Michael Hill - Key Level to watch
Thanks for viewing,
This is just an equity I am watching and wanted to share my views for anyone looking to jump in.
I am watching the 0.22 level. If it is breached - as I sort of expect, it should go to the 0.2 - 0.18 level - possibly lower. I would have to do a much more in-depth assessment of the Company's financial liquidity, impact of "the virus" on sales in each market, and ability to withstand financial shocks before making that leap - although the price is becoming tempting. Bloomberg has stats; PE ratio 6.75, Book value 0.6899, 1 year return -33.94%, and dividend return (should the dividend remain unchanged - (which is doubtful in my view) of over 9%. In a July trading update they reported a slight increase in total sales despite store closures.
I first became aware of Michael Hill's business model in the 2000s while working in Insurance. They offered a 60% trade discount at the time, which made me think about just how much margin was added to its jewellery. In investor reports over the last couple of years they disclose gross margins in excess of 60% each year. This was a bit of a turn off for me as a potential consumer as I was aware that a lot of people thought that their jewellery was "worth" what they paid for it. Yes, it may be insured for that amount, but you will be disappointed should you ever need to sell your jewellery on the secondary market. I guess I have always been loathe to spend $160+ for gold worth ~$100, maybe that's why I started to buy bullion (or jewellery produced overseas with low premium above gold spot price - yes it does exist but it isn't easy to access) instead.
Anyway, as an investor a high gross margin is a strength, however, it may end up being a weakness as more and more people look for better value for money when buying jewellery. I recommend buying a loupe (10x magnification) and research diamond quality before impulse buying a diamond ring (from anyone) I have seen some very low quality diamond rings on display in jeweller's windows with large inclusions and imperfections that are visible to the naked eye through security glass and a display case. They are easy to miss and result in significantly higher diamond weakness and susceptibility to breakage - which may or may not be covered by insurance depending on your provider / coverage / coverage limits.
While I am watching this equity, I still haven't made up my mind if I will jump in below $0.22, as I have concerns about;
- The costs to maintain a large retail presence during difficult economic times and the need for store closures,
- The general demand level of consumers during a time when unemployment is so much higher than a year ago,
- Online jewellery offerings resulting in greater competition,
- The general affordability of jewellery now that gold is testing its 2011 all time highs in USD terms and has already significantly surpassed it in AUD and NZD terms.
If you share a more positive view, I would love to hear it. At the moment, I feel that there are more headwinds than tailwinds. So I will keep watching for now.
Protect those funds
This is just an equity I am watching and wanted to share my views for anyone looking to jump in.
I am watching the 0.22 level. If it is breached - as I sort of expect, it should go to the 0.2 - 0.18 level - possibly lower. I would have to do a much more in-depth assessment of the Company's financial liquidity, impact of "the virus" on sales in each market, and ability to withstand financial shocks before making that leap - although the price is becoming tempting. Bloomberg has stats; PE ratio 6.75, Book value 0.6899, 1 year return -33.94%, and dividend return (should the dividend remain unchanged - (which is doubtful in my view) of over 9%. In a July trading update they reported a slight increase in total sales despite store closures.
I first became aware of Michael Hill's business model in the 2000s while working in Insurance. They offered a 60% trade discount at the time, which made me think about just how much margin was added to its jewellery. In investor reports over the last couple of years they disclose gross margins in excess of 60% each year. This was a bit of a turn off for me as a potential consumer as I was aware that a lot of people thought that their jewellery was "worth" what they paid for it. Yes, it may be insured for that amount, but you will be disappointed should you ever need to sell your jewellery on the secondary market. I guess I have always been loathe to spend $160+ for gold worth ~$100, maybe that's why I started to buy bullion (or jewellery produced overseas with low premium above gold spot price - yes it does exist but it isn't easy to access) instead.
Anyway, as an investor a high gross margin is a strength, however, it may end up being a weakness as more and more people look for better value for money when buying jewellery. I recommend buying a loupe (10x magnification) and research diamond quality before impulse buying a diamond ring (from anyone) I have seen some very low quality diamond rings on display in jeweller's windows with large inclusions and imperfections that are visible to the naked eye through security glass and a display case. They are easy to miss and result in significantly higher diamond weakness and susceptibility to breakage - which may or may not be covered by insurance depending on your provider / coverage / coverage limits.
While I am watching this equity, I still haven't made up my mind if I will jump in below $0.22, as I have concerns about;
- The costs to maintain a large retail presence during difficult economic times and the need for store closures,
- The general demand level of consumers during a time when unemployment is so much higher than a year ago,
- Online jewellery offerings resulting in greater competition,
- The general affordability of jewellery now that gold is testing its 2011 all time highs in USD terms and has already significantly surpassed it in AUD and NZD terms.
If you share a more positive view, I would love to hear it. At the moment, I feel that there are more headwinds than tailwinds. So I will keep watching for now.
Protect those funds
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