HGH - Heartland Group Holdings

[Muse]

All this talk on payout ratio being too high or low. Thought I would check how it compares to the last reported full year payout ratios of the Aussie banks.

ANZ: 64.9%
CBA: 68.4%
NAB: 63.7%
WBC: 80.9%:
Ave: 69.5%

HGH: 68.4%

Seems like HGH paying out an industry normal level of earnings.

[winner69]

Hey Rawz - your NTA query the other day might be better explained if I used how Heartlands Book Value (Shareholder Equity) has eveolved over the last 10 years.

At July 2012 BV was $375m / $0.96 a share. July 2022 BV was $808m / $1.36 share - BV per share has grown at 3.5% pa ....which doesn't seem right for a 'growth' company.

How has the $375m grown to $808m?

Additional shareholder capital of $258m has been put in - $158 from capital raises and $100m from the DRIP. There are 204m more shares than in 2012

In those 10 years profits were $601m and dividends of $416m were paid. Along with bit of other stuff (reserves etc) this means Retained Earnings (to fund growth) have increased by $176m

In summary - Heartland has $344m more capital than 10 years ago. Shareholders have put in another $258m over the 10 years and $175m of profits have been retained.

Jeff will see all this as a balancing act between making respectable returns (ROE), having sufficient capital and keeping shareholders happy.

Real invest managers will view / value Heartland on a Yield / Price Book multiple basis and possibly why not that many (growth?)funds don't seem to have in their portfolio.

Solid dividend yield but share price will likely continue to be 'suppressed' (not go up as fast as some expect) as essentially valued on that Price/Book basis where that Book Value not growing at a fast rate. But as we've seen that Price / Book ratio has ranged from below 1 to 1.9 over the last 5 years which has resulted in large swings in the share price

Of course the new $200m of capital has raided the Book Value to $1.44 - average P/B last 5 years has 1.4 so maybe $2.00 is a 'fair' valuation at the moment (with a bit of +/- over time eh)

[Rawz]

Hey Rawz - your NTA query the other day might be better explained if I used how Heartlands Book Value (Shareholder Equity) has eveolved over the last 10 years.

At July 2012 BV was $375m / $0.96 a share. July 2022 BV was $808m / $1.36 share - BV per share has grown at 3.5% pa ....which doesn't seem right for a 'growth' company.

How has the $375m grown to $808m?

Additional shareholder capital of $258m has been put in - $158 from capital raises and $100m from the DRIP. There are 204m more shares than in 2012

In those 10 years profits were $601m and dividends of $416m were paid. Along with bit of other stuff (reserves etc) this means Retained Earnings (to fund growth) have increased by $176m

In summary - Heartland has $344m more capital than 10 years ago. Shareholders have put in another $258m over the 10 years and $175m of profits have been retained.

Jeff will see all this as a balancing act between making respectable returns (ROE), having sufficient capital and keeping shareholders happy.

Real invest managers will view / value Heartland on a Yield / Price Book multiple basis and possibly why not that many (growth?)funds don't seem to have in their portfolio.

Solid dividend yield but share price will likely continue to be 'suppressed' (not go up as fast as some expect) as essentially valued on that Price/Book basis where that Book Value not growing at a fast rate. But as we've seen that Price / Book ratio has ranged from below 1 to 1.9 over the last 5 years which has resulted in large swings in the share price

Of course the new $200m of capital has raided the Book Value to $1.44 - average P/B last 5 years has 1.4 so maybe $2.00 is a 'fair' valuation at the moment (with a bit of +/- over time eh)

Thank you for your post Winner. I’m sure a lot of people learning about HGH have taken lots of value from it, I certainly have.

Nothing like a SP spiraling out of control to focus peoples thoughts about a company. There have been some really good posts on this thread over the last few weeks.

For me HGH is a great dividend stock and yes puzzle is solved- it’s not a growth stock and that is why KFL wouldn’t touch it (a question I also asked). That NTA growth is very avg!

HGH have proven good quality credit risk and I think they price the risk (I.e. loans) really well. I think at todays SP for the long term you can’t go wrong. Collect the div and pick up a capital gain to at least keep your capital in line or ahead of inflation (in the long run).

For me an appropriate multiple to value this today is 1.2x NTA which is $1.44x1.2= $1.73 sp. I give it a below avg multiple because of these uncertain times we are in and this is what ANZ bank accepted for UDC in the June 2020 uncertain times. The buyer was big Japanese bank, Shinsei bank. The multiple these two big banks and all their advisors came up with must be considered fair (for uncertain times).

Now what the market does to the fair value SP of $1.73 is unknown but I am thinking in a capitulation event a 30% discount isn’t unreasonable for a very short period of time that could mean a crazy unreasonably low SP in the low $1.20s. Wow now that is back the truck up territory!

In the good times a 1.4x multiple is sure to came around again so Winners SP of $2 will be back one day and then in the great times a 1.6x or above multiple or SP of $2.30+ will be here.

[alokdhir]

Thank you for your post Winner. I’m sure a lot of people learning about HGH have taken lots of value from it, I certainly have.

Nothing like a SP spiraling out of control to focus peoples thoughts about a company. There have been some really good posts on this thread over the last few weeks.

For me HGH is a great dividend stock and yes puzzle is solved- it’s not a growth stock and that is why KFL wouldn’t touch it (a question I also asked). That NTA growth is very avg!

HGH have proven good quality credit risk and I think they price the risk (I.e. loans) really well. I think at todays SP for the long term you can’t go wrong. Collect the div and pick up a capital gain to at least keep your capital in line or ahead of inflation (in the long run).

For me an appropriate multiple to value this today is 1.2x NTA which is $1.44x1.2= $1.73 sp. I give it a below avg multiple because of these uncertain times we are in and this is what ANZ bank accepted for UDC in the June 2020 uncertain times. The buyer was big Japanese bank, Shinsei bank. The multiple these two big banks and all their advisors came up with must be considered fair (for uncertain times).

Now what the market does to the fair value SP of $1.73 is unknown but I am thinking in a capitulation event a 30% discount isn’t unreasonable for a very short period of time that could mean a crazy unreasonably low SP in the low $1.20s. Wow now that is back the truck up territory!

In the good times a 1.4x multiple is sure to came around again so Winners SP of $2 will be back one day and then in the great times a 1.6x or above multiple or SP of $2.30+ will be here.

Good post mate ! Very well balanced views about possibilities of SP of HGH keeping in perspective current market conditions from FA angle .

For me anything below 10% Gross yield ie below $ 1.53 becomes start buying all the way down ...wherever it may go in the short term slow or fast capitulation

So far $ 1.62 has supported as second support .

CNBC many experts pointed out that slow capitulation going on ...ie stocks going down slowly not fast 5% down index and fast recovery ....also chances of V shaped recovery from this kind of slow capitulation are low ....more reach bottom then sideways consolidation thus giving ample time to accumulate and also SP making a strong hands base too

[Rawz]

Good post mate ! Very well balanced views about possibilities of SP of HGH keeping in perspective current market conditions from FA angle .

For me anything below 10% Gross yield ie below $ 1.53 becomes start buying all the way down ...wherever it may go in the short term slow or fast capitulation

So far $ 1.62 has supported as second support .

CNBC many experts pointed out that slow capitulation going on ...ie stocks going down slowly not fast 5% down index and fast recovery ....also chances of V shaped recovery from this kind of slow capitulation are low ....more reach bottom then sideways consolidation thus giving ample time to accumulate and also SP making a strong hands base too

Cheers mate I agree with this approach of buying all the way down or if it goes the other way buy all the way up to 1.4x and then sit and see how high it can go..

Only way it can go very bad and capitulation imo is if a big international bank gets into trouble..

[winner69]

All Oz bank stocks (except ANZ) were down last month. Contrary to what some think I don't think the cap raise is the main reason For HGH share price decline - mainly just following the market

Ona Price/Book basis HGH still one of the higher valued stocks relative to OZ banks ... and above the average if you exclude CBA

Price/Book multiples below:

ANZ 1.00
WBC 1.04
NAB 1.51
BEN 0.64
BOQ 0.66
CBA 2.07
HGH 1.15

Average OZ exc CBA 0.97

[Rawz]

All Oz bank stocks (except ANZ) were down last month. Contrary to what some think I don't think the cap raise is the main reason For HGH share price decline - mainly just following the market

Ona Price/Book basis HGH still one of the higher valued stocks relative to OZ banks ... and above the average if you exclude CBA

Price/Book multiples below:

ANZ 1.00
WBC 1.04
NAB 1.51
BEN 0.64
BOQ 0.66
CBA 2.07
HGH 1.15

Average OZ exc CBA 0.97

Hey Winner why does some trade at such a discount and CBA trade at such a premium?

If I was to guess it’s due to different returns on equity (ROE)?

[winner69]

Hey Winner why does some trade at such a discount and CBA trade at such a premium?

If I was to guess it’s due to different returns on equity (ROE)?

ROE may have some bearing on relative valuations but CBA ROE is only 12%/13% so not much better than HGH's. CBA always had high multiples - possibly because it's and seen as the 'Bank of Australia' and safe as houses

Size is possibly another factor - smaller guys like BEN and BOQ lower multiples. There is a danger that as Heartland becomes more prominent in OZ it may be seen a banking minnow and rated accordingly .... thus continuing solid financial performance is essentail

[Muse]

Hey Rawz - your NTA query the other day might be better explained if I used how Heartlands Book Value (Shareholder Equity) has eveolved over the last 10 years.

At July 2012 BV was $375m / $0.96 a share. July 2022 BV was $808m / $1.36 share - BV per share has grown at 3.5% pa ....which doesn't seem right for a 'growth' company.

How has the $375m grown to $808m?

Additional shareholder capital of $258m has been put in - $158 from capital raises and $100m from the DRIP. There are 204m more shares than in 2012

In those 10 years profits were $601m and dividends of $416m were paid. Along with bit of other stuff (reserves etc) this means Retained Earnings (to fund growth) have increased by $176m

In summary - Heartland has $344m more capital than 10 years ago. Shareholders have put in another $258m over the 10 years and $175m of profits have been retained.

Jeff will see all this as a balancing act between making respectable returns (ROE), having sufficient capital and keeping shareholders happy.

Real invest managers will view / value Heartland on a Yield / Price Book multiple basis and possibly why not that many (growth?)funds don't seem to have in their portfolio.

Solid dividend yield but share price will likely continue to be 'suppressed' (not go up as fast as some expect) as essentially valued on that Price/Book basis where that Book Value not growing at a fast rate. But as we've seen that Price / Book ratio has ranged from below 1 to 1.9 over the last 5 years which has resulted in large swings in the share price

Of course the new $200m of capital has raided the Book Value to $1.44 - average P/B last 5 years has 1.4 so maybe $2.00 is a 'fair' valuation at the moment (with a bit of +/- over time eh)

Winner's book value per share calc (3.5% cumulative average growth rate) a bit disingenuous as its only one part of the puzzle...HGH's return on equity (NPAT over BV) has significantly increased over that period of time (from 6.3% in FY12 to 11.8% in FY22). That in turn has driven the much more meaningful growth in earnings per share.

EPS per share in FY12 was 6.1, in FY22 it was a smidge over 16. That's a 10 year compounded annual return in earnings per share of 10.2%. That's pretty good. Particularly for a bank.

EPS was only 2.4cps in FY11, so the EPS CAGR growth stats would look more impressive if set to that year rather than FY12, but I think it had a lot of one off transaction costs associated with the amalgamation of the group.

[winner69]

Agree FM - ROE and EPS have steadiy grown over time - and this has resulted in growing dividends

All good, no worries

But at then end of the day Book Value represents the 'value' of the company at any point in time and that has grown at 3.5% pa over last 10 years on a per share basis

Of course total returns toshare holders over time is what the company value has increased by PLUS dividends over time - and in total that's pretty good at around 9% pa