HLG - Hallenstein Glasson

[King1212]

Got to be fair for HLG to take the subsidy...they closed thier shops for almost 50days....kept all the staffs...not to mention working hard to make sure thier business afloat

[macduffy]

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.

I may be wrong but I think percy's issue with leases is around the contingent liability that they pose, eg will they be enforced - rentals charged - on premises closed during lockdown; will rental reductions be allowed; can lease liabilities be excused or avoided? I have the same issues.

[jimdog31]

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.

Beagle my friend - you have an uncanny ability to move the market, either that or your timing is impeccable! When i see you post my eyes read "Bugle" not "Beagle" Keep up the good work!

[dameofdiv]

I may be wrong but I think percy's issue with leases is around the contingent liability that they pose, eg will they be enforced - rentals charged - on premises closed during lockdown; will rental reductions be allowed; can lease liabilities be excused or avoided? I have the same issues.

Ah, of course, i think you are right about what percy meant by the leases. And yes, the enforceable contingent liability is worrying.
I've been looking at so many accounts with the new lease standards so I thought he meant that.

[Beagle]

Thanks Jimdog31. I've been following this one for many years and nearly fell off my chair yesterday when I saw they had just on $50m cash on their books at balance date....nothing anywhere remotely like that in previous years

On the new accounting for leases thing, yeah I think it's a pain in the backside too so I just ignore it. With HLG that's really simple because they have no debt and the balance sheet is super easy to understand. They've always had leases since Adam was a boy...just a stupid new accounting standard that might cause concern for some people but others look right through the complete nonsense of it all to see the real gold within, $50 million dollars of it

"Cash flow is the lifeblood of business, always has been, always will be" (Beagle)

[nztx]

Thanks mate. I've been following this one for many years and nearly fell off my chair yesterday when I saw they had just on $50m cash on their books at balance date....nothing anywhere remotely like that in previous years

On the new accounting for leases thing, yeah I think it's a pain in the backside too so I just ignore it. With HLG that's really simple because they have no debt and balance sheet is super easy to understand.

Agree on this Accountant's 'Contingent Leases" Nonsense with you & percy

Some strength in HLG SP today -- 572/576 buy/sell in past 20 mins .. goal posts are moving north

Have a considerable HLG weighting here .. north of 20% which I'm comfortable with

[King1212]

Been following uncle Jarden many times..so far never disappointing me... Freightway, Hlg....kogan....all got me rich...the latest one was pph....but was too busy n missed out

Also following master Beagle....also made money... thanks master!

[sb9]

Looks on course to $6 handle very soon and may be $7 handle just in time for Divvy to be paid in Dec.

[jimdog31]

Been following uncle Jarden many times..so far never disappointing me... Freightway, Hlg....kogan....all got me rich...the latest one was pph....but was too busy n missed out

Also following master Beagle....also made money... thanks master!

Im with direct broking does that mean I can access Jarden commentary also? I cant seem to find where?

[King1212]

Not sure...they sent out summary email every month....to my email. I did not pay for it... maybe my ac has heaps of zero at the back...lol

Don't worry..just follow master Beagle....u be okay!