Daily ShareChat: Hallenstein Glassons

Hallenstein Glasson Holdings remains one of New Zealand's best apparel retailers with a proven track record and strong balance sheet, says Chris Byrne, an analyst at Craigs Investment Partners.

However, a weak retail environment has seen Hallenstein's share price fall and its first-half 2011 net profit decline 16%, Byrne says.

"While we expect Hallenstein's leverage to an economic recovery from late 2011 to drive sales growth, rising raw material costs and Chinese wage inflation create uncertainty around Hallenstein's ability to maintain margins," he says.

Byrne is forecasting net profit will fall to $18 million for the year ending July 31 from $20 million the previous year before rising to $19 million in financial 2012. These forecasts are 3.1% and 7.5% respectively below consensus forecasts.

"We are largely in line at the revenue level but we appear to be more concerned regarding margin erosion," he says.

The company has operated in Australia since 1996 "but has yet to develop genuine earnings momentum despite revenue growth of 10.6% compound average growth rate since 1001," Byrne says.

"While this underscores the challenges ahead, we are of the view that Australia represents sufficient option value that it is worth continuing to pursue."

Byrne values the stock at $2.23 but has a $4.04 12-month price target.

Recommendation: Hold.

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