HLG - Hallenstein Glasson

[Balance]

Hlg targets mid to low income people.

They sell clothing that affordable, fashionable and reasonable quality. They up to the trend and n well managed.

Interest rate will remain low possible negative for the next three years...as the Fed already mentioned it.

Met Tim Glassons years ago at an investors’ presentation and asked him how he & his team kept up with the latest trends in the fast moving women fashion world.

He said that it was about having a great design team and investing substantially in them attending all the fashion & trade shows highlighting the latest trends, in style as well as fabrics.

Then, there’s the ‘little’ trick of visiting the suppliers in China and going through their show-rooms, but more important was to visit their cutting rooms and store-rooms. A keen eye is needed to spot the trends emerging out of the rooms for the next season from the major fashion houses. 😜

[Waltzing]

"attending all the fashion & trade shows highlighting the latest trends, in style as well as fabrics."

terrible life, all that champagne... business class flights.... terrible ...glam... the BP's

and why does this share sell off after december div...

has the worst TA chart ive ever seen for the balance sheet and dividend...doesnt make any sense.

[King1212]

Great coverage from uncle Jarden.... regarding investors that looking for yield in low or zero interest condition

[Beagle]

Sorry guys but I am going to have to upgrade again.

Finally got around to having a good look through HLG's accounts yesterday (after still marveling about how well they've managed the Covid crisis) and wondering how on earth sales year to date FY21 are up 11% on the same period last year before anyone had even heard of Covid.

One figure that stuck out like the proverbial third ball on a greyhound was cash and short term deposits.
Have a look at the last 5 years figures off the balance sheets and see which one sticks out
2016 $14.1m, 2017 $12.5m, 2018 $17.4m 2019 $16.5m and 2020 $49.6m. Oh my goodness even accounting for the 15 cps interim dividend they held back of $8.94m that's remarkable and leaves the company extremely well positioned with a whopping 83 cps in cash and short term deposits per share as at balance date !

Looking forward one wonders how they are going to use that cash ?
ecommerce sales are booming so there's no need to roll out additional stores, they completed new distribution centers in N.Z. and Australia. What's left to spend on capex in the foreseeable future ?
Maybe some store modernisations in due course but I think capex in the new couple of years will be much less than depreciation so that's a problem generating even more free cash flow over and above earnings.

Next we turn to how they're going, sales up 11% and I think they can do around 50-55 cps in earnings in FY21 (up from 46.6 cps last year) with materially better exchange rates, sales increase and less Covid related logistical cost impositions. They did over 48 cps in FY19 so I don't think its a stretch to say 50 cps is a reasonable FY21 forecast.


Turning to what dividends they can pay, well frankly with so much cash on hand at balance date (83 cps) and capex likely to be less than depreciation generating even more cash there's no reason for them not to pay out all their earnings of 50 cps and I see that as being durable for the foreseeable future so I have upgraded my dividend expectations to 50 cps fully imputed for the next few years because of the grossly excessive amount of cash on the balance sheet.

50 / 0.72 = 69.44 cps gross. Using my 9% required rate of return this implies on a dividend yield basis fair value is 69.44 / 0.09 = $7.71.

Turning to what's a fair PE, I note Briscoes is on a PE of 14.3, and WHS on 13. I think HLG is executing better than either of these two but will use BGR's PE as a fair proxy for what's reasonable for HLG. 14.3 x eps of 50 cps = $7.15.

In a zero interest rate environment where investors are starved for yield and taking into account HLG's remarkable record of reliable dividends over the last 20 years, their current very high cash position, current trading and trading cum a 24 cent fully imputed dividend in December I am more inclined towards the divided yield value of $7.71.

But I will stick with the blended average of the dividend yield and PE value assessment which gives ($7.71 + $7.15) / 2 = $7.43 is my upgraded target price for HLG

Disc: I have recently added more.

[macduffy]

It all adds up to more pressure on HLG to re-pay the wage subsidy?

Disc: I hold.

[Beagle]

No, not at all. I see recent politician statements as empty and baseless political "grandstanding" for the election. Labour defined and set the terms of the wage subsidy and most companies that we're eligible took it. Companies primary responsibility is to shareholders not taxpayers. Not any companies fault if Labour's terms we're inexact or have resulted in imperfect outcomes but I also note HLG's FY20 profit inclusive of the wage subsidy was down on the FY19. Not even a modest storm in a lukewarm teacup in my opinion.

High exchange rate should provide a further tailwind to HLG's profit than the much lower rates that prevailed for much of FY20. I think the clear risk to my forecast of 50 cps in earnings is to the upside. In the unfortunate event of another Covid lockdown, I note that the company has previously demonstrated remarkable resiliency.

[macduffy]

I agree, Beagle. But it's the perception that matters. I hope you're right and that it doesn't become an issue to the detriment of HLG's reputation and image.

[Jantar]

…...
50 / 0.72 = 69.44 cps gross. Using my 9% required rate of return this implies on a dividend yield basis fair value is 69.44 / 0.09 = $7.71.......

I have a spreadsheet that gives me a SP that will return a 5% yield after tax allowing for expected growth and average dividends over the past 2 years. Because of Covid I conservatively assigned a zero growth for the next 2 years, and my spreadsheet gives a fair SP of $7.72.

HLG is now my largest holding representing 18% of my portfolio. I am a bit nervous about so much in one company, yet still tempted to add more.

[percy]

I agree, Beagle. But it's the perception that matters. I hope you're right and that it doesn't become an issue to the detriment of HLG's reputation and image.

I have stayed away from companies that received the Govt wage subsidy,in fact I sold my PGW, as I did not feel I understood where or what it meant to the ongoing operations of each business that received it.Still don't.
The affect of leases too has made a lot of companies difficult for me to understand.

[dameofdiv]

I have stayed away from companies that received the Govt wage subsidy, in fact I sold my PGW, as I did not feel I understood where or what it meant to the ongoing operations of each business that received it.Still don't.
The affect of leases too has made a lot of companies difficult for me to understand.

I agree, it's really hard to know how badly the business has been affected among those businesses who receive the subsidy. Some are impacted real bad but some revenue decline are just being "deferred". It is a very lax criteria. 30% decline in revenue over a 30 days period for the original subsidy, and 40% decline in the revenue over 14 days. Many businesses will tick the box easily.
Leases however, is just an accounting entry, I personally wouldn't be too worried about it, and will exclude the entire "interest unwind", "depreciation" and capitalised portion of the lease altogether, and just focus on the actual lease payments. jus my 2cents.