HLG - Hallenstein Glassons Holdings

[winner (n)]

Even after their profit downgrade Briscoes still trading on PE of ~15

HLG have sales growth and  de facto profit upgrades

HLG on same multiple is share price above 10 bucks

Where's the BUY button?

[Waltzing]

winner() its at an all TIME HIGH..

and now what does that say about AUSSI retail and should all kiwi's exchange there KIWI coins for AUSSI dollars..

its a proxy for the KANGA now...what does it say about the NZ economy..versus the AUSSI..long term that country still got stuff under the ground and lots of it..

[Ferg]

Speaking of FX.....current NZD/USD cross rates suggest extra annual cost of sales for HLG of $10-$12m based on FY24 volumes.  Half of this increase should be covered by existing forward exchange contracts, and some of the impact may be softened by translating AUD profits back to NZD at better FX rates.

[Waltzing]

yes FG while the house holds in NZ may have a better balance sheet than the GOVT , its the government interest debt repayments as Rated by rating agencies that can effect the NZ dollar as exports may not ride to rescue...

HLG is not big enough to ride out oceans storms.. and it highs in SP have never lasted long...

always a first time though...

[Basil]

Speaking of FX.....current NZD/USD cross rates suggest extra annual cost of sales for HLG of $10-$12m based on FY24 volumes.  Half of this increase should be covered by existing forward exchange contracts, and some of the impact may be softened by translating AUD profits back to NZD at better FX rates.

From memory, all committed purchases have 100% forward cover, (so that would be all of Autumn 2025 stock and possibly some of the winter stock) and 50% forward cover on everything else expected in the next 12 months.  Seems like quite a pragmatic way to manage foreign exchange risk and leaves plenty of time to renegotiate terms with suppliers as they have in the past when the $US was super strong and / or, reset retail asking prices if necessary.  From the annual meeting, James Glasson said he doesn't like changing prices unless it's really necessary. It may become necessary if the record strength of the $US proves to be quite persistent.  $16.95 for a sexy bikini instead of $15.95 isn't going to impact demand much next summer I would have thought.

[lorraina]

There are certain price points in retail you have to careful going above [in the short term].
I would think this is what James was alluding to.

[Basil]

https://www.glassons.com/nz/c/clothing/swimwear.  I see what you and James are getting at.  A lot of these articles were originally $19.99 so he doesn't want to break the $20 price point and it's not like they can use much less fabric in the garment as an alternative to a price increase is it lol

[Ferg]

From memory, all committed purchases have 100% forward cover, (so that would be all of Autumn 2025 stock and possibly some of the winter stock) and 50% forward cover on everything else expected in the next 12 months

Here is the policy and well remembered:

All committed foreign currency requirements are fully hedged, and approximately 50% (2023: 50%) of anticipated foreign currency requirements are hedged on a rolling twelve month basis.

Total cover in place was NZ$65m at the end of last year on annual COGS of $177m.  Of the $65m, $24m covered payables of $25m (is this what they mean by 'committed'?  Although I would have thought that would include purchases not yet invoiced by suppliers).  The rest (being $41m) will be the 50% part.  I don't expect all purchases will be in USD but the majority will be.  65 on 177 is well shy of 50% with no adjustment for commitments - it could be with the strong USD that HLG are not pushing all the way up to 50%..?  So I still see some exposure here.  If not FY25 then the policy may hamstring HLG for FY26 in the events rates turn.  This is where some flexibility is needed and I'm not fussed if they are light on forward USD cover given HLG pays one way or the other given the current cross rate.

[Basil]

I would have thought a commitment is made when they place an order for production but as you suggest, $65m at least at face value is a lot less than what you would have expected in they were following their stated risk management FX policy.  I'm not losing any sleep over it though as HLG's management capabilities are second to none and I note if Forbar's FY25 forecast is correct and they earn 72 cps, HLG trade on a forward PE of 11.5 and that's for a company with a 5 year EPS CAGR of 9%.

By way of comparison, Briscoes with declining earnings in recent years is on a PE of 16.5, (assuming $67m net profit = 30 cps).

Either HLG is outstanding value for a GARP stock or Briscoes is a bit overpriced, but most likely in my opinion, both.

[Waltzing]

its going to be a very interesting year ....

more rates cuts from RBNZ than any other market?

watch out for china as its the fire breathing dragon and its very very dangerous...

you dont want to be hit by another world stock market crisis with out having gun powder dry and ready... probably a year or two before that happens but that is what we said about covid.. plenty of time to sell out... until there wasnt...

[LoungeLizard]

Looks like a bit of a retrenchment going on - down 40c on the recent high. Wonder if we have seen peak HLG or whether it will surge again come dividend time. Perhaps $8 is the natural cap for a retail stock in a risky, cyclical industry, regardless of HLG's good form in maintaining growth?
Disc. Holding

[Basil]

Some retracement in Aussie retail stocks has hit HLG.  For me, its never about artificially created markers like is $8 a natural fit and its all about earnings and earnings growth.  If HLG can earn 72 cps this year as Forsyth Barr are forecasting that's a 5 year CAGR of 9% and I think as Glassons Au becomes the dominant division in the years ahead the growth rate could conceivably accelerate.

My standard great value valuation screener tool is a PE of 8.5 for a no growth company + 1G (where G is the average growth rate for the last 5 years as long as I'm confident it can continue for the next 5 years at least), and that suggests HLG could be trading on a forward PE of 17.5, (8.5 + 9) (similar to UNI or MYR) which would put it at $12.60 on forward metrics and still be a great value GARP stock trading in line with its real peers.

Heck, even Briscoes with earnings going backwards and absolutely no scope for growth in Australia and very little if any in N.Z. is on a current year PE of 16.5 based on their reduced forecast.
Disc: HLG and TRA are cornerstone portfolio holdings which combined, constitute approx. one third of my portfolio.  Nobody can accuse me of not putting my money where my mouth is lol.

[Waltzing]

pastel points ... its seems to have a history of undervalue .. it now looks to be almost built in...just shows a market has its own behaviours..

Tina looks to be the difference..

[LoungeLizard]

pastel points ... its seems to have a history of undervalue .. it now looks to be almost built in...just shows a market has its own behaviours..

Tina looks to be the difference..

Indeed. The Market will determine a stocks value regardless of what we, or the back of an envelope calculation, might suggest it is worth. There are natural SP resistance points beyond which it is very hard to break. I can't imagine a lot of people wanting to pay $10 or even $9 for HLG, given the volatile industry it operates in. In other words I don't see a lot of SP growth coming beyond $8-$8.50 range and with the yield getting squeezed, even at current levels, the risk/reward ratio is starting to give cautious investors like myself pause for thought. A lot is riding on OZ store expansion to yield the same sort of boost to earnings as it has in the past, and that sort of extrapolation is built on some risky premises, not the least being that brand recognition doesn't turn to brand fatigue, as it has in NZ.
I would expect a bounce back as we near April's dividend and the decision for investors is whether to hold on for that and hope for the best ex-dividend, or cash up on the cum-dividend high. I'm in two minds, as of now.   

[Basil]

It's very early days for Glasson's Au and they've only just hit critical mass there.  Sustained and very rewarding growth to come in the decades ahead.