HLG - Hallenstein Glassons Holdings

[LoungeLizard]

IMO, a 6% yield is not commensurate with the risk that all retail has, especially in these times. If you are a holder, continue to hold by all means - but buying at these levels is based on gambling on further capital growth which is far from certain. HLG have shown impressive, consistent growth but I am sceptical that the SP can continue to stay at these elevated levels much less continue to grow. There has been a pull back in recent times and the terribly low liquidity is another risk to bear in m ind if that pull-back takes hold due to economic uncertainty.

I'm an outlier on this thread for sure, but I'd be cautious in encouraging new buyers to enter the market at these levels at these times. Applies to a lot of NZ stocks, not just HLG.

[Basil]

I aee no reason why dividends can't be fully imputed in the future. Say 65 cps for the year rising to 72 cps next year. 72cps fully imputed is $1.00 share gross equals 10% gross prospective dividend for FY27.

I've seen this many times before. A.I. is useless at working out the gross yield with imputation credits.

Buying a business with a well proven  CAGR of circa 12% on a forward PE of 12 is very deep value in my opinion. Otherwise a very good analysis from A I., thanks Entrep

[LoungeLizard]

The value of imputation credits is variable depending on the investors circumstances. That's probably why AI leaves it out in considering the yield. To be fair that's how it's done on most investment sites.

[Basil]

Invest direct gross it up. Analysts generally show gross yield. Anyway leaving that debate aside, I made a mistake earlier. It would take $6.7m in imputation credits to fully impute this dividend. Tax payable is $5.5m in N.Z. which if it weren't for timing issues around when the company pays it's tax would ordinarily have allowed an 82% imputation rate.

82% is the current rate to use in calculating medium term gross yield assumptions.

Due to these timing issues I am forecasting the final dividend for FY26 in December will be fully imputed.
 
72 cps for FY27 imputed at 82% gives 93.5 cps gross. On a share price of $9.85 that's a prospective yield of 9.5% gross.

[Dolcile]

The value of imputation credits is variable depending on the investors circumstances. That's probably why AI leaves it out in considering the yield. To be fair that's how it's done on most investment sites.

Why, I thought that if you are on a lower tax rate you get a refund for excess imputation credits

[LoungeLizard]

Why, I thought that if you are on a lower tax rate you get a refund for excess imputation credits

As I say, it depends on circumstances. If you live predominantly, or in my case, exclusively, on share investment income, and most of that is fully imputed, you may not have much tax paid yourself to apply the imputation credits against. I've been rolling over excess credits for some time. Maybe I should get a job?
NZX doesn't include imputation credits into their yield calculations (HLG on 6.79%). Nor does google or AI.
Rather confusingly ASB use a Net Yield. Still reckon the classic formula is easier for simplicity and consistency:
Dividend Yield = (Annual Dividends Per Share / Price Per Share) × 100.

[Basil]

I've done tens of thousands of tax returns over the last 45 years, far too many to count.  Lizards situation is quite unusual and very rare.  The vast majority of people are able to extract value from imputation credits, (the IRD are statue barred from refunding them), because they have other income taxed at source or other dividends that are unimputed and / or other dividends that have RWT deducted from them.  Most retired investors are taxed on their superannuation so are able to get a portion of the tax deducted on that back using their imputation credits.

Small retail investors may want to keep things super simple so by all means just accept the face value yield.   To me that's very simplistic and unhelpful.   Clearly a dividend that has no tax credit attached at 6% yield leaves you fully exposed to tax and for some investors on a 39% tax rate that's only worth 3.66% net.  To investment companies, (many professional investors own their shares in their own holding company), if its fully imputed a 6% dividend is worth the full 6% in the hand. Professional investors and institutions will be looking at the gross yield inclusive of the value of imputation credits regardless of how A.I., Google, the NZX or any other website or analysts report shows it.

[LoungeLizard]

I've done tens of thousands of tax returns over the last 45 years, far too many to count.  Lizards situation is quite unusual and very rare.  The vast majority of people are able to extract value from imputation credits, (the IRD are statue barred from refunding them), because they have other income taxed at source or other dividends that are unimputed and / or other dividends that have RWT deducted from them.  Most retired investors are taxed on their superannuation so are able to get a portion of the tax deducted on that back using their imputation credits.

Small retail investors may want to keep things super simple so by all means just accept the face value yield.   To me that's very simplistic and unhelpful.   Clearly a dividend that has no tax credit attached at 6% yield leaves you fully exposed to tax and for some investors on a 39% tax rate that's only worth 3.66% net.  To investment companies, (many professional investors own their shares in their own holding company), if its fully imputed a 6% dividend is worth the full 6% in the hand. Professional investors and institutions will be looking at the gross yield inclusive of the value of imputation credits regardless of how A.I., Google, the NZX or any other website or analysts report shows it.

Yes, possibly my situation is rare - I retired very early and I don't receive Superannuation as yet. If you are on a M tax rate then it's possible the tax on Super alone may soak up all your imputation credits. Depends on how much income you derive from dividends. As I say, simple is best and for the vast majority of "non-professiona" investors it's better in my opinion not to think about imputation credits when calculating yield. That of course doesn't stop anyone else from doing so. Each to their own.

[Popeye]

Note HLG do include ICs in their dividend yield, they use trailing 12 months gross divs (including ICs) divided by prior day closing SP:

Code Ex Dividend Period         Amount Imputation   Total
HLG 04 Dec 25, NZDT Final     30.500    6.706            37.206
HLG 09 Apr 25, NZST Interim  24.500    3.856            28.356
                                                                                     65.562

                                                               SP COB 26/3 965.000

                                                                       divs TTM 65.562

                                                                                       6.794%

[Popeye]

I would say HLG offer a pretty decent return with good prospects for growth as well as some very strong recent evidence for their ability to deliver growth without blowing out their COB, which is harder than it sounds.  Compare that with say BGP who offer a comparable (inferior) return but with limited prospects for growth.  A well run company, but success for them is holding their place in an increasingly competitive market.

So I would agree that HLG is at least a hold, and also that there is a valid case for them being a buy too with a long term horizon.  Retail is in for a bumpy ride when the downstream effects of the Middle East being on fire start to filter through to fuel prices and logistics costs (inflation). 

[Red Baron]

As I say, it depends on circumstances. If you live predominantly, or in my case, exclusively, on share investment income, and most of that is fully imputed, you may not have much tax paid yourself to apply the imputation credits against. I've been rolling over excess credits for some time. Maybe I should get a job?

May I zuggest another option.   

Get yourself zome good quailty dividend paying Australian zhares.  Zhey have minimal dividend vithholding tax deducted 'at zource',and you can use your 'NZ imputation credits' to top up ze top up 'NZ part of tax due' using ze dual tax agreement ve have vith ze Ozzies.

RB

[LoungeLizard]

May I zuggest another option.   

Get yourself zome good quailty dividend paying Australian zhares.  Zhey have minimal dividend vithholding tax deducted 'at zource',and you can use your 'NZ imputation credits' to top up ze top up 'NZ part of tax due' using ze dual tax agreement ve have vith ze Ozzies.

RB

Interesting. Will look into it. Although tbh I'm not wanting to put much more into share markets anywhere at the moment. Aussie are better placed than NZ but a world wide recession/ market crash will sweep them aside along with everyone else.

And on that, I'd agree that HLG are a vigilant hold but not a buy. Not in the current climate. NZ economy is in deep doo-doo. We've been in a recession for so long but now face stagflationary constraints of no/low growth coupled with inflation. If the oil crisis gets worse and diesel in particular keeps going up, then that will be enough to set off a spiral downwards to goodness knows where. Cash is king, except for a few defensive stocks that pay a reasonable yield.

[Basil]

HLG have proven to be very resilient over the incredibly difficult years of Covid and the endless recession this decade.  Nobody is denying the current toxic geopolitical situation is not a concern but some stocks are far more resilient than others.  Its helps a lot not having any debt and the fact that they've taken a sure and steady approach to store expansion over the years.  This company is run very conservatively and prudently and its better placed than most others to weather the challenges.

Interesting article in the Herald today about Chargenet putting their prices up for electric charging.  The interesting bit was that people are coping with the 30% increase in the cost of fuel by choosing to drive 20% less.  People will adapt, just like they had to adapt during Covid and the endless recession in N.Z. throughout which some companies like TRA and HLG have shone through as beacons of resilience and operational excellence.

Anyway...here's how the HLG result is being reported in the Herald https://www.nzherald.co.nz/business/companies/retail/hallenstein-glassons-profit-jumps-32-as-sales-surge-to-275m/AORSB6KGRNAF7C6TWLUM3775KA/

[LoungeLizard]

Last comment. Macroeconomics trumps everything. It doesn't matter how well run the company is, when the market crashes it takes everything with it. May not happen of course, but I'm happy to sit this one out for now. Holding but not accumulating.

[winner (n)]

How the segments performed H126 v H125

In total $21.1m came from selling more stuff and $6.1m for making more on those sales

Expenses were $17.3m higher - mainly from Glassons AU

So NPBT up $9.8m on last year - with NZ being the star performers

Table in $m

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