New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Michael Hill International / Equity Bottom-Up

<h2>Michael Hill Intl. (MHJ) FY21 Result Initial Impressions — Strong result but lockdown déjà vu</h2>
Michael Hill (MHJ) released a strong result, albeit largely pre-guided, reporting EBIT of A$72.4m (FB A$73.1m). MHJ has delivered a combination of sales growth and margin expansion. While helped by a favourable retail backdrop, execution on key strategic milestones, such as loyalty, digital, and inventory, give us confidence in the underlying business improvements.
MHJ announced a final dividend A3.0cps (FY21 ordinary dividend of A4.5cps), in line with expectations.
Outlook — Trading well but Delta elevates near-term uncertainty
MHJ has performed well to date, and had been tracking ahead of the prior period (Canada and New Zealand driving group same store sale of +17%, +20% vs. FY20). However, the current surge in COVID-19 cases in Australasia and corresponding restrictions, re-introduces elevated uncertainty. Currently, all of its New Zealand and half of its Australian stores are temporarily closed.
The expected impact on FY22 of lockdowns to date is -A$5m or 1.3cps&nbsp;(c. -8% against our current FY22 EBIT forecast).
Whilst lockdowns limit in store trading, it is worth considering 1) 1Q is typically a seasonal low, 2) advancements in MHJ’s omni-channel strategy allow for increased online engagement which has had success at driving elevated sales post-lockdowns in the past, and 3) MHJ has a strong balance sheet (c. A$140m of liquidity).
Conference call at 12:00pm NZT
MHJ will host a post-result conference call at 12:00pm NZT (10:00am Brisbane time). Participants must register online in advance&nbsp;<a href="https://apac.directeventreg.com/registration/event/2294299" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://apac.directeventreg.com/registration/event/2294299&amp;source=gmail&amp;ust=1629763930770000&amp;usg=AFQjCNHrkSB_hIiFsSw74dulZWSTE3WYww" rel="noopener">HERE</a>. Alternatively, there is a listen only webcast available&nbsp;<a href="https://edge.media-server.com/mmc/p/j7yxdaxb" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://edge.media-server.com/mmc/p/j7yxdaxb&amp;source=gmail&amp;ust=1629763930770000&amp;usg=AFQjCNHqOqUfx2r2v65Y_1KkqqpWbQ38qQ" rel="noopener">HERE</a>.
Result take outs
<ul>
<li>Large net-cash balance — MHJ reported a large cash balance of A$72.4m (albeit with c. A$10m or 2.6cps of Holidays Act wage remediation yet to be paid).</li>
<li>Delivery on key initiatives drive gross margin improvement — Group gross margin improved +210bp, to 62.7%</li>
</ul>
o&nbsp;&nbsp;FY21 online sales surged +51% on the prior year period and represented 6.2% of total sales (FY20 5.0%)
o&nbsp;&nbsp;Increased uptake of the loyalty programme, with total members up +280%
FY21 result summary (A$m)
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/225/424/original/image_26309826921629678407333.png?1629678418" class="editor-image img-responsive" data-smartkarma-image-id="225424"></figure>
Source: Company, reports, Forsyth Barr analysis

Michael Hill Intl. (MHJ) FY21 Result Initial Impressions — Strong result but lockdown déjà vu
Michael Hill (MHJ) released a strong result, albeit largely pre-guided, reporting EBIT of A$72.4m (FB A$73.1m). MHJ has delivered a combination of sales growth and margin expansion. While helped by a favourable retail backdrop, execution on key strategic milestones, such as loyalty, digital, and inventory, give us confidence in the underlying business improvements.
MHJ announced a final dividend A3.0cps (FY21 ordinary dividend of A4.5cps), in line with expectations.
Outlook — Trading well but Delta elevates near-term uncertainty
MHJ has performed well to date, and had been tracking ahead of the prior period (Canada and New Zealand driving group same store sale of +17%, +20% vs. FY20). However, the current surge in COVID-19 cases in Australasia and corresponding restrictions, re-introduces elevated uncertainty. Currently, all of its New Zealand and half of its Australian stores are temporarily closed.
The expected impact on FY22 of lockdowns to date is -A$5m or 1.3cps&nbsp;(c. -8% against our current FY22 EBIT forecast).
Whilst lockdowns limit in store trading, it is worth considering 1) 1Q is typically a seasonal low, 2) advancements in MHJ’s omni-channel strategy allow for increased online engagement which has had success at driving elevated sales post-lockdowns in the past, and 3) MHJ has a strong balance sheet (c. A$140m of liquidity).
Conference call at 12:00pm NZT
MHJ will host a post-result conference call at 12:00pm NZT (10:00am Brisbane time). Participants must register online in advance&nbsp;HERE. Alternatively, there is a listen only webcast available&nbsp;HERE.
Result take outs

Large net-cash balance — MHJ reported a large cash balance of A$72.4m (albeit with c. A$10m or 2.6cps of Holidays Act wage remediation yet to be paid).
Delivery on key initiatives drive gross margin improvement — Group gross margin improved +210bp, to 62.7%

o&nbsp;&nbsp;FY21 online sales surged +51% on the prior year period and represented 6.2% of total sales (FY20 5.0%)
o&nbsp;&nbsp;Increased uptake of the loyalty programme, with total members up +280%
FY21 result summary (A$m)

Source: Company, reports, Forsyth Barr analysis

Michael Hill Intl. (MHJ): FY21 Result Initial Impressions — Strong Result but Lockdown Déjà Vu