HLG - Hallenstein Glassons Holdings

[BlackPeter]

Laughable how the downrampers are calling this a cyclical and warning of capital losses.  Since Glassons Au achieved critical mass in FY17 shares have doubled from $2.75 !

Basil, I am sorry that a poster of your qualities sees his last resort in labelling others raising absolutely valid concerns as "down rampers".

I hope this is just a temporary slip ... used to be more fun to work with you previously.

Just looking at the HLG trend - not sure how else to call that as (inflation adjusted) cyclical. If you can't see that, maybe you should consider a visit at your local Specsavers ...

Might be ownership bias, though ... I guess this is where glasses unfortunately don't help.

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[winner (n)]

Basil, I am sorry that a poster of your qualities sees his last resort in labelling others raising absolutely valid concerns as "down rampers".

I hope this is just a temporary slip ... used to be more fun to work with you previously.

Just looking at the HLG trend - not sure how else to call that as (inflation adjusted) cyclical. If you can't see that, maybe you should consider a visit at your local Specsavers ...

Might be ownership bias, though ... I guess this is where glasses unfortunately don't help.

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Ha ha ...about as cyclical as Oceania ....whoever would have thought Oceania was a cyclical

[Basil]

Nice long day out on the boat so could only be bothered making time for a short pithy comment earlier.

I've posted extensively about this company already...for goodness sake please, try and keep up, there's a good chap.

HLG was a cyclical before they started expanding Glassons Au in FY17.  Since then Glassons Au sales have grown from ~ $50m per annum to what I believe will be comfortably north of $200m per annum for FY23.  That's quadrupled in 6 years, (just in case your calculator isn't working).  They have a proven history of growing sales at a compound average growth rate of 26% per annum over 6 years since operations over there hit critical mass in early FY17 when the share price was $2.75.  If not this year, certainly in FY24, Australian sales will exceed N.Z. sales.

To be crystal clear, there are two distinct era's in which HLG have operated.  Before Glassons Au and after Glassons Au.

HLG N.Z. probably is still a cyclical, although, mark my words, many will be very surprised with their sales this half.

If you go back and have a look at my workings on the other site (I do not have the time to look back and check the post number for you), you will see that I believe approx 80% of the value of the shares lies in Glassons Au (a genuine growth division with huge potential in the years ahead) and only 20% of my assessed value lies with Glassons N.Z. and the Hallensteins brand.

Put another way, as I see it one division of HLG (Glassons Au) is worth 4 times the rest of the company and therefore this is a 80% growth company and 20% of the value is a cyclical.

Here's their 2017 annual report https://www.hallensteinglasson.co.nz/content/reports/Annual%20Report.pdf
That year just $50m of the $239m annual sales were from Australia, (21%).  Australian sales are going to be north of $200m this year, (approx 50%).  In just six years HLG has transitioned into a truly Trans Tasman company through the exceptional, sustained growth of Glassons Au.   Group Sales in FY23 according to my forecast, will be nearly double what they were in FY17 and have grown steadily over the years.

When you start thinking about the fact that as at balance date FY22 Glasson Au only had exactly the same number of stores as Glassons N.Z. (36 stores each), and the fact that the Australian market is 5-6 times the size of ours and Glassons is a fresh young brand there and arguably very mature here, it's hard not to get very excited about the future of Glassons Au and the implications for growth in earnings per share in the years ahead.

Please do some reading of annual reports...Blind Freedy can see where the value of this company lies and the proven growth history and exciting growth potential ahead for Glassons Au.    Disc: #1 Invested position on the NZX

You can get copies of all previous reports here https://www.hallensteinglasson.co.nz/investment-centre

[winner (n)]

HLG have a 'fortress balance sheet' ...... fortress seems to be a new buzz word when it comes to describing balance sheets

[Waltzing]

Well is it? its impressive they have grown the business from no cap raises..
 
 As stated before these reports need to be PDF object tagged... from all public companies. Its got to a point where the industry is negligent on reporting from a technology point of view.

notice retained earnings.
Current Assets.
Current Liabilities.

[BlackPeter]

Ha ha ...about as cyclical as Oceania ....whoever would have thought Oceania was a cyclical

Of course are REITS cyclical and highly correlated with the ups and downs of the Real Estate Market.

What exactly is your point?

[Basil]

HLG have a 'fortress balance sheet' ...... fortress seems to be a new buzz word when it comes to describing balance sheets

A point completely overlooked by a poster in the other forum who occasionally posts here who appears to have only now jumped on board with forecasting a record ever FY23, something I have been forecasting for months.

If he's right with his $30-35m this half, (and I am not sure he will be but am doing some analysis on first and second half forecasted profit split today), that's eps of 50 -59 cps this half.
They already had 59 cps in cash at balance date and have paid out 24 cps so without knowing the timing of capex this year and movements in stock level's it would appear they may have 59 + 55 cps at the mid point less 24 cents paid in dividend in December = 90 cents per share in cash on the balance sheet at the interim reporting period, approx $54m.

Earnings of that magnitude would allow them to do a 5% share buy-back (approx $16m at the current share price spread out over the next 12 months) boosting all future year's earnings per share by 5% and still pay a circa 30 cps interim dividend.

Alternatively, they could easily increase the rate of store expansion with Glassons Au and pay as much as a 50 cps interim dividend   

Whatever they decide to do, to your point, their balance sheet has never been a stronger fortress.

[BlackPeter]

Nice long day out on the boat so could only be bothered making time for a short pithy comment earlier.

I've posted extensively about this company already...for goodness sake please, try and keep up, there's a good chap.

HLG was a cyclical before they started expanding Glassons Au in FY17.  Since then Glassons Au sales have grown from ~ $50m per annum to what I believe will be comfortably north of $200m per annum for FY23.  That's quadrupled in 6 years, (just in case your calculator isn't working).  They have a proven history of growing sales at a compound average growth rate of 26% per annum over 6 years since operations over there hit critical mass in early FY17 when the share price was $2.75.  If not this year, certainly in FY24, Australian sales will exceed N.Z. sales.

To be crystal clear, there are two distinct era's in which HLG have operated.  Before Glassons Au and after Glassons Au.

HLG N.Z. probably is still a cyclical, although, mark my words, many will be very surprised with their sales this half.

If you go back and have a look at my workings on the other site (I do not have the time to look back and check the post number for you), you will see that I believe approx 80% of the value of the shares lies in Glassons Au (a genuine growth division with huge potential in the years ahead) and only 20% of my assessed value lies with Glassons N.Z. and the Hallensteins brand.

Put another way, as I see it one division of HLG (Glassons Au) is worth 4 times the rest of the company and therefore this is a 80% growth company and 20% of the value is a cyclical.

Here's their 2017 annual report https://www.hallensteinglasson.co.nz/content/reports/Annual%20Report.pdf
That year just $50m of the $239m annual sales were from Australia, (21%).  Australian sales are going to be north of $200m this year, (approx 50%).  In just six years HLG has transitioned into a truly Trans Tasman company through the exceptional, sustained growth of Glassons Au.  Group Sales in FY23 according to my forecast, will be nearly double what they were in FY17 and have grown steadily over the years.

When you start thinking about the fact that as at balance date FY22 Glasson Au only had exactly the same number of stores as Glassons N.Z. (36 stores each), and the fact that the Australian market is 5-6 times the size of ours and Glassons is a fresh young brand there and arguably very mature here, it's hard not to get very excited about the future of Glassons Au and the implications for growth in earnings per share in the years ahead.

Please do some reading of annual reports...Blind Freedy can see where the value of this company lies and the proven growth history and exciting growth potential ahead for Glassons Au.    Disc: #1 Invested position on the NZX

You can get copies of all previous reports here https://www.hallensteinglasson.co.nz/investment-centre

All good, though not sure I would spoil a day on the boat with even briefly checking a stock discussion forum (well, I think I did on cruises, but this does not count). On smaller boats I am normally either too busy with fishing or with feeding the fish (depending on how rough the sea is ...).

Anyway - I do understand your excitement about the way the current management team does run HLG ... and I can share that excitement to a degree.

There was as well a time when I thought that their products look pretty smart ... but admittedly, I found this years selection a bit stuffy (lacking a better word), but maybe this is just me getting too old. Will be interesting to see their latest sales numbers - but I clearly don't claim that everybody has the same taste as I have ...

Looking into HLG's fundamentals - their long term (10 years) backward PE is 14.4, and this comes with a 2 percent CAGR (again over 10 years and smoothed out by my favorite spreadsheet program). Not overly dear, but not cheap either.

Obviously - the real value of a share is in its future earnings - and here we seem to differ. If they keep growing their earnings by an average of 2% per year, then I don't see where the potential for huge capital appreciation should come from (but admittedly, I am not very good in predicting the wild swings of share market hype). If however the market comes down in the coming financial year (and yes, I do believe that many people will choose to pay for the increased home loan interest instead of investing into the next peacocking event), then I expect the HLG share to do the same thing. You remember - what goes up must come down ....

But anyway - the market lives from disagreements about fundamental value ... and this is good. Lets keep the discussion civilised and allow different views (without to run them down) ... and this will stay a great stock market discussion forum reflecting the opportunities as well as the risks of any stock.

[Basil]

Yes your penchant for looking at 10 year growth rates is acknowledged but as you know I stick with 5 years as my standard frame of reference which encapsulates the more recent and therefore more relevant growth data.

Glassons Au is a game changer for the group and their target market is pre-teen to 30 years, few if any have a mortgage and every one of which who wants a job probably already has one with ostensibly full employment on both sides of the Tasman.

My niece is one of N.Z's leading psychologists and she told me at Christmas young people did it super hard during lockdowns...their emotional and psychological coping mechanisms are simply not as developed.

As posted recently some articles I have read outlined how people take at least as long as the period of the "oppression" to get over the event so I think we will see young people have a determination to shake off the 3 years of Covid oppression that will be sustained and enduring.  That's the key difference between my long range forecast for the group and Fiordland Moose who thinks what he describes as revenge spending will tail off very soon.

I note the rate of store expansion with Glassons Au could easily be lifted from the circa 10% expansion rate that has existed in recent years with the current expected record profit and I am confident in the medium term that Glassons Au can maintain a similar CAGR of 26% per annum they have enjoyed in the last 6 years.  Its likely it will be slower in FY24 but there's not going to be any "precipice" to fall off with young people's spending to enjoy themselves after 3 years of Covid drama's.  Young people have a very different mindset to us and believe me they are determined to enjoy themselves and look cool to fit it, doing it.  That isn't going to change any year soon.  In the medium term apparel spending will revert to normal growth rates, Glassons Au will continue their store expansion and online sales growth will continue (quintupled in the last 5 years).

Glassons Au has a very very bright future a fact completely overlooked by the market which is currently pricing HLG at just (and this is not a typo) 6.8 times my forecasted FY23 earnings.  Even if store sales soften a bit in FY24, in a protracted recession its currently priced below a no growth company (8.5 times) which makes no sense to me on a DCF valuation basis when you factor in long term growth for Glassons Au which will be the majority of their sales by FY24, if not earlier.  This is a very mis-priced stock, not well understood due to a complete absence of broker research.

Plus we have NZX50 inclusion to look forward to at some point in the near future and in the meantime a circa 10% gross yield to enjoy which pays a lot of bills when it comes to enjoying one's hobby 

[KW]

Glassons Au is a game changer for the group and their target market is pre-teen to 30 years, few if any have a mortgage and every one of which who wants a job probably already has one with ostensibly full employment on both sides of the Tasman.

True, but they do pay rent (which is going through the roof over there in Australia, up 17% in one year!) and have to buy food and pay utilities (also going through the roof).  Inflation over there is 7.8%.  And if they are still living at home and sponging off their parents, its a good bet their parents wallets will be slamming shut soon too.

They may also choose to direct their discretionary income to things like experiences (holidays, festival tickets, concerts etc) rather than goods (which is what many people are doing, and is why inflation is ripping in Services while disinflation is now in Goods), so you shouldnt assume that just because they still have money that their old spending patterns will remain the same in a high inflation period. 

There is also the factor of competitor inventory - anyone still holding high inventory is going to need to get rid of it, which means continued discounting, so a lot depends on what Kmart and H&M etc are doing.  Selling more stuff doesnt always mean making more money.

Which is not to say that HLG is going down the toilet, just that one shouldnt be too wedded to assumptions that may or may not eventuate.  The stock market is full of "surprises" (that shouldnt really come as a surprise, the chart usually tells you beforehand that expectations are not great).

[winner (n)]

BP - your 10 year backward PE of 14.4

Is that inflation adjusted?

[Basil]

All good KW but various naysayers over the last 7 years have been telling me H&M, ABC and / or XYZ will heavily impact HLG and all have been proven wrong before.

Glassons is a young fresh brand that's growing very strongly in Australia.  Yeah, headwinds ahead may stint that growth a bit in FY24 but I am not investing in this company for the next year or two years.  I am investing on a look through the current headwinds basis and I think the metrics this is currently trading on suggest the market is already factoring in a worst-case hard landing for both the N.Z. and Australian economies.  What if we don't get a real hard landing ?  What if HLG gets included in the NZX50 index?

The bottom line behind my investment is HLG pays all the bills for a pretty fancy "puppy" I own, and I am confident it will do so for the foreseeable future.

Its an income stock so probably best suited to dividend hounds like me.  In the last decade they have paid out on average 86% of earnings.

[Waltzing]

"average 86% of earnings."

and still managed to grow the business without cap raises....

its been a great trade but now with AUS dollar growth that trade is not there to the same extent.

Could probably rationalise HB in NZ and shut non performing stores  but the report later next week will tell us the story.

HB NZ is the big drag question?

[Basil]

I believe many observers, (non holders), will be surprised by the extent of the N.Z. trading recovery in FY23 but most if not all, will not admit that and point to their theory of revenge spending and write that recovery off as a one-off event. Doubters will continue to doubt, it's simply the nature of the beast and what they do. 

Hallensteins have a 150 year history of trading in N.Z. (Glassons 97 years) and aren't going to go anywhere anytime soon.  That said, some store rationalisation could be possible going forward as they have proven with online Hallensteins sales in Australia they can do well without a large retail footprint there.

[Basil]

Oh my goodness now Winner talking about $35m this half as well as Fiordland Moose, gosh that's just on 59 cents per share this half, more than they have ever made in a full year before and this while we've had a cost of living crisis for the last 6 months.  Hmmm...that 80 cents per share annual earnings I have been forecasting for FY23 for many months now, maybe is too conservative?

From memory the most they have ever paid out as an interim dividend is 24 cents per share so the question on my mind is what on earth are they going to do with all that extra money if they make nearly 60 cents in the first half as they already have heaps of cash on hand and no debt.

What could they potentially do with such remarkable first half earnings?
Pay out a record dividend? (average payout ratio last 10 years is 86%), so potential for a dividend as much as 50 cps, oh my goodness surely not!
Accelerate store footprint growth with Glassons Au?
Do a share buy-back?
Leave some of it on their balance sheet so they're in the most robust shape ever to face any challenges and opportunities ahead?

Some combination of the above seems the most likely scenario to me.