HLG a marvelous company for sure. Not a holder as invested a big whack into briscoes a while ago (& a predatory stake in KMD near the bottom) and always been content with that exposure, and watched HLG rightfully soar upwards. But regarding the retail sector more generally I'd be loathe to invest into anything at these levels. While not rocket science and obvious to many I was reminded again on why by a succinct article by Mark Lister this AM, summed up in a few bullet points:
* Inflation rising & the OCR to spend the next 3 years rising
* Massive household debt built up on house price run and high housing sales
* Approximately 2/3rds of fixed rate mortgages will be repriced in next 12 months
* For someone with an $700k mortgage the incremental hit @ a 5% mortgage will be $12,500, and when adjusting for marginal tax rate thats an $18,000 hit to after tax income
* That's a lot of money, will be a shock, and will have an impact on confidence, spending and the housing market.
I guess couple that with travel (maybe/maybe not thanks new covid strain) a lot of money likely to be rediverted from retail. You can't tell me that's not a worry.
I like blue chip retail exposure but I certainly like to know what side of the cycle I am buying on. I'm a long term holder so will probably suck it up but if I were a trader probably think about taking some profits in the near term.
HLG trades at just 13 times last years earnings, cum a 24 cent dividend and has a superb track record of very strong growth with Glassons Australia over many years even during the pandemic ! It is second to none with its online systems, takes Govt support its entitled too, has no debt, is well managed and very well placed to weather the Covid pandemic.
Retail does have some headwinds from higher interest rates but its not all a one sided equation and investors with billions of term deposits will have more money to spend. In addition I expect new variants of the virus to prove to be an ongoing challenge for international ravel with the result that we'll see retail spend replacing a fair degree of international travel spend for quite some time to come.
To me, new variants were always going to be part of this and I have been investing accordingly, expecting that this is a multi year event and we're not going back to 2019 normality any year soon. Retailers with international diversification, first class online sales and delivery systems and management who are laser focused on the seriousness of the situation, (not for example sidetracked by excessive attention to greenwashing and ESG matters) are best placed.
The owners eye is most important here. Tim Glasson with his 20% stake and his son are massively experienced here and our new CEO Stuart Duncan seems like a very bright guy.
I take a lot of comfort from the above and the fact that HLG is the NZX's oldest listed company...they have traded well through all sorts of challenges over many, many decades and fundamentally they're extremely good value for a company with superb growth prospects going forward.
Last edited by Beagle; 27-11-2021 at 04:39 PM.
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
HLG trades on 13 historical p/e which is the highest p/e they have had for 8 years. When HLG announced FY21 results they said; "the Group anticipates profitability in the current year will be adversely impacted compared to the period just completed. We will continue to be cautious in regard to the future impacts of COVID-19".
So could be trading on a forward p/e of 14 or 15? Too much?
Hopefully an update is provided at the annual meeting later this month and hope its really positive with indication that there has been a massive catch up in sales! Hopefully no more lockdowns during FY22 as clothing doesnt sell well when people are locked down. No point in dressing up in new gear! A lot of hopes to come true or SP will sit around 7 bucks for another year
In 2018 they traded at $6.30 on eps of 45.87, (PE of 13.7). Since then we've seen three more years proof of the outstanding growth of Glasson's Australia which is the key to understanding the attractiveness of the investment case for HLG. I think HLG doesn't get the recognition it deserves as a GARP stock, (growth at a reasonable price). When you have a good look at the very encouraging growth rate in Aust over the last 4-5 years and consider the very low store penetration rate there I get quite excited about the growth prospects going forward and that's before we consider their expansion plans into America. Current year indications subtract just 10 cents per share off the DCF value of HLG in my opinion.
When I first got into HLG in a sizeable way in August 2016 @ ~ $2.75 all I was really expecting was the gross 15% yield, which in and of itself was an absolutely compelling reason to invest...it really was just a pure yield buy for me. Its been really satisfying to see how they're grown Glassons Australia since then and I'm very confident in the medium to long term that gratifying growth will continue. Here's the thing. HLG is not priced as a growth stock based on FY21 earnings and they have a very good record of showing great resilience with their trading performance in this pandemic.
The fabulous dividends are frankly a huge help to me in being a very patient investor, (patience doesn't come naturally to me lol).
Last edited by Beagle; 28-11-2021 at 09:52 AM.
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
Reply With Quote
Originally Posted by Beagle
Bookmarks