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Daily ShareChat: Hallenstein Glasson

By Jenny Ruth

Sunday 3rd October 2010

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 Jenny Ruth

Hallenstein Glasson Holdings' "solid" 60% rise to $20.4 million in adjusted net profit was largely driven by gross margin improvments, says Buffy Gill, an analyst at Goldman Sachs JB Were.

Its gross profit (GP) margin increased "an impressive" 410 basis points to 56.9% of sales.

"We believe GP margins benefited from a stronger dollar as well as company specific improvements from better inventory management, reduced stock clearance and an enhanced product offering," Gill says.

The company's Australian operations "turned its first decent profit since inception in 2001."

Gill has increased her 2011 to 2013 earnings forecasts by between 20% and 30% as a result of the significant margin improvement.

"We assume inventory management enhancements and an improved product offering mean Hallenstein is now able to sustain a slightly higher long-term gross margin of 53.5%," Gill says. Her previous long-term assumption was a 52% margin.

The stock provides an attractive 8% yield backed by solid operating cashflow, she says. "For income investors, we believe Hallenstein currently presents one of the more attractive risk-reward yield opportunities in the market."

Nevertheless, Gill expects New Zealand retailers will struggle to outperform in the next six months and are facing a number of headwinds including subdued consumer confidence and stagnating real wage growth.

Recommendation: Hold.

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