MHJ - Michael Hill International.

[Halebop]

Snoopy's assumptions in his MHI calculations assumed very low real growth in earnings between now and 2009 (His estimates have earnings growing from 2004's 39.1 CPS to 45.2 CPS in 2009, or a compound 3.2% pa).

He also assumed a termination PE of 13.1. Perhaps a solid PE ratio in a bear market but not otherwise, particularly if MHI achieve some of their global expansion plans.

[Fish Broker]

quote:Originally posted by winner69

....... Flat profit result and a rerating to something like what FPA went down to (14 times earnings) and 550 would not be a surprise.....

Wouldn't that be a buy!! Bring on the second opportunity for those of us who procrastinated and missed last time when it was in the $5 range and when it seemed to struggle forever to break $6.

I find this a little ironic however - BGR and WHS up - MHI down - and which is the better retailer??

[KJ]

It should be interesting to see the reaction to MHI result next week as the retail sector appears to be going out of favour.

If you exclude WHS and BGR (poor management)are retail earnings really starting to slide? Historically low rates of unemployment should underpin this.

PPL and HLG both doing well.HLG on a forward PE of about 13.

So where does this leave MHI? IMO they would need a NPAT in the $12m to $13m range to stop the slide-and the PE settle at around 14 or 15.Last yr first half $10.9m.

Negative-the $NZ cross rate.This will not help-up from .88 to .92.
My guess is a profit around $12m.

Hold NIL.

[Fish Broker]

quote:Originally posted by KJ


Negative-the $NZ cross rate....

This could on the other hand be seen as a [u]positive</u> as while MHI will lose translating their AUD and CAD earnings back to NZD they will gain an advantage on anything they import - which may be significant.

Depends on where they source their stock and raw materials from, also what their FX cover policies are too will impact ... Another factor is whether they have any borrowings and how or if these are covered or hedged ...

Might have togo have a look at a report and see if I can figure this one out.

[winner69]

quote:Originally posted by Halebop

Snoopy's assumptions in his MHI calculations assumed very low real growth in earnings between now and 2009 (His estimates have earnings growing from 2004's 39.1 CPS to 45.2 CPS in 2009, or a compound 3.2% pa).

He also assumed a termination PE of 13.1. Perhaps a solid PE ratio in a bear market but not otherwise, particularly if MHI achieve some of their global expansion plans.

In the 4 years between 1999 and 2003 earnings growth was only 3.4% per year(on sales CAGR of 9.4%

Question is was 2004 a year out of the ordinary and that huge 47% increase in earnings a flash in the pan?

Market seems to be saying it was

[Halebop]

MHI is a cyclical company. Once every 2 to 4 years they turn in low or slightly negative growth. 2003 was one of those years. Despite this, compound Net Profit After Tax growth was 7.2% per annum over this period.

Just as they have cyclical lows, once every 4 or so years they "surprise" the market with a big lift in earnings that they manage to maintain.

If you cut that analysis back by one year to 2002 NPAT rises to a compound 13.1%. If you send it forward to 2004 it rises to a compound 11.4%.

Overall though, a 4 year period is not statistically significant. Looking at a statistically significant 7 year period NPAT rose 192% to 2004 or around 16.5% per annum compounding.

To a New Zealand resident MHI's dividend stream provided an average 4.73% return per annum based on a fully franked dividend and an average PE multiple of 13.1. During this period they consistently distributed 50 to 57% of net operating earnings back to shareholders while internally funding expansion. With a simple and understandable business and growth model in place, its easy to predict how MHI can keep this momentum of internal growth and highish distributions.

The market is not worried about the "repeatability" of MHI's earnings, their business model or cost structures. They are worried about the cyclical trading environment in Australia and New Zealand. Too many retailers are admitting things are a bit hard right now.

On the share price front it is still too rich for my mean spirit. No offence to holders but if earnings did take a hit this year then the PE could probably take one too. I'd consider it a buying opportunity. MHI is definately on my "meets criteria" list.

[winner69]

Halebop good stuff and we seem to be on the same page ...

MHI have a great business model but like you our 'mean spirit' keeps us out at current prices

But isn't that what Snoopy's Buffett thing on the other channel was essentially saying

[Steve]

quote:Originally posted by belgarion

Also, while many commodity retailers are feeling the pinch, I note that many 'luxury' retailers are having an okay time ... will we be supprised? Lets hope so.

I agree Belg. MHI is not a 'discounter' like BGR & WHS, but is a 'retailer' like HLG & PPL. This could indicate that it won't be a negative surprise?...

[KJ]

Good post Halebop although I would not call MHI cyclical.

EPS...1998 18.7c
1999 22.8c
2000 25.8c
2001 26.0c
2002 32.9c
2003 30.0c
2004 39.1c

Sales increased every yr from $141m in 1998 to $260m in 2004.

Excellent growth apart from 2003 which was the odd yr out rather than 2004.

2003 fall caused by restructuring,one-offs,and the high start up costs in Canada (first yr loss over $2m).There will be the odd set back when coys are growing as rapidly as this.

I agree that if earnings take a hit the PE will also.I would like to get back in so will wait and see but I am not expecting an earnings drop in which case sp may not have much more downside.

[winner69]

On Business Sunday today .... this conservative dude is 83% in cash ... BUT

[transcript]

Moore: Wayne Peters made his money on the professional squash circuit in Germany, came back to Australia and opened a chain of photographic stores, which later became Kodak Express, sold up and used the proceeds to play the market. Before long he started Peters Macgregor Capital Management. On average it's returned 32 per cent a year. Almost twelve months ago he launched his listed investment company, and "eighty three per cent" of his funds are still in cash.

Peters: That is historically high for us, but that can swing very quickly. Clearly what we draw from that is that the market is fully if not overvalued, and if you can't find opportunities, then cash is the best default position.

Moore: Being overly cautious?

Peters: No.

Moore: In fact Wayne Peters holds only five stocks, and only one in our region.

Peters: Michael Hill International, it's an Australasian retailer, a jewellery retailer, it has some 100 odd shops here in Australia, and that's a company that we've owned for eight years and I hope to own for another eight years at least.

Moore: And that's the best value you can see in what you like in this market?

Peters: Absolutely, yes.

Moore: At the end of '05 will you still be 83% cash?

Peters: I have no idea.