HLG - Hallenstein Glassons Holdings

[winner (n)]

Basil .....say sales up 33% ...that'll lead to $33m extra Gross Margin ...add a few  million to expenses and that gives you about $20m more than last years $12

Maybe $35m a bit stretched but jeez more than $30m this year. Cool eh

PS - Be stupid if they did a share buyback

[Basil]

Crunched a few numbers today on first half / second half sales and eps split over the last 6 years since FY17 and Glassons Au became profitable and hit critical mass.

FY20 and FY21 was significantly affected by Covid lockdowns but for what its worth the data is:-
FY20 sales first half 55.6% of annual total, second half 44.4%. EPS first half 56% of annual, second half eps 44%.
FY21 - Sales first half 52%, second half 48%, eps first half 60% second half 40% (40% is the lowest second half earnings v first half of any of the last 6 years)

Including these Covid affected outliers in the overall weighted average split for the last 6 years since FY17 gives the following results:-
First half weighted sales average 52% second half 48%. First half weighted eps average 55%, second half 45%

My forecast issued late last year is something I remain comfortable with at this stage and that's eps of 80 cps on annual sales growth of 24%.
Taking into account all known factors and economic forecasts I foresee sales being more heavily weighted this year to the first half than the average of the last 6 years, probably towards the mid 50% range, (up from an average of 52%) and earnings split in the mid-high 50% range for the first half (up from an average of 55%) and low to mid 40% range second half.

This suggests to me sales in the region of , (based on my annual forecast of $435m) = approx $235m this half and approx $200m in the second half.
I estimate the split of 80 cps in my forecasted earnings as 45-50 cps first half ($27 - $30m), 30-35 cps second half ($18m - $21m).  (Forecasting approx $48m annual profit for FY23.

If first half eps is above 50 cps I am favorably inclined towards revising my full year forecast upwards.
 

[Waltzing]

think you better get out on that boat fast... weather looks terrible later next week starting on tuesday ....

dont waste another day crunching numbers if you think you got the calcuations right...

[Fiordland Moose]

Fascinating how one reasonably considered post can generate such an auckland style deluge.

I didn't say HLG will do $35m NPAT - I said "it seems plausible HLG may achieve a 1H FY23 NPAT in the $30-35m range." In the spirit of transparency I've outlined below the back of envelope calculation that got me to this

Revenue
PCP sales were $170.6m, heavily impacted by transtasman lockdowns and the omni spike in Australia in Jan/Feb. Dec22 trading update showed ~41% growth for the first 19 months of the HY relative to the PCP. 19 months represents 72.9% of the 26weeks in a HY, if trading was unseasonal. To account for seasonality I assume it represents ~85% (to reflect the seasonal demand leading to xmas). For the remaining 7 weeks of the HY I eyeballed the 3 various divisions, guesstimated their growth to arrive at a weighted average, then did a weighted average calc for the two periods (41%*85%)+(remaining period weighted ave * 15%). Got me to around 36.5% growth for the HY, or about $232m

Gross Profit / Gross Margin
For convention just used 57.9%. Thought about adjusting some of the divisional GP's down to reflect pricing pressure, but thought perhaps even if with some compression the weighted average GP could stay the same or slightly increase given the increased proportionate contribution from Glassons AU. So, left it. Too much brain damage thinking about freight rates, pricing power & cost recover, commodity prices, varying GPs by division, discounting, etc. Numerical precision isn't necessarily that important particularly when thinking about an outcome within a certain range, but the GP margin will one of the big swingers to the actual result relative to my assumptions here.

Cost of Doing Business
Again for convention for a half year period, I just thought of this as everything between GP and PBT - & that # is $81.9m.  Last years result included $1.94m of covid subsidies and a non disclosed but tangible amount of rent relief. So for convention I just assumed $2m. So my normalised CODB baseline becomes $85.8m which I roll forward at about 5.5% (CODB inflation often less than headline inflation), then tack on an incremental $200k in net bank interest income. There were 3 net new store openings during the year, assumed 1.5 of that on an average basis, and I reckon it costs about $350k kiwi to operate a store in AU on an annualised basis (rent, wages, other), so on an average store basis an extra $263k. Total CODB about 90.6m

Gets me to PBT of 44.2. Average effective tax rate of 29%. NPAT of 31.3m.  Probably optimistic in a few areas, bearish in a few others, played around, net net, and thought well above $30m feels plausible, but to a limit, which $35m felt about right.

and no, this isn't something that "just occurred to me" - recently concluded a very successful asx listed retail apparel investment, and have strong linkages into the sector. what I find fascinating are the number of my colleagues telling me they are reducing their stock purchases. Lead times have been all over the place the last 6 months anywhere from time of order to blue water delivery out of asia into australia at between 3-6months, and given that leadtime a lot of apparel companies have been slowing their purchases more than what they thought only a few months ago. Nothing dramatic but indicative and expect to continue to ramp down their purchasing models in subsequent intervals. As true as gravity, you can't sell what you don't stock.

I'm pretty certain I said in my post I thought the share price could increase when the results were out, but that underlying activity could cumulatively release over a 18-24 month period which I thought could be reflected in the SP. SP shoots up, & SP can deflate back down and potentially quite significantly..., nothing particularly controversial in airing that opinion. 

[Ferg]

Some good thoughts guys and thanks for sharing.  Two other factors that will come into play IMO are the cannibalisation of online sales as Nz/Oz stores reopen versus last year.  Also the NZD/USD was high in FY22 falling from something starting with 0.7 and touching on something starting with 0.5 before rebounding to low 0.6s.  That will hurt NZ margins unless they managed to lock in nice forward rates and/or dodged a bullet with smart buying and managed stock turns.  As FM says delivery times ex Asia are all over the place and freight rates have not abated considerably in my experience.  It's all about the GP.

[Fiordland Moose]

thanks ferg - the kiwi/usd and aussie/usd cross rates key too, which aren't featured in my calc as I did it before the drop in the ccy. I should have noted the 57.9% GP margin I assumed was last years, used by way of convention. Glassons AU has better margins than the other two divisions so just assumed for simplicity sake if glassons is producing more, it could more or less offset other pressures.

ha and just re read my post #448...when i say the first 19 months of the half year, i mean 19 weeks. oops.

[winner (n)]

thanks ferg - the kiwi/usd and aussie/usd cross rates key too, which aren't featured in my calc as I did it before the drop in the ccy. I should have noted the 57.9% GP margin I assumed was last years, used by way of convention. Glassons AU has better margins than the other two divisions so just assumed for simplicity sake if glassons is producing more, it could more or less offset other pressures.

ha and just re read my post #448...when i say the first 19 months of the half year, i mean 19 weeks. oops.

Need to take into account NZD/AUD as well as growing percetage of business now done in AUD and they need to bring those back to NZ

[winner (n)]

Hey Basil - you admired the detail in Mainfreights update yesterday

You need to drop an email to your accountant mate at HLG to do the same

Else all we will get next week is total group sales and the guess for total group profit

You'd think that as a minimum they'd be able to tell what segment sales have been even if the profit figure is stil a guess.

Otherwise you need to wait until entil end of March to see if what Glassons AU growth has been and how surpeisingly well NZ has done

[winner (n)]

HLG record full year profit is the $33.3m in F21.

So whatever H123 is - $30m to $35m - its an amazing result - making in 6 months what they've done in a record full year

Lets say NPAT is $32m - hope they headline the announcement like this

 'Hallenstein Glassons increase first half NPAT by 166%

But they too modest for that I reckon

[Teitei]

HLG record full year profit is the $33.3m in F21.

So whatever H123 is - $30m to $35m - its an amazing result - making in 6 months what they've done in a record full year

Lets say NPAT is $32m - hope they headline the announcement like this

 'Hallenstein Glassons increase first half NPAT by 166%

But they too modest for that I reckon

Hope the punters are lapping up the expectations.

I have a few shares bought at good prices to feed them!

Can't wait!

[BlackPeter]

BP - your 10 year backward PE of 14.4

Is that inflation adjusted?

Interesting question.

I guess when I started this system inflation was around 1% - i.e. no point to worry about it. At this stage, it might be worthwhile to consider it. On the other hand - given that its the same inflation for all companies and I use the value just to compare - why bother?

So - no - it is not, and I am not sure I see a reason to change this ;

[Basil]

HLG record full year profit is the $33.3m in F21.

So whatever H123 is - $30m to $35m - its an amazing result - making in 6 months what they've done in a record full year

Lets say NPAT is $32m - hope they headline the announcement like this

 'Hallenstein Glassons increase first half NPAT by 166%
But they too modest for that I reckon

The Chairman will keep doing his news releases in the same manner he's always done.  Listed in 1947 so pretty old school style of news releases.
I like the understated way they go about things.  Done enough work and debating on this for now...most people will already have their own pre-conceived notions of how this will play out in the years ahead but If I'm somewhere near the mark with eps of 80 cps this year that puts them on a FY23 PE of 6.9 at yesterday's closing price which I think is exceptionally cheap for a company with such clear growth prospects in the years ahead so I got to thinking about the price relativity with other retailers overnight.

Interesting comparing the metrics of listed N.Z. companies I follow with no international growth opportunities like Glassons has.
According to market screener average analyst forecast WHS are on an FY23 PE of 10.6 and Briscoes on 12.1....compared to 6.9 for HLG.  Hmmm
Currency is currently sitting at about the 10 year average against the US.

[winner (n)]

Stats NZ Electronic Card Spend for January

Westpac notes: The rebound in spending was spread across categories. There were sizeable increases in durables spending (+5%), hospitality spending (+10%) and apparel spending (+4%).

Cash registers still ringing in the rag trade

[winner (n)]

Heard on radio that up north a lot of clothes are getting turfed as a result of the floods ....who wants to keep drowned smelly clothes ...yuk

Might keep HLG stores busy

[Waltzing]

though winner would be all over the retail rebound...

hamilton was deserted this afternoon and not a police patrol in site... at 4 PM.. no knive wheeling hooded bandits in sight.

maybe everyone was rushing to a beach..

https://www.stuff.co.nz/business/money/131195362/strong-start-to-2023-as-spending-hits-record--but-it-may-not-last