts plus the latest financial statements. And of course nothing beats human analysis. Without human analysis, direction, and intuition the AI is essentially worthless. Anyway this is the last one that I'll post for a while since I'm keenly aware that this is meant to be a forum with discussion between human participants.

Please keep it coming mate because I think that although it makes some obvious mistakes its nevertheless a very useful overview and worthy of review and discussion.

HLG at $10: BUY. Strongly.

Agree 100%, its a VERY STRONG BUY

First 7 weeks (Sep report): sales +12.9%
First 18 weeks (AGM): sales +13.8%
Full H1 (26 weeks): sales +14.6%
Momentum was building, not fading. And the NPBT growth of +32.1% was more than double the sales growth, meaning margins are expanding rapidly. The H1 FY26 PBT margin was 14.3%, up from 12.5% in H1 FY25. That's 180 basis points of margin expansion in six months. Operating leverage is kicking in hard.

I think the momentum point is very well made and is not lost on me and I would have commented on that this morning if I had more time.  That against still weak retail conditions in N.Z. and headwinds with the exchange rate during the period.

At the FY25 effective tax rate of 32.4%:
FY26 NPAT: ~$48.9m
FY26 EPS: ~82 cps

Last years tax rate was unusually high due to prior period tax adjustments which were never explained despite me asking the CFO.  I expect the tax rate to normalize this year at about 29% or just over which is the average of the N.Z and Au tax rates.  I expect EPS of 90 cps and that puts HLG on a forward PE of only 11.3 at $10.15

The Sum-of-Parts Slaps You in the Face

What A.I. is missing is that the 10 year CAGR if they make 90 cps this year is 14.5%  That's an extraordinary and sustained growth rate especially given the extreme challenges thrown up over the last 6 years since Covid hit with the longest and deepest recession in N.Z. in decades as well as a protracted period of low retail activity in Australia. 

Using my standard GARP value screening formula this screens as very good value at 23 times forward earnings, (no growth PE of 8.5 + 1 extra PE for each 1% proven CAGR 14.5 = forward PE of 23 x 90 cents = $20.70.  To be crystal clear, I think this is a screaming bargain and trading at half its intrinsic worth.

1. NZX perception discount

The NZX still prices HLG as a New Zealand cyclical retailer. It isn't one anymore. 53% of sales and 59% of NPBT come from Glassons Australia. If this business were listed on the ASX with the same growth profile, it would trade at 16-18x forward earnings, not 12x. Briscoes – a purely domestic NZ retailer with flat to declining earnings – trades at 19x. That's absurd relative to HLG.

I strongly agree but as stated above I think its worth 23 times forward earnings.

This is a business with:

✅ 20%+ current EPS growth, accelerating
✅ A decade-long visible growth runway in Australia
✅ $58m cash, zero debt
✅ A deeply committed CEO/heir who just bought $2.3m of stock
✅ Operating leverage now demonstrably kicking in
✅ Competitors collapsing around it
✅ A forward PE of 12x, half what comparable ASX retailers trade at

The stock is at $10 because it's listed on the NZX and the market still thinks it's a Kiwi clothing shop. It's not. It's a $250m+ and rapidly growing Australian fashion brand with a NZ legacy business bolted on

These points are very well made as was the earlier point about lack of liquidity.
The point I have highlighted is one that I think sums the situation up very well.
This is trading at on deeply compelling metrics.  A good analogy is like when TRA was trading at $4 a few years ago.  Very seldom do well proven growth stocks present as having such exceptional value.  Even more rare when they have a very long history of trading on the NZX.
I have backed up the truck properly and am really looking forward to the growth continuing in the years ahead.
HLG is my #1 investment position in the market and highest conviction holding.  I expect analyst upgrades to come out on Monday next week.

[Basil]

Alfie 10/02/2026: I think HLG would be one of the best asymmetric risk shares on the NZX. There is very little chance- in my mind- of major falls in share price or a dividend reduction. On the other side there is a long runway of growth ahead in Australia that is easily funded by existing cash/ FCF. It wouldn't be unlikely to see HLG grow earnings/ dividends at 10% pa plus for the next 5 years.

New poster on the other channel.  I like what he has to say about the asymmetric risk.  There's risk in all equities but the risk-reward equation on HLG is very much skewed towards the reward side in my opinion.

Ponderings to consider and possibly discuss at tomorrow's get-together.  Sales up 14.6% in the half but net profit up a whopping 32.1%.  Where did the quite considerable extra margin / profitability come from ?  A few thoughts.

Just looking at the exchange rate for a minute. 
According to A.I. The average intermonth exchange rate from August 2025 to January 2026 for the New Zealand Dollar (NZD) to US Dollar (USD) is approximately 0.58176 USD.  According to Yahoo finance the average in the previous corresponding period (PCP) was 59.63 so it appears the US dollar was a 143 basis headwind this half compared to PCP.  US-Kiwi cross rate was a serious headwind that's been very easily overcome so that's quite interesting in itself.  Kiwi - Aussie cross rate could have been assistive.

Economies of scale could have played a part.  That makes sense when sales have grown ~ 15% and corporate overhead may have grown at a considerably slower pace.

Lower cost of doing business simply doesn't seem like a plausible reason.  Costs never go down.

The RFID stock tracking seems likely to have helped.  Lower stock losses and lower level's of discounting.  If I recall correctly they talked up the benefits of this technology at the annual meeting and how it provides more accurate stocking of stores to match demand and being able to do stock takes daily to track and address any stock issues more quickly.

Better trade terms with suppliers.  Maybe but they've been pushing hard on that for quite some time.

Lower freight costs.  Maybe freight rates have normalized and better stock tracking enables better and more efficient ordering and procurement practices ? 

A significant recovery in the profitability of N.Z. operations.  This seems highly likely to be one of the main contributors.  They talked about N.Z. operations being ahead of PCP at the annual meeting and the profitability sure got a beating last year so the bar was set very low for a significant improvement this year which will lead to more imputation credits being available.  That's good !

Just a few musings and ponderings about possible reasons for the very surprising profitability jump.  Feel free to add your own thoughts or discuss tomorrow in person.

[Mos]

Basil,
Scale benefits you allude to seem compelling. $35m extra sales in H1 at around 60% GM would contribute plus $21m NPBT, with NPBT up $10m it seems half flowed through to the bottom line. Powerful operating leverage in semi fixed store costs, staff costs and HQ costs. Great economics! 

[Basil]

Thanks Mos, very well said.
We should see more of the same in the years ahead, profit growing faster than the 10 year EPS CAGR of 14.5%.  Glassons Au has only just hit critical mass.

Australian warehouse space being expanded from 3 sites totalling 3,500 sqm to one site of 7,000 sqm with robotisised pick technology gives a big clue to expansion plans.

[Dolcile]

I have finally had some time to sit down and update my HLG spreadsheet. 

Suffice to say, this is a very impressive result. 

To get to PBT of $39.6m as far as I can tell the HY figures look something like this:

Revenue $275.2m  (reported)
COS    $110.1m  (40% of sales)
GM      $165.1m

Selling $93.6m (34% of sales)
Dist.  $9.6m (3.5% of sales)
Admin  $21.0m (7.6% of sales). 

In splitting out the 2025 H1 and H2 result I noticed that the Admin costs jumped from $18.9m (H1) to $21.6m (H2).  I got AI to help me unpick the possible reasons for this, which is in the quote below.   Based on this, I've assumed the admin cost is stable or just below H2 2025 in back solving the PBT guidance.   

Growth-related overhead – FY25 saw strong sales growth, particularly at Glassons Australia, where several stores were relocated, expanded or newly opened (e.g., the Werribee store relocation and expansion and new stores at Rundle Mall and Manawa Bay).  The Group noted that it "balanced continued investment in our operational capabilities to support the growth of our Australian brands" with careful cost control.  These investments required additional head-office support, contributing to higher administration expenses.


Digital and marketing initiatives – The FY25 interim report highlights a continued focus on digital marketing and the omnichannel experience across both brands, including enhancements to the Hallensteins and Glassons web shops and their mobile app.  Expanding digital capability requires head-office and IT resources that flow through administration expenses.

Increased people costs and share-based payments – The Group expanded from 2,352 employees in FY24 to 2,588 employees in FY25 (as disclosed in the annual report's highlights) and operates in a tight labour market.  In addition, the share-option reserve increased, suggesting higher share-based remuneration costs.  Wage inflation and staff incentives for a larger workforce raise administrative overhead.


Inflation and one-off items – General inflation (especially salaries and IT services) and one-off expenditures such as consultancy associated with store migrations, lease negotiations and systems improvements, also contributed to higher administration expenses.  The company's commentary about investing in "operational capability" implies that some of these expenses were deliberate investments to support future growth.

And finally, some might be interested to know that the H1 2026 result is higher than the FY2019 result.  Wowee.

[Bev]

Thanks Dolcile

I was wondering how online sales were contributing to growth.  Not as much as I expected.

By AI

Recent Online Sales Performance

Full Year 2025 Digital sales represented 18.0% of group revenue, with overall online sales growing by 6.7% year-on-year.
Half Year 2025 : Online sales accounted for nearly 18% of group sales.
Full Year 2024 : Online sales were 18.2% of total sales, compared to 18.3% in the 2023 financial year.
Half Year 2024 (to Feb 1): Digital sales were slightly lower at 17.3%, down from 18.1% in the same period the previous year.

Historical Context.
Hallenstein Glasson's online sales peaked significantly during the COVID-19 pandemic due to widespread store closures.

2022: Online sales reached 27.88% (or 27.9%) of total revenue.
2021: Online sales represented 24.04% of total turnover.
2020: Online sales for the full year were 22%, but surged to 31% during the final six months of the financial year due to lockdowns.

The company continues to invest in digital platforms, recently launching a Hallensteins App and reporting over 1.9 million downloads for the Glassons App to drive further engagement.

[Pierre]

Excellent update from Forbar. Rated Outperform, projecting  total FY26 dividend of 71.5cps and 12 month target price of $12.50 (up from $11.75).
Maybe we should both buy some more Basil - to hell with diversification!

[winner (n)]

Excellent update from Forbar. Rated Outperform, projecting  total FY26 dividend of 71.5cps and 12 month target price of $12.50 (up from $11.75).
Maybe we should both buy some more Basil - to hell with diversification!

Jeez. .....only $12.50

Wait for next upgrade in few months ..it be $14.10

[Dolcile]

It seems very conservative to me.   Forbar are forecasting a 3 year CAGR of 14% yet they are only valuing it at 14.88xFY26 earnings.

[Basil]

After a few drinks yesterday it all became crystal clear to me...the pathway to $30 in five years time.
For those who were out of earshot or  not there yesterday when I had this epiphany its not as outrageous as it sounds.  Its just simple math's.
5 years compound EPS growth of 15%, (could be higher per scale benefits as alluded too above, but lets stick with 15% CAGR for now), doubles your EPS = $20. on the current PE multiple.
Multiple expansion from the ridiculously low 11 to a more sensible and still conservative PE of 16.5 (still exceptional value for a stock growing EPS at 15% CAGR) 50% multiple expansion x $20 = $30.  Strong ongoing compound EPS growth and multiple expansion combining is how really serious money is made on the market.  HLG doing this with no issuance of shares is one of the keys.  Maybe just an alcohol fueled dream, but I reckon it's a real chance especially if your timeframe is more than 5 years, say 7-8 years.  When it hits $30 Pierre, we'll have to up the ante to flying first class  

[Left Field]

Hey Basil, congratulations on your possibly alcohol fuelled HLG epiphany, however, for those of us who couldn't attend, were any other meaningful stocks discussed?

[Pierre]

After a few drinks yesterday it all became crystal clear to me...the pathway to $30 in five years time.
...Maybe just an alcohol fueled dream, but I reckon it's a real chance especially if your timeframe is more than 5 years, say 7-8 years.  When it hits $30 Pierre, we'll have to up the ante to flying first class  

I don't think you drank enough cider yesterday Basil to cloud your usual perspicacity so I think your analysis holds a great deal of merit.
Following our discussion yesterday and today's Forbar report I couldn't hold back. I put in an order pre-opening and have increased my HLG holding by a further 10%.

I'm looking forward to the first class flights but I think I'll move up when we get to $20. In 8 years time, I might be on a Zimmer frame and unable to walk to the plane!

[winner (n)]

What would  guru Ben Graham would come up

0.9 x (8.5 + 30) assuming eps of 90 cents and 15% growth


About the same as Basil ....$34.65