HLG - Hallenstein Glasson

[Ferg]

My analysis of the numbers for the interim accounts to 1 February, 2022 here:

https://recastinvestor.substack.com/...asson-holdings

Nice work Recaster. Thanks for sharing.

[Muse]

Nice work Recaster. Thanks for sharing.

Aye thanks Recaster - always enjoy seeing all the financials lined up the way you present them.

PS - ferg wishes you’d post the excel files on your website. That greedy bugger!

[Recaster]

Lol. Thanks guys. Appreciated 🤣.

[Beagle]

Extract, (slightly improved with comment about diminishing imputation credits), from my post in the retail stocks thread this morning. Been a fabulous run for me with HLG but WHS is on far more compelling metrics than HLG and is a consumer staple. HLG has some elements of being a consumer staple but could easily also be considered to be more consumer discretionary and spending on discretionary purchases is vulnerable in more challenging times.

HLG is probably in a holding pattern until summer when I would expect people will be out updating their wardrobes to go "peacocking". Its a long time until December when the next dividend is due and the low and falling rate of imputation credit attached isn't helping my sentiment towards them as there's few things more distasteful than paying tax twice, once by the company itself in Australia on Glassons Au profits which make up the lions share of income now and again by shareholders when those profits are distributed.

I expect this new problem of very modest level's of imputation credits will get worse over the years ahead as Glassons Au profits which are unable to be imputed continue to be a more dominant percentage of overall group profits so as an income stock HLG is no longer attractive to me. It was paying a 15% gross yield when I got in back in late 2016 @ $2.75 and now is a mere 5%. Disc: I recently completely sold out in the late $6's and invested into WHS at an average of $3.09. I will revisit HLG in due course if the yield becomes more attunable to my investment objectives.

[clearasmud]

Extract, (slightly improved with comment about diminishing imputation credits), from my post in the retail stocks thread this morning. Been a fabulous run for me with HLG but WHS is on far more compelling metrics than HLG and is a consumer staple. HLG has some elements of being a consumer staple but could easily also be considered to be more consumer discretionary and spending on discretionary purchases is vulnerable in more challenging times.

HLG is probably in a holding pattern until summer when I would expect people will be out updating their wardrobes to go "peacocking". Its a long time until December when the next dividend is due and the low and falling rate of imputation credit attached isn't helping my sentiment towards them as there's few things more distasteful than paying tax twice, once by the company itself in Australia on Glassons Au profits which make up the lions share of income now and again by shareholders when those profits are distributed.

I expect this new problem of very modest level's of imputation credits will get worse over the years ahead as Glassons Au profits which are unable to be imputed continue to be a more dominant percentage of overall group profits so as an income stock HLG is no longer attractive to me. It was paying a 15% gross yield when I got in back in late 2016 @ $2.75 and now is a mere 5%. Disc: I recently completely sold out in the late $6's and invested into WHS at an average of $3.09. I will revisit HLG in due course if the yield becomes more attunable to my investment objectives.

Ouch. Could it be worth it to dual list for the Aussie holders (I'm one atm) and create franking credits.
Australians would be keen to own this company and bid the share price up

[nztx]

A nice dividend landed yesterday

Now, let's see what happens to the SP while everyone is amused elsewhere .. for a while

[Beagle]

Ouch. Could it be worth it to dual list for the Aussie holders (I'm one atm) and create franking credits.
Australians would be keen to own this company and bid the share price up

I agree as most of the profit is now derived in Australia but last time I checked it was very expensive to list there and ongoing listing fees are not cheap either !

[Waltzing]

Said a while back it should be listed on the ASX and maybe delisted here but that might cause a protest movement to appear.

[Muse]

Extract, (slightly improved with comment about diminishing imputation credits), from my post in the retail stocks thread this morning. Been a fabulous run for me with HLG but WHS is on far more compelling metrics than HLG and is a consumer staple. HLG has some elements of being a consumer staple but could easily also be considered to be more consumer discretionary and spending on discretionary purchases is vulnerable in more challenging times.

HLG is probably in a holding pattern until summer when I would expect people will be out updating their wardrobes to go "peacocking". Its a long time until December when the next dividend is due and the low and falling rate of imputation credit attached isn't helping my sentiment towards them as there's few things more distasteful than paying tax twice, once by the company itself in Australia on Glassons Au profits which make up the lions share of income now and again by shareholders when those profits are distributed.

I expect this new problem of very modest level's of imputation credits will get worse over the years ahead as Glassons Au profits which are unable to be imputed continue to be a more dominant percentage of overall group profits so as an income stock HLG is no longer attractive to me. It was paying a 15% gross yield when I got in back in late 2016 @ $2.75 and now is a mere 5%. Disc: I recently completely sold out in the late $6's and invested into WHS at an average of $3.09. I will revisit HLG in due course if the yield becomes more attunable to my investment objectives.

The gradual erosion of imputation credits is an issue for dividend loving kiwis but there is one partial solution to it that could be implemented, transfer pricing. I've involved in more than a few multi jurisdiction retailer or apparel companies and we always gave regard to (with high levels of outside professional advice) a transfer pricing policy that ensures the appropriate level of profit earnt and tax is paid where the bulk of the underlying value creation occurs. IE, the design, procurement, marketing, and financing functions. IE, glassons AU should 'buy' stock from HLG at 'wholesale' prices or pay HLG a fee to reflect those charges.

Glancing at the FY21 stat accounts it appears Glassons AU has slightly better GP margins than Glassons NZ - that signals no transfer pricing arrangement as any inter company fees to recover those vital functions would normally be borne in COGS and dimish gross profit margins.

I've had a brief glance through linkedin and it appears the majority of glassons non retail staff (ie design, procurement, marketing & finance) are in NZ (but certainly not ALL of them - James Glassons is in AU for instance).

Say if some buyer came along and bought Glassons Australia exactly as it was. Would that business unit be able to continue to function at the same level of profitability without all the designers, the procurement expertise in this challenging environment, the marketing savvy which Glassons excel at, and financial functions to make sure everything is paid and received on time? No. They would have to hire more, or look to have some sort of contract with HLG NZ that continued to provide those vital functions for a fee. A transfer pricing policy should reflect those sort of arms length arrangements in the company's intercompany arrangements.

From a tax perspective this would do 3 things. It would lower HLG's tax risk in NZ as it could be argued HLG should be charging more for some of those services. It would increase the tax paid in NZ. And it would increase the imputation credits available to HLG's overwhelmingly NZ shareholder base.

Overtime Glassons could centralise more of its non retail staff in NZ to further maximise the profits and taxes paid in NZ, leaving more vital CEO, HR, and handful of design roles in AU.

That's the 'maximise NZ dividend' shareholder gameplan.

The other gameplan would be to go harder in AU. If I was running that, I'd rebrand HLG to simply Glassons, pursue a secondary listing in AU, increase store openings as % of existing stores to 15-20% PA for the next few years (currently less than 10%), and one way or another get a few aussie centric research analysts to cover the stock. Aussie comps trading on inferior economics have far better multiples than HLG and a rerating should be targeted overtime. and would ignore the transfer pricing option above.

Arguably I'd say option 2 provide for better long term total shareholder returns. But at the moment I don't see HLG as having any definite strategy other than steady as she goes.

In either case, I'd probably look to either push Hallensteins to include a great level of more unbranded basic staples OR overtime divest the whole thing entirely. Hallensteins is a bit of an albatross on Glassons neck, to be honest.

HLG have a lot of potential that could be unlocked. They just move slow and don't engage well with the investment community. They never give any meaningful guidance, they don't do investor days that all the investment banks run, they are among the worst at providing updates between half year and full year announcements, they basically don't make any effort outside the minimum requirements (IE, they act like a private company that happens to be on the stock exchange). And as a consequence they've become content to become a divy yield stock, and with that now coming under pressure, they need a bit of a kick on the bum.

[nztx]

The gradual erosion of imputation credits is an issue for dividend loving kiwis but there is one partial solution to it that could be implemented, transfer pricing. I've involved in more than a few multi jurisdiction retailer or apparel companies and we always gave regard to (with high levels of outside advice) a transfer pricing policy that ensures the appropriate level of profit earnt and tax is paid where the bulk of the underlying value creation occurs. IE, the design, procurement, marketing, and financing functions. IE, glassons AU should 'buy' stock from HLG at 'wholesale' prices or pay HLG a fee to reflect those charges.

Glancing at the FY21 stat accounts it appears Glassons AU has slightly better GP margins than Glassons NZ - that signals no transfer pricing arrangement as any inter company fees to recover those vital functions would normally be borne in COGS and dimish gross profit margins.

I've had a brief glance through linkedin and it appears the majority of glassons non retail staff (ie design, procurement, marketing & finance) are in NZ (but certainly not ALL of them - James Glassons is in AU for instance).

Say if some buyer came along and bought Glassons Australia exactly as it was. Would that business unit be able to continue to function at the same level of profitability without all the designers, the procurement expertise in this challenging environment, the marketing savvy which Glassons excel at, and financial functions to make sure everything is paid and received on time? No. They would have to hire more, or look to have some sort of contract with HLG NZ that continued to provide those vital functions for a fee. A transfer pricing policy should reflect those sort of arms length arrangements in the company's intercompany arrangements.

From a tax perspective this would do 3 things. It would lower HLG's tax risk in NZ as it could be argued HLG should be charging more for some of those services. It would increase the tax paid in NZ. And it would increase the imputation credits available to HLG's overwhelmingly NZ shareholder base.

Overtime Glassons could centralise more of its non retail staff in NZ to further maximise the profits and taxes paid in NZ, leaving more vital CEO, HR, and handful of design roles in AU.

That's the 'maximise NZ dividend' shareholder gameplan.

The other gameplan would be to go harder in AU. If I was running that, I'd rebrand HLG to simply Glassons, pursue a secondary listing in AU, increase store openings as % of existing stores to 15-20% PA for the next few years (currently less than 10%), and one way or another get a few aussie centric research analysts to cover the stock. Aussie comps trading on inferior economics have far better multiples than HLG and a rerating should be targeted overtime. and would ignore the transfer pricing option above.

Arguably I'd say option 2 provide for better long term total shareholder returns. But at the moment I don't see HLG as having any definite strategy other than steady as she goes.

HLG have a lot of potential that could be unlocked. They just move slow and don't engage well with the investment community. They never give any meaningful guidance, they don't do investor days that all the investment banks run, they are among the worst at providing updates between half year and full year announcements, they basically don't make any effort outside the minimum requirements (IE, they act like a private company that happens to be on the stock exchange). And as a consequence they've become content to become a divy yield stock, and with that now coming under pressure, they need a bit of a kick on the bum.

but is finished inwards product shipped direct from manufacturer into Aussie & NZ separately ?

To ship here then sort out what goes over yonder would be pretty costly & inefficient with
transhipping .. yonks ago shipping across the tasman was pretty expensive & problematic
& cheapest option to send direct to NZ and Aussie from manufacturer. I wouldn't think that situation has changed much

It may be that Aussie markets are able sustain higher achieved markups & GP than NZ, which
if the case means only recoveries of some expenditure apportioned between retail divisions on either side
of the ditch are possible ?

Dual listing may allow franking credits on one side & imputation credits here ?

That solution may in itself allow a higher imputation flow to NZ holders, if
Aussies take a liking to what the see - if listed on ASX

The Div yield in itself might prove attractive enough to see SP grow fast on the
low 60m or so shares on issue too - if looking from over Aussie at HLG

Perhaps something higher than $10 Kiwi might happen eventually with dual listing ?

What are the ASX listed Aussie Rag Traders Div Yields & Earnings to SP looking like ?