Why did you buy that stock? [Hallenstein Glasson]

A 30% drop in profit forecast for the full year to August 1, put Hallenstein Glasson [HLG] in the business papers today but the company has been through bad economic times before and weathered them well.

In this Why did you buy that stock? we will first look at what management do to navigate their business through the rocky waters of the recession New Zealand is now facing.


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The company's ability to maintain appropriate stock levels is one of the keys to retailing in general and Hallenstein Glasson do this better than probably any other New Zealand retailer.

Their focus on cost control has been one of the hallmarks of Hallensteins for the 6 years that I have been following the company and one of the main reasons for my recent purchase of the stock.

Their clothing is something my wife and I both purchase, it is generally well made, designed and fits its customer demographic year after year. Not as easy as it sounds but it requires the chain's buyers to keep abreast of changing trends and plan ahead well in advance.

Their marketing also impresses me. It is clever, witty and once again fits its customers well. It has developed its branding to perfection and management clearly know their customer and what they want. A basic for any business but in clothing retailing this is a more crucial talent to have because fashion trends change constantly.

Lets take a look at basic returns. Hallenstein Glasson have managed to pay one of the better dividends to investors of NZX listed stocks and before today's announcement the gross div was returning more than 18%. One now might expect around a 12% gross return at current share prices and that is still a considerable return given around a 9% rate for term investments.

I myself like good dividends, and only Sky City Entertainment Group [SKC], with a gross dividend, for my holding, of nearly 20%, makes HLG a good fit in the Share Investor Portfolio.

Many Kiwi retailers have made moves across the ditch to Australia and failed miserably. HLG has a small presence there, and while not proven a spectacular success their attempts at growth have been deliberate and cautious, rather than growth for the sake of it. A sign of good management and able planning. The addition earlier this year of Australian retailing queen Chief executive Shayne Quanchi, will help company plans in Australia.

Given current market conditions and an economy in dire straits, the excellent communication that management have had in the past with its shareholders, puts them clearly in the picture every time.

Well known for under promising and over delivering, management have always been upfront when it comes to relaying simple straightforward information about company progress.

Uncomplicated communication is a sign of clear management direction and even more important during the inevitable company hard times.

Finally the test I must take on whether I would continue to buy this stock. Since I only just purchased weeks ago that is probably already answering that test but I will be buying more, funds allowing, if the stock becomes cheaper.


Related Share Investor reading

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Related Links

Hallenstein Glasson- Corporate
Annual Reports
Stock Exchange Releases
Share Investor Forum - discuss HLG here



c Share Investor 2008

I'm Buying: Redux

Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well Warren Buffett


Well, I have had my eyes on Hallenstein Glasson [HLG.NZ] for some time and today it came down far enough for me to buy a very small holding of 1000 for NZ$2.53 per share. This is a new addition to my portfolio.

I also added another 1500 Postie Plus Group [PPG.NZ] at .44c per share, considering it a good punt since Jan Cameron revealed a 15.10% stake last week.

I am enjoying the sale that the NZX is having at the moment and will probably add more of what I already have if stocks get cheaper.

I have no desire to add any new companies to the Share Investor Portfolio and simply do not have the capacity in regard to time available for additional research or understanding of different sectors of the economy.

The Share Investor Portfolio now contains:

Auckland Airport
ASB Preference "B" Shares
Briscoe
Fisher & Paykel Healthcare
Fletcher Building
Freightways
Goodman Fielder
Hallenstein Glasson
Kiwi Income Property
Mainfreight
Michael Hill International
Postie Plus
Pumpkin Patch Ltd
Ryman Healthcare
Sky City Entertainment
Steel and Tube
The Warehouse


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c Share Investor 2008

Drinking and Trading

Well, it could be the red wine I had at lunch or the absolute unbridled enthusiasm that I have for the New Zealand economy and our stockmarket, (naaaah it must be the Cab Sav)I just purchased, from my dividend allocation this last quarter, 3000 Fisher & Paykel Healthcare Ltd [FPH.NZX] shares at $2.35 each.

I am a very happy camper about my new addition and this more than doubles my current holding in the company to 5000 shares.

My 2000 allocation was bought at NZ$3.72 per share and cost approx $3.50 when you include dividends and imputation credits.

The obvious reasons to buy was the current weakness in the stock price, the increased revenue of the company and the downwards trajectory of the New Zealand dollar. It hasn't had a good year profit wise but recent results are not materially important because the profit drop is due to the weaker US dollar, in which much of the company's business is done. A stronger US dollar will take care of that.

I also have an order in for 2000 more shares of Michael Hill International Ltd [MHI.NZX] or which 354 have traded at .82 c each.

It is unbelievable how low the P/E of this stock and others is/are. At just over 12 for MHI it clearly represents great value for investors considering it is trading off its highs only last year of over NZ$1.20 and they announced a record profit for this last period to Dec 31 2007.

As I have said manifold times over the years, when there is a sale it is worth buying what you like when it is cheaper. Investors would do well to grab their favourite companies during this downturn.

I am still on the prowl for Hallenstein Glasson Holdings Ltd [HLG.NZX] but think it still has further to fall given the tight retail conditions at present and the fact that I have exhausted my dividend cash.

The Share Investor Portfolio is still just in positive territory and currently up by 1.5% net overall. Not a good look when you consider the bulk of the portfolio is around 6 years old but hey considering the rorting the market has been getting it has done well and it will recover given time and more favourable economic conditions.

*It ain't advisable to trade shares after drinking half a bottle of good red. I miscalculated the sum of money I needed in my CMA account . A rider to that of course is if you are used to drinking that much and making financial transactions then go for it. What can I say, I'm a cheap drunk!



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c Share Investor 2008

Hallenstein Glasson Australian expansion needs expert execution

Hallenstein Glasson [HLG.NZ] net profit for the 2008 half-year after tax fell 6.6 per cent from $9.9 million to $9.2 million, in line with the company's January market guidance.

The results are mirrored in an overall decline in sales of 2 per cent, with group sales for the six months ending February 1 falling from $100.7 million to $98.5 million.

The company has done spectacularly well for so long but in the last few years sales and profit have been stagnant.

It seemed reasonably clear that profit wouldn't continue to climb as rapidly as it has done in the past, because much of it came from focusing on cost reductions in the business and the company now runs a lean mean retailing machine, fixed costs like rising labour expenses and leases aside.

The expansion of women's clothing chain Glassons across Australia is a priority for new Hallenstein Glasson chief executive Shayne Quanchi, who is based in Melbourne herself.

The focus on expansion across the Tasman before stalled growth in New Zealand is seriously looked at, could be of some concern to shareholders.

Even though Quanchi is a 20 year veteran of retailing in Australia, doesn't mean she can make the Kiwi style Glassons chain a rocking and rolling OZ success.

Its competitors there are way more savvy, generally part of the big conglomerates like Coles/Wesfarmers, David Jones, and the like and the differences between similar targeted customers that Glassons has here and its competitors in Australia are vast in their sophistication, choice options and pricing.

Don't get me wrong, Hallensteins is a great company and has done well in New Zealand for generations but the road to Australia for many New Zealand companies and their expansion plans, is littered with the corpses of battered balance sheets and zombie like shareholders who have had their wallets picked.

Clearly Australia is an opportunity for the company in which they can continue to expand but the story so far there has been disappointing when compared with the operations of the New Zealand unit.

One good and important aspect of the result is that gross margins have been maintained and that is no mean feat in the present retailing environment.

Like other retailers, such as Briscoe [BRG.NZ] and The Warehouse Group[WHS.NZ], they are going to struggle this year, as consumers, especially in New Zealand, slow their spending because of increased taxes, petrol and mortgage costs.

Related Share Investor reading

Why did you buy that stock? [Hallenstein Glasson]
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Discuss this Company @ Share Investor Forum


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Inside the Mind of the Shopper: The Science of Retailing by Herb Sorensen
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c Share Investor 2008