Long VS Short: Michael Hill International

In this seventh installment of the Long vs Short series I am once again going to take look at the chart comparisons for a stock from the Share Investor Portfolio and compare the 10 year return (above chart) to the turmoil of the last year with a 1 year return chart (large chart at bottom of post).

In this series I want to show the merits of investing, using charts, for the long-term vs short term gains or losses. I will use the longest available data to me for the long-term view (10 years )and will make a comparison against the NZX50.

In this segment of Long vs Short I will take a look at Michael Hill International Ltd [MHI.NZ] .

I currently hold 3000 Michael Hill shares after buying them in November 2007 (see small chart below for detail) I added a further 7000 in July 2009.

The company has been a spectacular performer over its 25 year plus history, growing from just one store to more than 200. Its returns to shareholders have been similarly spectacular but have tapered off over the last year due to the world-wide recession.

Symbol	Price	Value	Earned
MHI.NZ	$0.620	$1860	$-807
You own 3000 [MHI.NZ] shares purchased at $.889 [$2667]

In my 18 months of owning this share my return has been a loss of $807 or around 30% (see small chart above)This includes dividends and tax credits.

If I had bought this share just a year ago (see large chart at bottom) my return would have been exactly the same as my 18 month return of a 30% loss.

Now for the real point of this comparison lets look at the return for Michael Hill shareholders who have held the stock for 10 years. (see large chart above)

From a high of a 450% return in 2007 the 10 year return as of writing is still around 240%.

That beats my holding return and the one year return by 270%!

Yet another point made that when it comes to long VS short term investing, long beats short like it has its hands tied behind its back.




Michael Hill @ Share Investor

Michael Hill TV3 60 Minutes Interview
Stock of the Week: Michael Hill International
MICHAEL HILL - Toughen Up: What I've Learned about the tough times
Michael Hill: Interview with Ian Fraser
Marketwatch: Michael Hill International
Michael Hill's profit shines
Michael Hill takes on the windy city
Why did you buy that stock? [Michael Hill International]
MHI has defined growth strategy
MHI profit sparkles

Discuss this Stock @ Share Investor Forum

Long vs Short Series

Auckland International Airport
Freightways Ltd
Pumpkin Patch Ltd
Fisher & Paykel Healthcare
Mainfreight Ltd
The Warehouse Group
Sky City Entertainment

Related Amazon Reading


Investing for the Long-Term (Market Strategies) by Robert Linggard
Buy new: $20.90 / Used from: $14.66
Usually ships in 6 days


The Complete Guide to Investing in Short Term Trading: How to Earn High Rates of Returns Safely by Alan Northcott
Buy new: $16.47 / Used from: $12.47
Usually ships in 24 hours

c Share Investor 2009

Marketwatch: Michael Hill International

As you can see from the chart, Michael Hill International [MHI.NZ], the 200 plus store jewelry chain with stores in Australasia, Canada and most recently the United States, the share price is not looking great.

From a NZ$1.22 high over the last year down to a 59c closing price today, the company's shares are looking like a good buy.

What has kept the share price up consistently over many years was the regular increase in sales growth and profit that has historically just kept on coming.

Until now.

By no means is the slowdown due to anything else except recent rumblings over the global economic slump and various financial crises, so the negative impact on share price is nothing material about the viability of the business over the long-term but a macro economic factor that just cant be controlled by any business at the moment-sales and profit will be affected in the short to medium term.

This represents an opportunity rather than anything negative because once this economic slowdown is managed through Michael Hill should be back on its upwards trajectory again.

Now I am not saying go out and buy Michael Hill stock at current prices because the share price may well go further south before it goes north again but all financial indicators mark the company stock out as a screaming buy.

A current P/E ratio of 8.34 and a gross dividend payout of 8.68% alone make for attractive reading and historical financials should make any accountant leap for joy.

This is one of the stocks that I am looking at to add more of to the Share Investor Portfolio and will bide my time in current market conditions to hopefully get my fill at a lower price.



Related Share Investor reading

Michael Hill's profit shines
Michael Hill takes on the windy city
Why did you buy that stock? [Michael Hill International]
MHI has defined growth strategy
MHI profit sparkles


Essential Links:

Michael Hill Investor Information

From Amazon



Jewelry, Watches and Clocks Industry Report
Buy new: $23.95
Available for download now


c Share Investor 2008

Ruminations, meanderings and recriminations

So many bargains!!

Come one, come all, its a giant pre-Christmas sale of listed NZX and foreign stocks.

Ah, Mainfreight's shares might be traveling south, Michael Hill's may have lost their sparkle and Pumpkin Patch's share price looks like it could reach the same figures as some of its clothing sizes but if you think stocks are cheap now just wait until the New Year sales.

To be fair markets have now overreacted-they always do whether up or down- to the credit crunch and its associated impacts and we now seem to be running on negative emotion caused by over zealous finance media ready to make a name for themselves and their media owners whose headlines grab at sensationalism in order to sell advertising.

This media inspired negativity is set to continue well into 2009 and the New Zealand stockmarket is unlikely to see any stability until next spring with an upturn looking promising for the 2010 year.

I thought I would be a smart arse sort of guy and buy beaten down stocks a few months back but my Pumpkin Patch purchase back in June at NZ$1.53 has nearly halved on Fridays closing price, my Michael Hill purchase of the same month went from 82c to below 60c and my Briscoes "bargain" is back in the high 70 cent range.

The only upside buy was my clear expertise led delve back into Fisher and Paykel Healthcare[FPH.NZ] Bought at $2.33 this stock is currently above 3 bucks and has at times been above $3.20, just going to prove that timing the market isn't the easiest thing to do-for me anyway.

To be fair the upside for Fishers was clear to the market because sales were going to be up and the US dollar strength meant that repatriated funds back to head office in New Zealand would be well up, so the only mistake I made there was not to buy more.

This will be one stock whose sales and profit will hold up during this economic downturn and any substantial stock slump below $2.35 will see me back in.

Having spilt my guts about some of my stock meanderings over the last few months I am nevertheless in it for the long haul and my purchases fit my investment profile and ability to eat should everything become worthless in 12 months time.

Having said that I am still very tempted to get the checkbook out again for some more "bargains" but human nature being what it is I am going to wait until prices drop further latter on in 2009.

I am looking at buying more Mainfreight Ltd [MFT.NZ] which is still doing well, Pumpkin Patch[PPL.NZ], which is struggling in North America, Britain and New Zealand, Michael Hill International[MHI.NZ], which is holding up so far, Fletcher Building [FBU.NZ] which is in the middle of a residential building slump and Briscoe[BGR.NZ]which is having the Christmas sale to end all sales at present.

So I am still optomistic for the economy and the stockmarket long-term. Short term?

Its a fools game.


Related Share Investor reading

Share Investor Portfolio: Taking a beating
Why did you buy that stock? [Briscoe Group]
Why did you buy that stock? [Fisher & Paykel Healthcare]
Why did you buy that stock? [Pumpkin Patch Ltd]
Why did you buy that stock? [Michael Hill International]
Why did you buy that stock? [Mainfreight]
Why did you buy that stock? [Fletcher Building]

Shareinvestorforum.com-Discuss this Share Investor Post


From Amazon

	Why Stock Markets Crash: Critical Events in Complex Financial Systems by Didier Sornette Buy new: $21.55 / Used from: $15.54 Usually ships in 24 hours
	The Great Crash: How the Stock Market Crash of 1929 Plunged the World into Depression by Selwyn Parker Buy new: $19.85 / Used from: $33.16 Usually ships in 2 to 4 weeks

More stockmarket and finance books at Amazon


c Share Investor 2008

Michael Hill takes on the Windy City

The move by Michael Hill International [MHI.NZ] to buy 17 stores in the United States for about US$5 million ($7 million) from the Chapter 11 bankruptcy of Whitehall Jewelers Holdings-based in the Chicago area, with 2 stores in St Louis-has me a little worried.

I'm worried because this type of expansion activity veers slightly away from the tried and tested way that the company entered Australia then Canada.

The company set up a handful of stores when they entered their two overseas markets just to test the water.

Australia was started that way and now has 136 very profitable stores and Canada started with a couple and now has 22 virtually break-even stores 3 years later.

Why didn't Michael Hill test the Chicago area with 1 or two stores like they have previously?

It does make sound financial sense, it has worked before.

Micheal Hill, CEO, says the opportunity to buy the distressed sites was a "sound launching pad" to expand the Michael Hill brand across the big US market and secure some "prime sites", very true.

The NZ$7 million purchase price Hill says was largely for the inventory that the stores carried and that was bought at 80c in the dollar.

A good buy there.

Now I'm not an expert in retailing and Jewelry, as Michael Hill clearly is, but what is wrong with "testing the market" as he calls the US move, with a couple of stores, as he has done in the past?

In my opinion you don't test a market with 17 stores, it is too much too soon.

The US Jewelry market is different from Canada, it is more fragmented in demand from state to state and city to city even, and much more competitive. Chicago also has a large black population, with a much less than average yearly income, so the going will be tough, even if Oprah Winfrey does her bling shopping there.

As a shareholder, I would have much preferred little baby steps and less money spent upfront until a few stores were trading for 12 months or so and then make a decision to expand or retreat from there.

There will be more money spent on store refits, staff training etc so the total cost of this exercise will probably exceed NZ$10 million.

This news comes on the back of a great profit announcement this week.

The company reported a record tax paid profit of $25.232m for the twelve months ended 30 June 2008 compared to $21.017m for the previous corresponding period. This was a 20.1% increase in profit on top of a 8% rise in revenue to $376.664 million.

There were 22 additional stores added in the year to bring total store numbers to 210 for the entire group.

A final dividend of 2.0 cents per share with full imputation credits

The dividend will be paid on Monday, 13th October 2008 with the record date being Friday, 3rd October 2008.



Michael Hill shares have moved up strongly this week on the profit result and by almost 4.5% today on the US acquisition news.


Disclosure I own Michael Hill International shares in the Share Investor Portfolio.


Michael Hill International @ Share Investor

Michael Hill International: 2010 half year profit commentary
Michael Hill Makeover kicks off
Michael Hill International: 2009 full year profit commentary
Toughen Up: What I have learned from the hard times
Stock of the Week: Michael Hill International
Michael Hill TV3 60 Minutes Interview
Long VS Short: Michael Hill International
Marketwatch: Michael Hill International
Michael Hill's profit shines
Michael Hill takes on the windy city
Why did you buy that stock? [Michael Hill International]
MHI has defined growth strategy
MHI profit sparkles

Discuss MHI @ Share Investor Forum

Download MHI Company Reports


Buy Toughen Up: What I've Learned About Surviving Tough Times



Toughen Up - Fishpond.co.nz


c Share Investor 2008

Why did you buy that stock? [Michael Hill International]

I initially resisted buying shares in Michael Hill International, [MHI] the operator of approximately 200 Jewelry stores in New Zealand, Australia and Canada because the dividend wasn't big enough.

Buying Michael Hill shares would be contrary to my investing belief that an investment should pay good returns, right from the beginning, when you plunk down those hard earned sheckels.

Why did you buy that stock?

Why did you buy that stock? [Mainfreight]
Why did you buy that stock? [The Warehouse]
Why did you buy that stock? [Goodman Fielder]
Why did you buy that stock? [Auckland Airport]
Why did you buy that stock? [Sky City Entertainment]

I then watched over the years as MHI management continued to have a sustained success in their business and have 20 plus years of good revenue and profit growth behind them.

I then re thunk my position on dividends and returns and decided to look longer term, where I thought Michael Hill's main prospects lie.

Therefore the main reason I bought MHI shares was in the company and its good long-term prospects, 5 years and up. Granted, it is doing well currently but its big future lies in the long-term management and progress of the company for even better investor returns.

Its position in my high dividend portfolio as a "growth stock" marks it out only with Pumpkin Patch Ltd [PPL] in that respect. My portfolio was previously lacking in such growth stocks and it is probably prudent for investors to have one or two in their portfolios.

Good management marks this company out from many others listed on the NZX and as you might know, as a seasoned investor, good management of a company is the most crucial part of a business, save the product or service being sold. Management for me is another key reason for picking Michael Hill. This is embodied in Michael Hill, the man himself, and he has provided a culture where his other managers are able to run the company the way he would want and therefore the transition to another CEO in the future will be relatively easy-another good long-term indicator.

Once again, and it seems to be a recurrant theme that runs through the businesses that I pick to invest in, they are easy to understand. Like the other retailers in my portfolio, Pumpkin Patch Ltd [PPL] Postie Plus Group [PPG] and The Warehouse [WHS] they simply sell goods to the public. Easy peasy.

For me, having Michael Hill has part of my portfolio provides an opportunity for me to participate in a growing business in which the full benefits of that growth, in terms of larger profit , a bigger company and revenue are still many years down the track. Along with excellent management and and easy to understand business any significant dips in share price would be a good opportunity for me to acquire a much larger stake than my current 1000 share holding and I wouldn't hesitate to take that opportunity.


Essential Links

Investor Information


Related articles from Share Investor

MHI has defined growth strategy
MHI profit sparkles

Security Analysis: Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions) by Benjamin Graham Buy new: $41.77 / Used from: $32.40 Usually ships in 24 hours

c Share Investor 2008

Michael Hill's profit shines

Results for Michael Hill International(MHI) were expected by the market as they were telegraphed a few weeks back but it is pleasing to see the breakdown.



Under Michael Hills careful
management his company looks
set for a good long term future.


I have been a long term follower of this company and have only admired it from a distance, having bought a very small holding late last year I am very pleased that I did.

Key figures:

* Operating revenue of $209.191m up 4.8%
* EBIT of $30.799m up 27.8%
* Net profit after tax of $19.480m up 27.1%
* 19 new stores opened during the six months
* Total of 210 stores open at 31 December 2007

Full profit rundown from NZX


Australia and Canada performed well over the last 6 months but New Zealand stores were flat, reflecting the poor economic conditions that we are currently facing. Business is likely to be tough in New Zealand for the lead up to the General Election at the end of the year and tax cuts offered by National are likely to stimulate the retail sector at the start of 2009.

Australia clearly has much more store growth to come, their current 136 stores vs the New Zealand store count of 52 would equate to roughly 250 stores when you figure OZ has five times the population that NZ has. Even store growth in Auckland is likely to be added to as its citizens need approx 30,000 ft of new retail space very year just to accommodate population growth.

Canada has the most fascination with me though. It has grown stongly in revenue over the last 6 months and doubled their operating profit on a base of 22 stores.

Their apparent success here, after just a few years, makes this market one to watch closely for the future direction of the company as a whole. Not just for profits that should come from the Canadians though.

I'm highly interested in their eventual push further south, into the clutches of the US consumer.

This market will be MHI's toughest one yet and if successful will clearly make the company a true global player, something the man, Michael Hill, has had designs on for many years.

The route the company is taking into the USA differs from that of another prospective Kiwi global player, Pumpkin Patch Ltd(PPL), Pumpkin opened in the US first, while MHI's strategy of entering a smaller, similar market seems to be a wiser move in my mind, less short term risk but a bigger long-term payoff.

It will be interesting to see where Michael Hill International will be in 10 years, last weeks profit announcement and associated figures make the possibility of global success in the long term an attainable goal.


Disclosure: I own MHI shares

Essential Links:

Investor Information

Related articles from Share Investor

MHI has defined growth strategy
MHI profit sparkles
Pumpkin's expansion comes at a cost


c Share Investor 2008