Originally Posted by
Beagle
Crikey there's some difficult questions in there. I think high end retail will really struggle, KMD is a very bad bet in my opinion. Does anyone really need a $400 jacket or other name brand item for the foreseeable future ? People will trade down in brands, google mountain warehouse. On the other hand basics and necessities will do just fine WHS should be perfectly okay.
Glassons Australia were doing really well before the lockdown and also Glassons N.Z. and Hallensteins were doing okay. This mid priced section of the apparel market is very difficult to read. Management have a very good reputation and an investment on the blind into HLG at this point without knowing the short term impact of Covid 19 is really a punt on management's ability to trade their way through this and get back to an acceptable level of profitability over time.
I like the company, the management and the mid priced position it occupies in the apparel sector. Their accounts are clean and easy to understand, there's no debt and no funny business with intangible assets or any other nonsense.
To value this however is incredibly hard. Some serious guesswork is involved. My sense is profitability will not recover to anywhere near previous level's until there's a vaccine and people feel really comfortable going to the mall again. On the other hand their online offer is very good but there remains in my mind fundamental uncertainty over how demand will shape up going forward.
There are clear demand, currency and cost headwinds, (significant increase in minimum wage from 1 April 2020 and again on 1 April 2021).
I got really interested when it broke back down under $2 in late March, (having sold out in the late $5's a little while earlier). I was too greedy and was looking for $1.50 so missed that opportunity.
Back in August 2016 there was fundamental uncertainty with a number of large overseas chains looking to open stores here. The shares were $2.70 then, the dividend yield was 15% gross inclusive of imputation credits and the forward PE was less than 10. That was great buying and I did in decent volume.
We're not there yet. I see more risk at present than what existed in late 2016, considerably more. I think the best thing is to simply let this one settle down and have a look again when there's a clear and sustained new uptrend. I'll use a break up through the 100 day MA as my main TA indicator. I think in the meantime reality bites and the recent jump up from a low of $1.80 in late March has been overdone.
Now we're well on the way to getting on top of this virus in N.Z. I'd be interested again in the mid - late $2 range and might take a punt there even without TA indicators around there as I like the management. If it doesn't get down there I will use the 100 day TA signal to tell me when to get back in.
My 2 cents worth.