Operating cash flows generally are way in excess of NPAT
They have paid the dividends and invested in the stores (sometimes upto $10m a year) from cash flows ....no need for a bank loan or anything
Originally Posted by Roger
I guess if you have a rock solid clean and tidy balance sheet with no debt you can pay out just over 100% of earnings because there's some depreciation in there or they've extracted more efficiencies from improved stock turn and lower inventory level's. Very rare set of financials I've ever reviewed that are cleaner / tidier and more easily understood than this company.
The business of paying dividends from cashflows, not profits, seems to have come onto the NZX scene with the emergence of the gentailers as publically listed companies. Sure you can pay profits from cashflows from say, an oil field (Genesis Energy) , if you don't plan to look for more oil in the future. And yes when the real life of an asset greatly exceeds its depreciated life (eg a Mighty River Power hydro dam), you could certainly make a case for paying profits from cashflows there. I don't buy paying profits from cashflows for a company like HLG though.
Yes you can pay out more that you take in as earnings in any particular year. But try stringing that together year after year and eventually you will run out of capital, and your business will have to close. HLG is nowhere near that point. But HLG will need capital to reinvent itself. Cast yourself back to the 1950s and 1960s when many of our hydro dams were built. Shopping malls were an absolute novelty. TV advertising was in its absolute infancy, and there was no internet. Furthermore almost all clothes were made in NZ and 'fashion' was pure luxury. Yet over that time HallensteinGlasson has constantly reinvented itself, and not only survived but thrived. Meanwhile a contemporary hydro dam from the middle of last century has barely evolved, and even the associated electronics and transformers of the day are only just getting replaced.
HLG needs profits to survive going forwards. Who knows where the next step in the evolution of HLG will lead? But it will be profits, not cashflows, that drive them there. There is a limit to improving stock turn and inventory levels.
SNOOPY
Last edited by Snoopy; 04-07-2015 at 03:43 PM.
Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7
Ok time to rerun my dividend yield valuation. I am going to stick to the last five years of results, simply becasue the retail scene does seem to be evolving so fast.
OK time for a confession on my table of 'eps' results. I have adjusted them to take out some of the insurance cashflows from Christchurch earthquake payments (FY2011 and FY2012).
In FY2012 the Insurance payments received amounted to $1.532m for 'material damage' and $0.417k for 'business interruption'.
In FY2011 the Insurance payments received amounted to $0.832m for 'material damage', less a stock and fixed asset write down, and $0.417k for 'business interruption'.
HLG has included all of the above insurance payments in their income for the year. However, I don't believe these earthquake events shoudl be modelled as 'normal business' for forecasting purposes. I have allowed the payments for business interruption insurance because this represents income that HLG would surely have had if the earthquakes had not taken place. I have disallowed the material damage payouts.
If I had included material damage, the 'earnings' per share over the earthquake years would have improved as follows:
The business of paying dividends from cashflows, not profits, seems to have come onto the NZX scene with the emergence of the gentailers as publically listed companies. Sure you can pay profits from cashflows from say, an oil field (Genesis Energy) , if you don't plan to look for more oil in the future. And yes when the real life of an asset greatly exceeds its depreciated life (eg a Mighty River Power hydro dam), you could certainly make a case for paying profits from cashflows there. I don't buy paying profits from cashflows for a company like HLG though.
Yes you can pay out more that you take in as earnings in any particular year. But try stringing that together year after year and eventually you will run out of capital, and your business will have to close. HLG is nowhere near that point. But HLG will need capital to reinvent itself. Cast yourself back to the 1950s and 1960s when many of our hydro dams were built. Shopping malls were an absolute novelty. TV advertising was in its absolute infancy, and there was no internet. Furthermore almost all clothes were made in NZ and 'fashion' was pure luxury. Yet over that time HallensteinGlasson has constantly reinvented itself, and not only survived but thrived. Meanwhile a contemporary hydro dam from the middle of last century has barely evolved, and even the associated electronics and transformers of the day are only just getting replaced.
HLG needs profits to survive going forwards. Who knows where the next step in the evolution of HLG will lead? But it will be profits, not cashflows, that drive them there. There is a limit to improving stock turn and inventory levels.
SNOOPY
Most of the time you do some good work but sometimes you are a worry Snoops. All that about logic seems rather convuluted. Not near the computer at the moment so can't show you where your thinking is a bit awry.
Maybe best way is to ask you what drives NPAT or EPS - cash flow eh. Adjust for depreciation, capex and changes in working capital you have free cash flow don't you.
Over the last 10 years revenues have been about $200m plus or minus a bit. I don't think they have any ambition to be much bigger - service the market and customer they know best.
That level of revenues generates enough cash to keep 'reinventing' themselves (on line and that flag ship store in Wellington is pretty smart, maybe just as good as a Top Shop) as well as pay out the dividends they have. Never borrowed or raised capital (a few options excludes) in that time and still has $20m in the bank.
So I see HLG as a low growth at best company but strong consistent cash flows which enables a steady (high yielding?) dividend to be paid. Market probably prices it like a bond and the price rises and falls as market sentiment changes.
It would not surprise me that in 5 years time HLG revenues are still $200m plus or minus 10% and they still paying $20m out in dividends. How do you price that?
Last edited by winner69; 04-07-2015 at 05:48 PM.
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
We probably have three OCR reductions baked in this year so by the end of the year people will be getting circa 2.25% on their call account....OR, and yes I know its a different investment, you can put a 1 in front of that 2.25% to make 12.25% Not rocket science, simple investing for high yield....oh and if the NZX goes sideways for the rest of this year because its fully priced then those receiving 12.25% will be grinning won't they
You were always comfortable with RBD maintaining a good dividend when profits weren't that flash ....because of strong cash flows. (Even though at times unlike HLG they have borrowed to maintain them)
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
Maybe some correlation between currency and EBITDA margin. This seems to have broken down in the last couple of years. Brokers are forecasting a 14% margins for this year. I think management will have to be at the top of their game to fight against the currency tide.
Noodles - a very strong correlation between Gross Margin % and currency (using the rates in your table). Correlation about .85 going back to 2005
Better to use this as the margin to assess impact rather than EBITA I think
Obviously forex does have a strong influence over margins. The correlation suggests that product cost increases are not fully recovered (lack of pricing power?). One might have expected the odd heavy discounting periods might have brought some variability into the results but the compelling story I'd lower NZD leads to lower gross margins.
If x-rate is .68 in 2016 the correlation would suggest a Gross margin of around 52%/53% - which is 6%/7% points less than 2014 actual (we don't have 2015 yet do we?)
so 7% points Gross Margin is $15m - hope management have things under control
Is any of this mitigated in expenses?
my numbers give this scatter chart .... sad picture if history anything to go by
Almost as sad as th rugby - I gave up watching ..... Wellington / Hurricanes still losers (too many mistakes)
Last edited by winner69; 05-07-2015 at 01:02 AM.
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
Notwithstanding yields, there is also consideration for capital management. HLG is volatile, arguably cyclical, and perhaps better to be on the sidelines in the downtrends. Right now though it appears an uptrend is in place. For how long who knows. This may require a more active management approach rather that buy, hold and hope. Attachment 7457
Monthly price with the 200EMA daily approximation.
Notwithstanding yields, there is also consideration for capital management. HLG is volatile, arguably cyclical, and perhaps better to be on the sidelines in the downtrends. Right now though it appears an uptrend is in place. For how long who knows. This may require a more active management approach rather that buy, hold and hope. Attachment 7457
Monthly price with the 200EMA daily approximation.
Nice cycles there BaaBaa
7 year top to top .... Maybe another bottom in 2016??
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
Originally Posted by winner69
The business of paying dividends from cashflows, not profits, seems to have come onto the NZX scene with the emergence of the gentailers as publically listed companies. Sure you can pay profits from cashflows from say, an oil field (Genesis Energy) , if you don't plan to look for more oil in the future. And yes when the real life of an asset greatly exceeds its depreciated life (eg a Mighty River Power hydro dam), you could certainly make a case for paying profits from cashflows there. I don't buy paying profits from cashflows for a company like HLG though.
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Not rocket science, simple investing for high yield....oh and if the NZX goes sideways for the rest of this year because its fully priced then those receiving 12.25% will be grinning won't they 
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