HGL Limited: Still a good proposition or time to dump? (HNG)

Despite attractive fundamentals, HGL has suffered recently with the bankruptcy of one of its suppliers.  So is the business sufficiently valuable to continue holding, or is it time to abandon ship?  Management are certainly demonstrating a proactive approach, by offloading 3 non-core businesses, attacking adjacent markets, and identifying ways to improve the prospects of underperforming businesses.

 

The $9.6m cash impairment related to the Biante business equated to a loss of $2.4m.  However looking at the underlying profit of $13.9M and the operating cashflow of $13.2M, the business is still throwing off plenty of money and keeping inventory and receivables under control.

 

Dividend for full year increased to 5.5c compared to 5c last year, reflecting the 83% payout policy.  Given Biante’s revenue contribution of $8M against total revenue of $163m, the impact to EBIT should only be in the order of 5% (if Biante fails to contribute any EBIT).  It would not be surprising to see management give up on Biante (and indeed, their cosmetics business BLC) entirely if performance did not improve in these businesses.

 

While some of the business may not be performing, the company is diversified, has a proactive management, and targets niches which are not commoditised.  I am going to continue monitoring HNG cautiously however the remaining strength of their businesses means I will continue holding.

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