HLG - Hallenstein Glassons Holdings

[Basil]

jeez - HLG hit 936 but recovering (not so bad as some will take comfort in being on low volumes)

Now 12% down from recent high. Suppose market now behaving like a weighing machine after that short burst of voting

Nice try mate, lol. I know "Beagle bait" when I see it and I'm not biting     

[winner (n)]

Tim Glasson on radio this morning saying Glassons going OK and great sales in Chch and Queenstown

[winner (n)]

jeez - 13% down from recent high

Market must think HLG overpriced in these turbulent times

[winner (n)]

But it will all OK on Friday when they tell us that sales for 2nd  half are up 14% on last year ..... and the momentum is continuing.

[Basil]

Friday's announcement is eagerly awaited and will also give a very useful insight into how trading has been in the first 7 weeks or so of 2H FY26.

[Pierre]

Friday's announcement is eagerly awaited and will also give a very useful insight into how trading has been in the first 7 weeks or so of 2H FY26.

Last year's first half dividend was 24.5cps. What will be announced Friday morning? My pick is at least 30cps but potentially up to 32cps.
Forbar's estimate for the total FY26 divvie is 71.5. All very tasty!

[winner (n)]

Goodness gracious - Group sales for the first seven weeks are up +20.1% on the same period last year from a functional currency perspective of the countries in which our chains operate,

What do they mean by 'from a functional currency perspective' - I presume real increase before forex impacts/

But 20.1% increase is HUGE

[Basil]

First impressions.
Outstanding result right at the very top end of guidance.  Dividend is slightly lower than I was hoping for but given geopolitical environment they are right to be prudent and conservative.
Great to see a huge improvement in the profitability of Glassons N.Z. and Hallensteins.  That's encouraging for the future level of imputation credits.

Glassons Au sales up 22% is stunning.

Effective tax rate just under 30% as expected, 29.65% a blend of N.Z and Au tax rates.

Not quite sure what the functional currency perspective comment means but I guess constant currency compared to the previous corresponding period ?  Keep in mind 3 of those 7 weeks were affected by the war so 20.1% growth in sales in the 7 weeks to date for 2H is truly outstanding.  If I'm honest I expected it to be late single digits growth given the headwinds from geopolitical events and the fact sales were growing at 14.6% in the first half.  20.1% growth is hugely encouraging.

Very early days but that's an outstanding indication of how resilient the business could be in these challenging times.  Warren Bell is quite rightly calling out some of the challenges in the second half but my goodness, I'm seriously impressed with the initial indication of how they're coping.

More thoughts to come after I've read through the financials' in detail.

[alkebab]

First impressions.
Outstanding result right at the very top end of guidance.  Dividend is slightly lower than I was hoping for but given geopolitical environment they are right to be prudent and conservative.
Great to see a huge improvement in the profitability of Glassons N.Z. and Hallensteins.  That's encouraging for the future level of imputation credits.

Glassons Au sales up 22% is stunning.

Effective tax rate just under 30% as expected, 29.65% a blend of N.Z and Au tax rates.

Not quite sure what the functional currency perspective comment means but I guess constant currency compared to the previous corresponding period ?  Keep in mind 3 of those 7 weeks were affected by the war so 20.1% growth in sales in the 7 weeks to date for 2H is truly outstanding.  If I'm honest I expected it to be late single digits growth given the headwinds from geopolitical events and the fact sales were growing at 14.6% in the first half.  20.1% growth is hugely encouraging.

Very early days but that's an outstanding indication of how resilient the business could be in these challenging times.  Warren Bell is quite rightly calling out some of the challenges in the second half but my goodness, I'm seriously impressed with the initial indication of how they're coping.

More thoughts to come after I've read through the financials' in detail.

NZD has dropped from 87c at the end of Oct to 83c today, so approx 5% drop.

[Dolcile]

Great result

Functional currency means the economic environment in which the entity/business operates.  So I'm assume it means that the increase is in AU vs AU.

[lorraina]

Another stunner.

[Basil]

Buckle up this is really bloody interesting from a dividend hounds perspective.  (Just a quick analysis of the financials, will have a more detailed look later)
Not sure why the modest imputation rate this time, must be a timing issue of when tax is paid as there are penalties for the imputation credit account going into debit so most companies don;t overpay out imputation credits.

First a few other things and then we'll get to the real gold about potential future level of imputation credits...(brokers are forecasting well below 50% in the years ahead which looks wrong).

EPS of 47 cps is outstanding.  Only paying out 29 cps in dividend is a record low payout ratio of only 61.7%

A whopping 90 cps in cash flow from operating activities...this company is a cash flow machine !
Cash on hand now $67.5m up from $58.3m at balance date and a record level of cash on hand by miles, amounts to $1.13 per share and that's despite a significantly increased investment of $12.5m in plant and equipment, (new store fit out and refurbishment as well as I presume progress payments on the new warehouse).

Looking ahead to the potential level of imputation credits which obviously has a huge effect on what net dividend we get in our hands, its well worth noting that Glassons N.Z. and Hallensteins have a combined tax impost as recorded in the financial statements of $5.521m.
Full imputation credits on this 29 cent dividend would use $4.83m of that leaving $0.69m available to be carried forward.

The low level of imputation credit this time must be a timing issue but I am hugely encouraged by the huge profit jump in Glassons N.Z and Haldenstein's which could lead to future dividends being fully imputed !

That's a game changer for the net income you receive in your hand especially for those like me holding their shares in their own investment company which is taxed at 28% so full imputation credits extinguish any tax liability.

https://api.nzx.com/public/announcement/470014/attachment/465439/470014-465439.pdf

[Dolcile]

I couldn't help myself, purchased another tranche this morning.

[Basil]

If it weren't for the current geopolitical environment I reckon this would be over $11 on that excellent result.

[entrep]

HLG H1 FY26 – Straight Assessment
The Result
H1 FY26 is an excellent result. There's no honest way to characterize it otherwise.

Sales up 14.6% to $275.2m
Gross margin up 240bps to 60.9%
NPBT up 32.9% to $39.8m
EPS 47.0c, up 32.4%
Operating cash flow $53.5m
Cash on hand $67.5m ($1.13/share), no debt
All three divisions in profit growth for the first time in years
First 7 weeks of H2 trading up 20.1% in functional currency

These are facts, not spin. This is the best half-year result the company has ever produced.

The Concerns – Real But Proportionate

Admin expenses up 31% ($6.0m increase): This is a genuine unknown and the financials don't explain it. It needs watching. But in the context of NPBT growing $9.9m in the same period, the business more than absorbed it. If it's one-off costs (warehouse project, Australian subsidiary setup, CEO departure), it doesn't change the story. If it's structural, it modestly reduces forward earnings. Either way it's not a dealbreaker – it's an open question.

FX hedges underwater ($2.7m after-tax swing): Real, and it will create some margin pressure over the next 6-12 months. But $2.7m against H1 NPAT of $28m is manageable. Management has navigated FX headwinds before. The gross margin may compress somewhat from 60.9% but it was 58.5% a year ago and 59.3% for FY25 – even some giveback still leaves it in good shape.

Imputation rate at 11.28%: Genuinely the lowest on record and annoying for NZ shareholders. Most likely a timing issue with provisional tax payments. The NZ divisions generated $5.5m in tax this half, which is more than enough to fully impute the 29c dividend if the credits were available at the right time. This is a nuisance, not a fundamental problem.

No Group CEO: Unusual, but the results speak for themselves. The company just delivered 33% profit growth without one. Maybe they don't need one.

Maybe they do and the cracks will show later. For now, the evidence says the current structure works.

Chairman's cautious outlook: He should be cautious – there are genuine geopolitical risks and he'd be irresponsible not to flag them. But he was cautious last year too and the business delivered record results. The 20.1% H2 trading start suggests the business is performing well despite whatever he's worried about.

None of these concerns are existential. None of them fundamentally undermine the investment case. They're real risks that could shave a few cents off EPS or create a soft quarter. They're not reasons to avoid the stock.

Segments – What Actually Matters

Glassons Australia grew sales 22.4% to $151.8m. NPBT margin compressed slightly from 13.7% to 13.2% due to new store costs and the warehouse project. This is normal for a business investing in growth. The margin compression is 50bps on a division growing revenue 22% – that's a perfectly acceptable trade-off. 41 stores now, with room for 80+ on a population-adjusted basis. The growth runway is real.
Glassons NZ is the story within the story. NPBT up 43.8% to $13.3m on sales up only 8.2%. The margin expanded to 21.5% – highest in the group. This division is demonstrating that in a recovering economy with stable store count, operating leverage is powerful. It also generates the NZ tax credits needed for dividend imputation.
Hallensteins bounced 76% off a terrible base. Good to see but this is recovery, not growth. It's back to roughly where it was two years ago. Adequate, not exciting.

Full-Year FY26 Estimate
H1 delivered 47.0c EPS. H2 FY25 delivered 30.7c EPS. If H2 FY26 grows at 15% (splitting the difference between the chairman's caution and the strong 7-week trading), H2 EPS would be about 35-36c, giving full-year EPS of approximately 83-85c.
That's a reasonable central estimate. Could be higher if the 20.1% trading momentum continues. Could be lower if geopolitical events hit consumer confidence. I'll use 84c as my working number.

Valuation at $10
Forward PE on 84c EPS: 11.9x. HLG's long-run average PE is about 11.6x. So the stock is trading almost exactly at its historical average multiple.
The difference is that the earnings growth rate today (~30% this year, probably normalizing to 10-15% going forward) is stronger than what the historical average PE was assigned against. A company with a proven growth engine in Australia, $1.13/share in cash, zero debt, and a 10-15% forward earnings growth rate would normally deserve at least its historical average PE and arguably a modest premium.

At 11.9x forward, the market is not giving HLG any credit for the acceleration in growth or the Australian runway. It's pricing it as if it's the same cyclical NZ retailer it was five years ago. That's where the opportunity lies, if there is one.

Cash dividend yield of about 6% is solid. Even with poor imputation, that's a meaningful income stream while you wait.

So What Is It?

It's good value. Not a screaming buy, not a stay away, not a disaster. Good value.

Here's why: you're buying a business growing earnings at 30% this year (normalizing to 10-15%) at a PE of 12x, backed by $1.13/share in net cash, paying you 6% in dividends while you hold, with a credible multi-year growth story in Australia and management that has delivered consistently. The risks are real but moderate and none of them threaten the business as a going concern.

The stock was a screaming buy at $6-7 when the PE was under 10x and the market hadn't recognized the Australian growth trajectory. At $10 the market has partially caught up but hasn't fully priced in the earnings upgrade this result implies. There's probably 10-20% upside to $11-12 as consensus estimates get revised up. There's maybe 10-15% downside to $8.50-9 if the macro deteriorates. That's a favorable skew but not a dramatic one.

If I had to put a number on fair value right now it's about $11, based on approximately 84c EPS on a 13x multiple, which is a slight premium to the historical average reflecting the stronger growth profile. The stock is about 10% below that.

If you own it: hold. The result confirms everything that's been working and the forward outlook is solid despite the chairman's appropriate caution.
If you're looking to buy: $10 is a reasonable entry point. You're not overpaying. You could wait for a pullback to $9 for a better margin of safety, but you might not get one given the trading momentum. Dollar-cost averaging in is sensible.
If you're looking to sell: there's no reason in this result to sell. The business is performing at or above expectations on every meaningful metric.