HGH - Heartland Group Holdings

[percy]

The important thing Percy ......what was Jeffs body language like?

Did he do a Sodi at the Diligent meeting? Did he keep looking up and to the left?

How engaged were the rest of the board when the speeches were being made?

More important than the words this

Cheers mate

All very positive.
All fully engaged.
The board were very keen to talk with shareholders after the meeting.
I get the feeling the board seem to have a "sense of pride" to be part of creating a very successful NZ bank.

[percy]

Thanks Percy for taking the time to summarise your reading of the AGM for us. It is very much appreciated by this happy holder !

Iceman.
You/we have invested in a well run,financially strong,growing company.This company has a part to play in financing wealth creation for New Zealanders.It has a growing capacity to pay good increasing dividends.The foundations have been laid,and the future looks bright,and secure.Hold with the knowledge you/we will be well rewarded.

[nextbigthing]

Reading this thread, many seemingly reputable members of this forum seem bullish on the stock and are often commenting on how undervalued it is, that it should be at least $1. Yet this stock has a reasonable profile, surely it can't be simply 'overlooked', institutions have full timers looking for opportunities like that. So what's holding it back? Why is Mr Market holding it around 0.86 and not driving it to $1.

Please note; previous applicants need not apply... (Snoopy ;))

[percy]

Ebos,Ryman and a number of companies took years to be recognised by the market.Ebos still flies under the radar [as pointed out by their MD at their agm],so Heartland is no different. I think we are seeing intos adding,or coming onboard.
I asked MD Jeff Greenslade if he knew where the PGW holding went to.He said he thought intos [.....] and [ .....] had brought them,but as they are held by Central depository he was not sure.
Have not named the intos as I think it would be unfair to quote Greenslade when he was unsure.
It can take a long time for a company to be covered or added to a broking company's research or buy list.
Maybe when all the brokers' start recommending Heartland as a buy, it will be time for us to sell.I expect this will happen when HNZ share price hits $3.50.Don't know when that will be.!!!!!!!!!! lol.

[CJ]

ASM report http://www.stuff.co.nz/business/industries/9353852/Heartland-looks-at-acquisitions

That Kevin Arscot quoted seemed rather pissed off with progress ......obviously thinks hnz should be more aggressive and use that 15% equity ratio better .....in other words take more risk?

Seems he shouldn't be a hnz sharehold .....he just get the story does he
They said their looking for acquisitions so doesn't that fill his criteria. The fact they aren't rushing should be a positive

Maybe snoopy is right - they should do a capital raising. Different reason though, it would put them into the NZX50 so they would get coverage, propelling their SP upward.

[iceman]

Iceman.
You/we have invested in a well run,financially strong,growing company.This company has a part to play in financing wealth creation for New Zealanders.It has a growing capacity to pay good increasing dividends.The foundations have been laid,and the future looks bright,and secure.Hold with the knowledge you/we will be well rewarded.

I bought the greatest part of my HNZ shares at the end of September 2011 and have been slowly accumulating more along the way right up until last week Percy so I am very satisfied with the performance. When I first bough in I bought into a story and goals that I liked, well aware of the potential risks. Since then the Company has steadily achieved the goals they set themselves and nothing really surprising has come out. That I like very much. In addition to the great capital gain, we now have steady dividends of around 7% at current SP as you point out and more like 10% on my average buy price. That's not to be sneezed at and these may also well increase in the future as more of the management's goals are achieved.
I shall continue to accumulate a few more along the way as/if finances allow !

[percy]

They said their looking for acquisitions so doesn't that fill his criteria. The fact they aren't rushing should be a positive

Maybe snoopy is right - they should do a capital raising. Different reason though, it would put them into the NZX50 so they would get coverage, propelling their SP upward.

It has been rumoured that they will take over Motor Trade Finance.They could do that without coming back to shareholders.
Old rumour was FPF [Fisher & Paykel Finance].I believe Chinese are more than happy.However, should that come about they would need to come back to shareholders.It would,subject to terms be very positive for Heartland.
In the meantime they have too much capital.It was pointed out that that they have provision to do a share buy back.
With merging three companies to form HNZ and the takeover of PGW Finance they are very comfortable about doing acqusitions.
I feel they are holding back on share buy back,so they have the capacity to do an acquisition/acqusitions.
A capital rising without reason would not be supported.So again Snoopy is wrong.

[winner69]

My P/E for the company was 10-15, but with that sort of earnings growth... 15-20 maybe in order? I doubt they can sustain it, else I would say P/E of 30!

Time to top up if it stays this low me thinks...

PE ratios of the Banks sector on the ASX (from AFR) below

Somebody earlier mentioned Bendigo as a benchmark as opposed to the Big $4

Bendigo at 12.7 ... discount a bit for NZX conservatism (like we have lower PEs generally) so for HNZ 10-12 fair?

[goldfish]

Yes, I think we see that often in companies.A lot of shareholders expect huge returns
I am guilty of that, I am trying to curb my instinct, its not easy sometimes.
Thanks to everyone on here for all the great knowledge and wisdom.

[percy]

PE ratios of the Banks sector on the ASX (from AFR) below

Somebody earlier mentioned Bendigo as a benchmark as opposed to the Big $4

Bendigo at 12.7 ... discount a bit for NZX conservatism (like we have lower PEs generally) so for HNZ 10-12 fair?

Thanks winner69 for posting that.
HNZ's dividend is imputed.
Buying Aussie bank stocks we miss out on that.Makes a big difference to me.
Maybe I would go for a higher PE considering that HNZ has greater potential for higher growth.

[nextbigthing]

I have noticed over the years that I have been investing many good stocks go unnoticed for long periods of time.
You have a good point in what you say about there are heaps of funds with fund managers researching for good investments all the time.
However one only needs to look at the average performance of 90% of managed funds.
That will tell you thier average return over the last 4 years would be less than the return if they did no research and just bought stocks making up the nzx 50.
A fund managers goal (to keep most clients happy) is to beat the bank interest rates buy 3-5% and to take as little risk as possible to achieve this. With sharemarkets doing so well this is very easy and little risk is required.
Also dont forget there is alot of investment options available if you want to put your money into banks stocks and probably most of these stock have been around a long time, have huge marketcaps, good divies and would be considered fairly safe.
HNZ is IMHO are a bigger risk play than the big boys and still have alot to prove so are easily overlooked by the market place (the market knows they are there but HNZ dont fit into alot of people's investment criteria YET).
DISC HOLD AND WILL BE TOPPING UP SOON.

Hey Snapiti,

Fair call regarding the insto's buying the likes of the bigger banks instead. That makes sense. But if it's riskier due to potential growth then wouldn't that make it a prime candidate for insto's growth funds to add some relative stability and therefore be picked up anyway?

Perhaps they want to see where the acqusitions go first?

NBT

[macduffy]

PE ratios of the Banks sector on the ASX (from AFR) below

Somebody earlier mentioned Bendigo as a benchmark as opposed to the Big $4

Bendigo at 12.7 ... discount a bit for NZX conservatism (like we have lower PEs generally) so for HNZ 10-12 fair?

Has anyone had a critical look at the numbers in this table?

The first, Div Yield for ANZ, is obviously wromg, being calculated on the final div for the year - 91c - rather than the total for the year of $1.64.

:ohmy:

[Master98]

our shares came over from PGC ...

intend to hold this stock for ten years ... take that long for the losses to come back !!!

anyone tell me when this thing hits $5.0?

:)


ten years!

[percy]

our shares came over from PGC ...

intend to hold this stock for ten years ... take that long for the losses to come back !!!

anyone tell me when this thing hits $5.0?

:)

I have put a note in my diary for 4.30pm 10/10/2019 to send you a PM advising that HNZ have hit $5.00.In the meantime enjoy the increasing dividends.

[janner]

our shares came over from PGC ...

intend to hold this stock for ten years ... take that long for the losses to come back !!!

anyone tell me when this thing hits $5.0?

:)

If you put that much of loses into PGC.. !!.. The question has to be asked..

What did you see in PGC ??..

Disc.. I did have a holding in PGC at the ... " Divide ".. and hung on to the end to make sure that the " Cur " person had bad dreams :-)

[percy]

!
I did ask if they were looking at F&P Finance.Brushed me off a bit by saying yes,but it has been for sale on and off for about 12 years now,but yes amongst a lot of opportunities.

Posted 01-12-2012 after I had attended last year's agm.
Should they buy FPF they would need to raise capital.

[percy]

Should Heartland buy FPF they would need to raise capital.Depending on terms it would be well supported,as it would be a great fit.
Should Heartland buy Motor trade Finance they would not need to raise capital.
With an equity ratio of 15.7% and strong liquidity.Heartland have no need for more capital.
Interestingly enough, they did mention at the agm that they do have a share buy back provision in place.

[goldfish]

Looks like we are back on track and going to trend upwards now, the depth is looking good for it anyway.
I put in a order to grab a few more at 85 I dont think thats going to happen now.

[Arbitrage]

The company's PR people seem to be releasing good news stories every few days at the moment.

[Wolf]

Share price didn't seem to react to the credit rating. What does everyone think about the BBB- rating? It's about what i was expecting but still thought the market would rally a bit now that it's got a rating. Most banks seem to have an A credit rating but BBB- is still pretty stable. Their just behind TSB!






Name of registered bank
Name of credit rating agency
and rating




Standard (http://www.standardandpoors.com/home/en/ap)
& Poors (http://www.standardandpoors.com/home/en/ap)

Fitch (http://www.fitchratings.com/)

Moody’s (http://www.moodys.com/)



ANZ Bank New Zealand Limited

AA-

AA-

Aa3



ASB Bank Limited

AA-

AA-

Aa3



Australia and New Zealand Banking Group Limited (B)

AA-

AA-

Aa2



Bank of Baroda (New Zealand) Limited

-

BBB-

-



Bank of India (New Zealand) Limited

BBB-

-

-



Bank of New Zealand

AA-

-

Aa3



Citibank N A (B)

A

A

A3



Commonwealth Bank of Australia (B)

AA-

AA-

Aa2



Deutsche Bank A G (B)

A

A+

A2



Heartland Bank Limited

BBB-

-

-



JPMorgan Chase Bank NA (B)

A+

A+

Aa3



Kiwibank Limited

A+

AA+

Aa3



Kookmin Bank (B)

A

-

A1



Rabobank Nederland (B)

AA-

AA

Aa2



Rabobank New Zealand Limited

AA-

-

-



Southland Building Society

-

BBB

-



The Bank of Tokyo-Mitsubishi UFJ (B)

A+

A

Aa3



The Co-operative Bank Limited

BBB-

-

-



The Hongkong and Shanghai Banking Corporation (B)

AA-

AA-

Aa2



TSB Bank Limited

BBB+

-

-



Westpac Banking Corporation (B)

AA-

AA-

Aa2



Westpac New Zealand Limited

AA-

AA-

Aa3

[percy]

They are heading in the right direction.
The next six to twelve months will be very important for Heartland.
Should they achieve what they have set out to do,then I think we will see their rating improve.I am confident that this will happen.

[Beagle]

PE ratios of the Banks sector on the ASX (from AFR) below

Somebody earlier mentioned Bendigo as a benchmark as opposed to the Big $4

Bendigo at 12.7 ... discount a bit for NZX conservatism (like we have lower PEs generally) so for HNZ 10-12 fair?

Thanks Percy for the PE calculations and it was a pleasure meeting you and other sharetrader members last evening.

I must admitt I'm more for the comparitives with the smaller regional Aussie banks and am pretty much with Winner69 on this one. Over time...we could see the market rate the company as worth 10-11 times forward earnings.
I see three main issues holding the SP back.
1. They need more runs on the board to prove themselves to investors.
2. They need more recognition / improved credit ratings from the credit ratings agencies
And lastly and by no means the least, the legacy effect of all the other finance company failures over the course of the GFC wiping out billions of dollars of investors money.

I get such bad echo's of South Canterbury Finance, (not to forget Geneva Finance) when I think of this company, it does my head in something fierce and i'm pretty sure this sort of psychological effect play's itself out in other investors minds too.

Their capitaliazation rate is good and growth prospects very sound, (especially with so many other players having gone bankrupt), but the risk is if we see a GFC MK2, we will see what amounts to a South Canterbury Finance MK2 event as well. The problem I have learned from very bitter experience is that its really hard for banks and finance companies to make dispassionate and objective calls regarding doubtful and bad debtors and it ap[pears auditors can struggle to verfiy the accuracy of managements objectivity, so you never really know how much you can trust their objectivity until their loans are really "seasoned". It could take years for the market to build a level of trust that would accord the company with a more favourable PE rating.

I think they're fairly priced for the risks involved, given that they have it all ahead of them to prove themselves to the market.
You make a good point about being unable to claim franking credits with Australian banks which is a real frustration for many.
I see a slow share price appreciation upwards over a long period of time provided all stays well with the economy. Its not for me, (mainly due to the huge amount oif psychological baggage I carry with the finance company sector, and I bracket in with them the emerging bank sector), but I appreciate your hard work and analysis of this stock and wish you and other investors well with it. :)

[percy]

Thanks Percy for the PE calculations and it was a pleasure meeting you and other sharetrader members last evening.

I must admitt I'm more for the comparitives with the smaller regional Aussie banks and am pretty much with Winner69 on this one. Over time...we could see the market rate the company as worth 10-11 times forward earnings.
I see three main issues holding the SP back.
1. They need more runs on the board to prove themselves to investors.
2. They need more recognition / improved credit ratings from the credit ratings agencies
And lastly and by no means the least, the legacy effect of all the other finance company failures over the course of the GFC wiping out billions of dollars of investors money.

I get such bad echo's of South Canterbury Finance, (not to forget Geneva Finance) when I think of this company, it does my head in something fierce and i'm pretty sure this sort of psychological effect play's itself out in other investors minds too.

Their capitaliazation rate is good and growth prospects very sound, (especially with so many other players having gone bankrupt), but the risk is if we see a GFC MK2, we will see what amounts to a South Canterbury Finance MK2 event as well. The problem I have learned from very bitter experience is that its really hard for banks and finance companies to make dispassionate and objective calls regarding doubtful and bad debtors and it ap[pears auditors can struggle to verfiy the accuracy of managements objectivity, so you never really know how much you can trust their objectivity until their loans are really "seasoned". It could take years for the market to build a level of trust that would accord the company with a more favourable PE rating.

I think they're fairly priced for the risks involved, given that they have it all ahead of them to prove themselves to the market.
You make a good point about being unable to claim franking credits with Australian banks which is a real frustration for many.
I see a slow share price appreciation upwards over a long period of time provided all stays well with the economy. Its not for me, (mainly due to the huge amount oif psychological baggage I carry with the finance company sector, and I bracket in with them the emerging bank sector), but I appreciate your hard work and analysis of this stock and wish you and other investors well with it. :)


I too enjoyed meeting up with you last night and being informed on the Geneva Finance going ons.
I agree with your comments with regards to more runs on the board,and needing more recongnition,and improved credit rating.
I think the next six to twelve months will see these objectives achieved.
I totally reject any comparison with South Canterbury Finance.To achieve Bank Licence Heartland went through a long and rigorous process.
They came through this.As do all Banks operating in NZ,Heartland must report quarterly to The Reserve Bank.This adds an extra layer of protection for shareholders and depositors.
I believe they are under valued.

[zs_cecil]

Climbing higher and higher!! 88c depth on the sell side looking weak!!

It is interesting that the SP retreated after the announcement of the AGM result.

[noodles]

It is interesting that the SP retreated after the announcement of the AGM result.

On the face of it, the AGM first quarter results would have put HNZ on target for the lower end of the range (34-37 mill). For me, that's a negative.

I am surprised to see the stock rally after the AGM. Sometimes any news is good news!

[noodles]

Climbing higher and higher!! 88c depth on the sell side looking weak!!

I have watched the depth on this stock for a while. I don't think it is reliable as an indicator of future stock price.

Given the close,I hope you didn't trade on depth.

[percy]

On the face of it, the AGM first quarter results would have put HNZ on target for the lower end of the range (34-37 mill). For me, that it negative.

I am surprised to see the stock rally after the AGM. Sometimes any news is good news!

They did say at the agm they are gaining traction/momentum.I would be happy with $34mil,however I think they are aiming to beat $37mil.
The half year result with tell us whether they are ahead or behind.[due mid February 2014]

[percy]

I have watched the depth on this stock for a while. I don't think it is reliable as an indicator of future stock price.

Given the close,I hope you didn't trade on depth.

Yes I agree with you the depth can be misleading.Buyers/sellers appear out of no-where.
Maybe a difficult stock to trade,and is better suited to investors with 2 to 20 year time frames,or people like me who want to hold forever!!!!!

[Beagle]

I too enjoyed meeting up with you last night and being informed on the Geneva Finance going ons.
I agree with your comments with regards to more runs on the board,and needing more recongnition,and improved credit rating.
I think the next six to twelve months will see these objectives achieved.
I totally reject any comparison with South Canterbury Finance.To achieve Bank Licence Heartland went through a long and rigorous process.
They came through this.As do all Banks operating in NZ,Heartland must report quarterly to The Reserve Bank.This adds an extra layer of protection for shareholders and depositors.
I believe they are under valued.

Fair enough mate, its simply too big a hurdle too clear my head from all the baggage and destruction of wealth I've seen in this sector since 2007 but all the best with it :)

[M.J]

I am currently forecasting returns resulting from P/E expansion of around 4.4% p.a. over the next three years plus EPS growth of around 7.6%, plus dividend yield of 7.4% amounting to a total return forecast of 19.4% p.a. over the next three years.

As ROE improves, HNZ will start to trade at higher multiples to book value. An ROE of 12% in three years time might see HNZ at 1.4x book value for example.

discl: long HNZ

[SCOTTY]

There is an interesting article in the "Press" Business Day section today; C21 - A Brokers View. The article by Grant Davies was looking at Westpac and ANZ Banks. Although these two banks operate in different markets to Heartland the thing that caught my attention is the 15.3% return on equity for ANZ and 16% for Westpac.

For this financial year, HNZ is forcasting a profit of between $34 - 37m. By my calculations, the $34m bottom range projection equates to a 10% return on shareholder equity (88cps) which is about 9c per share. On say a pe of 12, this would give a share price of $1.08. Looking into the future, a return of 15% without any increase in equity but keeping the pe @ 12 would put the share price at $1.62. In reality the price should be higher with a re-rated pe and a higher NTA due to growth in assets and retention of earnings.

Interesting :)

[percy]

There is an interesting article in the "Press" Business Day section today; C21 - A Brokers View. The article by Grant Davies was looking at Westpac and ANZ Banks. Although these two banks operate in different markets to Heartland the thing that caught my attention is the 15.3% return on equity for ANZ and 16% for Westpac.

For this financial year, HNZ is forcasting a profit of between $34 - 37m. By my calculations, the $34m bottom range projection equates to a 10% return on shareholder equity (88cps) which is about 9c per share. On say a pe of 12, this would give a share price of $1.08. Looking into the future, a return of 15% without any increase in equity but keeping the pe @ 12 would put the share price at $1.62. In reality the price should be higher with a re-rated pe and a higher NTA due to growth in assets and retention of earnings.

Interesting :)

Yes, very interesting.
And as usual you "are right on the money".

[macduffy]

Perhaps the market doesn't consider HNZ to be quite in the same category as ANZ and WBC - yet!

;)

How do the numbers compare with those of the Aussie regionals such as Bank of Queensland and Bendigo Bank?

[forest]

Fair enough mate, its simply too big a hurdle too clear my head from all the baggage and destruction of wealth I've seen in this sector since 2007 but all the best with it. (Roger in post 2722).

I attended the last 2 AGM's talked afterwards with directors on both occasions. Also talked to a number of other HNZ share holders some very experienced ones none of them raised any concerns.

HNZ is a turned around story in my mind which is likely to take some time to be understood. Negative impressions of the finance company history will take time to fade.

In the mean time I see it as one of the few growth companies with reasonable dividend for sale at an attractive price.

I expect ROE to rise in the next few years together with the market starting to understand HNZ this is possible one of the less risky shares on the NZX

[noodles]

Scotty, but what's keeping the sp below those lofty heights? ...

Risk somewhere? If so where? Snoopy's identified a few places and those alone may keep the ultra-risk avoiders out ...

But where else? Anyone care to remove their rose-tinted glasses and summarise them?

The share price has tracked just below the concensus broker target for the last 18 months. Target is currently .89c. I am not privy to the broker reports, so I can't be sure what would trigger a re-rate.

Unless we see a re-rating by the brokers, I feel it could trend range until the Feb results. Patience required (this is very difficult for me).

[percy]

Scotty, but what's keeping the sp below those lofty heights? ...

Risk somewhere? If so where? Snoopy's identified a few places and those alone may keep the ultra-risk avoiders out ...

But where else? Anyone care to remove their rose-tinted glasses and summarise them?

It took a good number of years for RYM to be accepted by the market.Was only a few years ago brokers said they were dependant on the property market.
EBO is still under the radar of a lot of brokers.Macquaries don't follow it.
Most probably easier for brokers to recommend ANZ and Westpac.
It has often been said Heartland "need more runs on the board".
Other people will agree with Roger, that it is another finance company.Again a lot of people have not moved on, or back into shares after/since the 1987 crash.

[SCOTTY]

Scotty, but what's keeping the sp below those lofty heights? ...

Risk somewhere? If so where? Snoopy's identified a few places and those alone may keep the ultra-risk avoiders out ...

But where else? Anyone care to remove their rose-tinted glasses and summarise them?

Hi Belg.

Just like making cheese - Good things take time ;)

[percy]

Took "big players" years to appear on either RYM or EBO register,so I would not be too concerned what/where or why they take so long to come on board.

[Snoopy]

Thanks to all who responded to my question. However, big players move prices far more than the small ones that many responses refer to. So where are the big player buying in? Surely they do the same value calcs that we do?


Have just been inspecting the latest weighted average cost of capital calculation calculation calculations as published by PWC.

http://www.pwc.co.nz/PWC.NZ/media/pdf-documents/appreciating-value/pwc-appreciating-value-edition-3-march-2013.pdf

Heartland does not have a Beta or a WACC rating. As a prequel to this information Price Waterhouse wrote:

"Where a company has been listed for
less than three years we have included
those companies’ multiples although we
have not included the estimated WACC
as there is insufficient trading history
for the calculation of Beta used in the
calculation of WACC."

If there is insufficient data to calculate the "risk" of an investment, it may be that some investment professionals would not invest in it?

SNOOPY

[Wolf]

Became a holder today at 85c. Decided i'm a long term holder not a trader so moved my trading funds 50-50 between HNZ and SUM.

[percy]

Became a holder today at 85c. Decided i'm a long term holder not a trader so moved my trading funds 50-50 between HNZ and SUM.

Looks to me as though you are "well positioned."
No need to trade HNZ or SUM.

[SCOTTY]

The financial statistics as published in the daily papers make their calculations for earnings per share (eps) and price earnings ratios (pe's) based on net profit after tax. For the last tax year as we know, HNZ wrote off some $18m. Because of this the financials show eps as 1.78c giving a current pe of some 47. For the general public who do not follow the company or who rely only on this information only, this does not look good. For those of us who follow the company this is not a problem as we understand that the earning before the writedown were some $24m. We are looking ahead to next year when without further writedowns and increased earnings, the published statistics will look very attractive to the general public.

In the meantime I see this as a buying opportunity.

[iceman]

The financial statistics as published in the daily papers make their calculations for earnings per share (eps) and price earnings ratios (pe's) based on net profit after tax. For the last tax year as we know, HNZ wrote off some $18m. Because of this the financials show eps as 1.78c giving a current pe of some 47. For the general public who do not follow the company or who rely only on this information only, this does not look good. For those of us who follow the company this is not a problem as we understand that the earning before the writedown were some $24m. We are looking ahead to next year when without further writedowns and increased earnings, the published statistics will look very attractive to the general public.

In the meantime I see this as a buying opportunity.

That's right Scotty. When we record our full year 9-10 cps earnings for the current year, the statistics will indeed look very different. HNZ is without a doubt in my mind, a very cheap stock where we can expect both good dividends and good capital gain in the near/medium future.

Discl: accumulating

[vorno]

Became a holder today at 85c. Decided i'm a long term holder not a trader so moved my trading funds 50-50 between HNZ and SUM.

I too have become a HNZ holder today :)

[Dej]

still waiting for my buy order of 84 cps to be filled.

Same here!

[percy]

still waiting for my buy order of 84 cps to be filled.

Maybe not today as only 19,000 for sale at 86cents and 240,593 wanted at 85cents.
Perhaps tomorrow?

[percy]

You'd be right Snoopy. The "formation" documents of many "conservative" funds would keep them out of this company.

Still most fund managers have "aggressive" or "growth" funds that would allow a dabble. Maybe a smaller overall weighting of the fund tho. It might account for some lack of enthusiasm but not as much as we're seeing.

NZ Central Securities Depository Ltd., are the holders of 72,744,916 or 18.7147% of Heartland shares.
So some "aggressive" or "growth" funds are indeed holders.
Expect their enthusiasm to develope with more "runs on the board."

[vorno]

It did dip down to 84 today but not enough traded to complete my order.

The stock is a sleepy undiscovered opportunity at these levels.

Currently with a .85 Buy - 245,593 & .86 Sell - 13,000 I imagine that the price could very well increase again today.
Seems to be quite a slow-moving stock this early in the game ;)

UPDATE: Only 9,500 at .86 Sell now.. hehe

[Snoopy]

There is an interesting article in the "Press" Business Day section today; C21 - A Brokers View. The article by Grant Davies was looking at Westpac and ANZ Banks. Although these two banks operate in different markets to Heartland the thing that caught my attention is the 15.3% return on equity for ANZ and 16% for Westpac.


The problem with this comparison is that the amount of lending a bank can do is related to their tier one capital of which shareholders equity is one component. In the case of Heartland they only have shareholders equity (be it subscribed or retained earnings). ANZ and WBC have other sources of tier 1 capital such as bank issued bonds with long maturity dates locked in.

If you compared 'Return on tier 1 capital' you will probably find that ANZ and WBC do not compare as favourably with Heartland as a bare 'ROE' comparison might suggest.

SNOOPY

[winner69]

That why roe bad metric for banks .....leverage clouds the issue

But bank execs love it when their huge bonuses tied to roe .....just go out and borrow more and do some risky lending and hey presto roe shoots up ....and bonuses as well

[percy]

The six and a half year jail sentence handed down to Bridgecorp's Robert Roest, may help to focus the attention of a great deal of people who work in the financial services sector in New Zealand.

[janner]

That why roe bad metric for banks .....leverage clouds the issue

But bank execs love it when their huge bonuses tied to roe .....just go out and borrow more and do some risky lending and hey presto roe shoots up ....and bonuses as well

winner.. I am just into the first 60 pages of " The Creature From Jekyl Island ".. A 600 page tome..
Plus a perusal of the Photo's :-)

All is laid bare !!.. You are so correct !!..

[Beagle]

The six and a half year jail sentence handed down to Bridgecorp's Robert Roest, may help to focus the attention of a great deal of people who work in the financial services sector in New Zealand.

He still doesn't even acknowledge he did anything wrong and tried to deflect the responsibility onto investors, can you believe it !!

Does this grossly reckless attitude mean he will still be eligible for parole after serving a third of his sentence ?

It should be 20 years in my view.

[percy]

He still doesn't even acknowledge he did anything wrong and tried to deflect the responsibility onto investors, can you believe it !!

Does this grossly reckless attitude mean he will still be eligible for parole after serving a third of his sentence ?

It should be 20 years in my view.

I think all of us on Sharetrader would agree with you Roger.

[Beagle]

I am currently forecasting returns resulting from P/E expansion of around 4.4% p.a. over the next three years plus EPS growth of around 7.6%, plus dividend yield of 7.4% amounting to a total return forecast of 19.4% p.a. over the next three years.

As ROE improves, HNZ will start to trade at higher multiples to book value. An ROE of 12% in three years time might see HNZ at 1.4x book value for example.

discl: long HNZ

Good common sense and a realistic expectation that should be realised unless we get another major exogenous shock to the banking system in which case small banks like this are unfortunatly quite vulnerable. I'm sorry to say I forsee a moderate chance of a major international financial shock in the years ahead, which measured against your expected returns translates to this investment being only modestly attractive in my opinion...and that's leaving all my finance company baggage out of it. Reserve bank oversight adds another level of checks and balances but i'm well and truly over relying on regulatory oversight to protect my investments.
Just look at how "useful" the Trustees and auditors were with the finance company collapses and how toothless the Securities Commission turned out to be. Standard and Poors are very risk averse after their appalling fiasco with the AAA rating on CDO's and I predict they will be incredibly slow to re-rate this company to BBB where it really needs to be to get what I consider to be genuine bank status in the eyes of the international credit rating agencies.

I hope for everyone's sake we don't have a GFC MK2, not that I'm totally convinced we're out of the first one yet. Just wanted to add a bit of dissenting opinion for the sake of another point of view.
My view in summary, HNZ seems fairly priced for the expected returns and risks involved.

[percy]

Those of us familiar with HNZ's lending book see Heartland "well positioned" to ride out any "banking shock".HNZ are not heavily into household mortgage loans.Most loans are to the productive sector,motor vechicle finance,and rural stock and seasonal loans.
HNZ's loans are mainly of a short term,which adds to their margin of safety.Not reliant on wholesale or overseas funding is a further strength.

[Snow Leopard]

Those of us familiar with HNZ's lending book see Heartland "well positioned" to ride out any "banking shock".HNZ are not heavily into household mortgage loans.Most loans are to the productive sector,motor vechicle finance,and rural stock and seasonal loans.
HNZ's loans are mainly of a short term,which adds to their margin of safety.Not reliant on wholesale or overseas funding is a further strength.

This does not make it immune to problems, just that the problems will be different.

Best Wishes
Paper Tiger

Disc:
If I see 'well positioned" one more time...

:mad ;:

:mad ;:

:mad ;:

...I will have seen it again.

[percy]

This does not make it immune to problems, just that the problems will be different.

Best Wishes
Paper Tiger

Disc:
If I see 'well positioned" one more time...

:mad ;:

:mad ;:

:mad ;:

...I will have seen it again.

Makes any potential problems more manageable,and containable.
I reserve my rights.!!! Would "WP' be acceptable?

[vorno]

Makes any potential problems more manageable,and containable.
I reserve my rights.!!! Would "WP' be acceptable?

Well, I suppose Warren Puffett wouldn't mind ;)

[janner]

WARREN WHO ??..

Only Well thought out answers.. Please..

[forest]

Peter Lynch in his book Beating the Street describes his enthusiasm for locally owned banks who get their funding from local sources.

Their seem to be many investors uncomfortable with HNZ because of the finance companies history in NZ.
I think those same people don't understand HNZ business plan and likely did not attend the HNZ AGM like Percy and I did.

I talked with about 8 share holders before and after the AGM and non of them showed any concern of the direction HNZ is going.

If interested in HNZ but you feel uneasy about the finance companies history in NZ read the book and attend the next HNZ AGM.

This might work out quite profitable.

[vorno]

WARREN WHO ??..

Only Well thought out answers.. Please..

Play on words mate, notice the underscored P​. Please, don't make me spell it out :P

[janner]

Play on words mate, notice the underscored P​. Please, don't make me spell it out :P

Apologies.. as a very pedantic person.. :-))

[vorno]

Apologies.. as a very pedantic person.. :-))

No worries, as my sometimes vague humour is hard to read!

[Captain Dan]

I've always been a bit skeptical about HNZ. However, after having a good read of this thread (thanks Percy for all your info and insights) and a few days digging down and doing research, I've come to agree that HNZ is "well positioned". Bought in today for a long term hold :)

[percy]

Welcome Captain Dan.
If you have not done so already may I suggest you read the annual report.
The annual report can be downloaded from www.heartland.co.nz .It is written in clear simple language.It gives a clear picture of where Heartland came from,what they have achieved and where they are headed.

[janner]

Welcome Captain Dan.
If you have not done so already may I suggest you read the annual report.
The annual report can be downloaded from www.heartland.co.nz .It is written in clear simple language.It gives a clear picture of where Heartland came from,what they have achieved and where they are headed.

Please percy.. No ramping for at least 3 months.. :-)

[vorno]

I have the feeling that the share price increases with every Percy post :P

[percy]

End of February Heartland's half year report is due.
By that time I will be fully revigorated and in full ramping mode.!!!!!
Bring it on!!!! lol. .

[percy]

I have the feeling that the share price increases with every Percy post :P

lol.
but no.SNOOPY's anti Heartland posts have been more effective in driving the Heartland spare price to new heights .!!!!!

[blobbles]

I feel we need a TLA (Three Letter Acronym) for w..l p........d.... how about "WPD". I am WPD also! (although you could think this translates to "whipped", which has slightly worse connotations!)

[percy]

I feel we need a TLA (Three Letter Acronym) for w..l p........d.... how about "WPD". I am WPD also! (although you could think this translates to "whipped", which has slightly worse connotations!)

May pay to send Paper Tiger a PM asking his permission.
I dare not ask him?!

[vorno]

I feel we need a TLA (Three Letter Acronym) for w..l p........d.... how about "WPD". I am WPD also! (although you could think this translates to "whipped", which has slightly worse connotations!)

WWWB do? Perhaps we should ask him!

Edit: WWPD - so much better!

[blobbles]

WWWB do? Perhaps we should ask him!

What is WWWB? Weally weally well bositioned?

[Dej]

WWWB do? Perhaps we should ask him!

What Would Warren Buffet do??

just change it to What Would Percy Do

:t_up:

EDIT: 500th post! woooo

[vorno]

What Would Warren Buffet do??

just change it to What Would Percy Do

:t_up:

EDIT: 500th post! woooo

Indeed... Percy has a much better ring to it!

--grats on 500 lol

[percy]

Although I am enjoying the fun,I think any one looking to invest in Heartland should do their own research,and make up their own minds.
I started posting on Heartland really to correct what I thought was incorrect statements.I must admit to reading and listening to all of Heartland's announcements.I have also attended their agms,and presentations they have given.I have also rung the company and asked questions.I have also received excellent advice from other HNZ shareholders.One in particular, who is a retired BNZ bank manager has been very informative.
The best place to get a full picture of Heartland is by reading their annual reports.Go to www.heartland.co.nz ,then HNZ shareholders,then Documents,results &Reports,then Annual Reports.
The chairman's report is in plain language and does not take long to read.

[kizame]

NZX-listed Motor Trade Finance (MTF) posted a September year profit of $8.2 million, up from $4.6m in the previous year.

Profit before commission and other gains was up 13 per cent to $39.3m because of strong interest margins, asset growth and what the company called funding efficiencies.
http://www.stuff.co.nz/business/industries/9406827/MTF-has-big-lift-in-annual-profit

Augers well for HNZ ... people are less afraid of borrowing (and dam the I-rates - they want it now!)

NZX- listed ??? Are they ?

[percy]

MTF;
MFT was formed in 1970 to enable a group of motor vehicle dealers to offer car loan to their customers.
Dealers still own shares.I do not know if,or how they trade them between themselves. Not listed.
www.mtf.co.nz

[Snow Leopard]

NZX- listed ??? Are they ?

MTF have some preference shares, MTFHC, listed on the NZDX (NZ Debt market)

Best Wishes
Paper Tiger

[luigi]

http://www.interest.co.nz/business/67418/chinese-banking-giant-icbc-gets-official-registration-nz-bank-former-rbnz-governor-an

Does anyone see ICBC competing in Heartland's space or (more likely) just funding commercial property development?

[fiasco]

You would think that Heartlands target demographic are perceived to be different than ICBC, but I could be wrong. I would have thought reaching more rural areas is more up HNZ's alley way.

[vorno]

I suppose they expect expatriate Chinese to flock for their services as well as commercial opportunities.
I do not see them influencing Heartland's space. More opinions?

[luigi]

Main area of competition would be SMB finance rather than rural.

[percy]

Heartland have always stated they are "niche" market operators,and they do not want to compete head on with the large banks.
I therefore think they will be operating in different parts of the financial market.
From what I read of the announcement ICBC appear to be looking at Auckland waterfront development.

[vorno]

Saw an opportunity to top up this morning - 85c :)

[vorno]

Finally got all my shares at 84cps yesterday.

A good price. I thought there were too many wanting them at .84 & that they would go up.

[percy]

There is a very good presentation given by HNZ's Michael Jonas at NZX Emerging & Mid Cap Companies Conference.
To find the link I went to thread NZSX50 Good News ,post 1320,where Harvey Specter gave the link.

[luigi]

Link here: https://www.youtube.com/watch?v=x8_eCTsNU_0

[Snoopy]

There is an interesting article in the "Press" Business Day section today; C21 - A Brokers View. The article by Grant Davies was looking at Westpac and ANZ Banks. Although these two banks operate in different markets to Heartland the thing that caught my attention is the 15.3% return on equity for ANZ and 16% for Westpac.

For this financial year, HNZ is forecasting a profit of between $34 - 37m. By my calculations, the $34m bottom range projection equates to a 10% return on shareholder equity (88cps) which is about 9c per share. On say a pe of 12, this would give a share price of $1.08. Looking into the future, a return of 15% without any increase in equity but keeping the pe @ 12 would put the share price at $1.62. In reality the price should be higher with a re-rated pe and a higher NTA due to growth in assets and retention of earnings.


Good discussion here on ROE, but I think some of you Heartlanders see ANZ on a pedestal that is higher than it should be. From a bankers perspective the amount available to loan is tied to the amount of 'tier' capital available to be loaned against. In the case of Heartland 'Tier Capital' and shareholders equity are one and the same thing. But the ANZ and the other big banks have other sources of 'Tier capital' not available to Heartland.

Perusing my latest ANZ report (from 2012) page 58 lists total shareholders equity as $41.22 billion.

Now go over to page 117 and you will $752m of US trust securities (currently also Tier 1 capital) and three issues of ANZ convertible preference shares adding up to $5,114m (I believe these currently rank as Tier 2 capital). Perpetual subordinated notes of $953m add more tier 2 capital.

Below that is a list of more subordinated notes. Those maturing five years into the future can be fully regarded as more tier 2 capital amounting to $5,265m. Those maturing in four years time ($582m) need to be discounted 20% to arrive at yet more tier 2 capital of $466m.

(Note 20% discount factor from Reserve Bank capital adequacy notes as they apply to a four year time horizon loan)

As at 30th June 2012 ANZ has $5,114m + $5,265m + $466m = $11.046b of Tier 2 capital. That is less than 50% of the available Tier 1 capital ($41,220m + 752m = $41.972b).

So all of that tier 2 capital is available to be borrowed against.

Summing up all the Tier 1 and Tier 2 capital then, ANZ has $53.018b of Tier 1 and Tier 2 capital to back up their loans.

For FY2012 the ROE based on end of year shareholders equity is:

$6,011m/$41.220m = 14.6%

(Note: Normalised ANZ profit of $6,011m comes from p5 of AR2012)

But if you do the same calculation on tier 1 and tier 2 capital, the Return on 'backing capital' is a rather lower.

$6,011m/$53,018m = 11.3%

That is close to the 10% ROE that Heartland is projected to achieve for FY2013.

In addition to this Heartland in common with all other banks will be facing the new Basel III capital conservation buffer (CCB) requirements that will increase the backup equity required to be held on the balance sheet significantly.

Even assuming all those doubtful Heartland property loans on the books coming good (no more capital destroying provisions for bad debts) , the picture that emerges here is irrefutable. Heartland has a very fully stretched balance sheet as everything stands now. There is very little room for growth beyond FY2013 with such a constrained capital base

SNOOPY

[percy]

Good discussion here on ROE, but I think some of you Heartlanders see ANZ on a pedestal that is higher than it should be. From a bankers perspective the amount available to loan is tied to the amount of 'tier' capital available to be loaned against. In the case of Heartland 'Tier Capital' and shareholders equity are one and the same thing. But the ANZ and teh other big banks have other sources of 'Tier capital' not available to Heartland.

Perusing my latest ANZ report (from 2012) page 58 lists total shareholders equity as $41.22 billion.

Now go over to page 117 and you will $752m of US trust securities (currently also Tier 1 capital) and three issues of ANZ convertible preference shares adding up to $5,114m (I believe these currently rank as Tier 2 capital). Perpetual subordinated notes of $953m add more tier 2 capital.

Below that is a list of more subordinated notes. Those maturing five years into the future can be fully regarded as more tier 2 capital amounting to $4,632m. Those maturing in four years time ($582m) need to be discounted 20% to arrive at yet more tier 2 capital of $466m.

As at 30th June 2012 ANZ has $5,114m + $4,632m + $466m = $10.212b of Tier 2 capital. That is less than 50% of the available Tier 1 capital ($41,220m + 752m = $41.972b).

So all of that tier 2 capital is available to be borrowed against.

Summing up all the Tier 1 and Tier 2 capital then, ANZ has $52.184b of Tier 1 and Tier 2 capital to back up their loans.

For FY2012 the ROE based on end of year shareholders equity is:

$6,011m/$41.220m = 14.6%

But if you do the same calculation on tier 1 and tier 2 capital, the Return on 'backing capital' is a rather lower.

$6,011m/$52,184m = 11.5%

That is close to the 10% ROE that Heartland is projected to achieve for FY2013.

In addition to this Heartland in common with all other banks will be facing the new Basel III capital conservation buffer(CCB) requirements that will increase the backup equity required to be held on the balance sheet significantly.

Even assuming all those doubtful Heartland property loans on the books coming good (no more capital destrying provisions for bad debts) , the picture that emerges here is irrefutable. Heartland has a very fully stretched balance sheet as everything stands now. There is very little room for growth beyond FY2013 with such a constrained capital base

SNOOPY

As always you will be proved 100% wrong.!!
Plenty of capacity.
Watch out for an acquisition by Heartland.!!
Acquisition will not require capital unless it is FPF,which would be a game breaker and would be well supported .

[percy]

That's a big call Percy. IMO Snoopy is mostly right. Any acquisition, not involving some sort of swap, will require more capital.

Big call? Read the latest presentation given by Michael Jonas to the NZX Emerging & Mid Cap Companies Conference.Harvey Specter gave the link post no.1320.
It is a continuation of the agm presentation.Acqusition,most probably in motor vehicle finance.
HNZ have always done what they have said they will do.Snoopy remains 100% wrong.
Again at the agm they spoke of having too much capital and very high liquidity.Again this is in complete contrast to Snoopy's posts.
Big call? No, a very simple easy call,made by reading and listening to what is being said and written.Heartland speak and write very clearly and honestly,about their business.They know their business.
In an earlier post I suggested HNZ could take over MTF with out making a call on shareholders.I stand by that statement.

[Snow Leopard]

Good discussion here on ROE, but I think some of you Heartlanders see ANZ on a pedestal that is higher than it should be....

....Even assuming all those doubtful Heartland property loans on the books coming good (no more capital destrying provisions for bad debts) , the picture that emerges here is irrefutable. Heartland has a very fully stretched balance sheet as everything stands now. There is very little room for growth beyond FY2013 with such a constrained capital base

SNOOPY

As they say never get involved in a butt-kicking contest with a porcupine / hedgehog / echidna*

So I will say nothing. >>[He has got it all wrong again!]<<

Best Wishes
Paper Tiger

[K1W1G0LD]

nous sommes une fois de plus bien placés, je vois,
Good time to celebrate with another Milkshake I say .lol

[Snow Leopard]

nous sommes une fois de plus bien placés...

You are warned I understand several languages and French is one of them.

Best Wishes
Paper Tiger

[clip]

'you people have been a lot of places, i see' or something?
You are warned I understand 1 language fluently and French is not it :D
/edit I get it now.. bahaha

[vorno]

nous sommes une fois de plus bien placés, je vois,


Oh well done sir!

[goldfish]

This price seems to be stuck at the moment it fluctuates between 85-87, needs a kick along. Giddyup. I know im impatient what can i say.

[blobbles]

This price seems to be stuck at the moment it fluctuates between 85-87, needs a kick along. Giddyup. I know im impatient what can i say.

Enjoy it while you can goldfish.

By enjoying it, I mean buy as many as you can! Because when the SP goes up you will be kicking yourself for not getting more now :)

Then you will ensure 越来越好立场.

[goldfish]

Enjoy it while you can goldfish.

By enjoying it, I mean buy as many as you can! Because when the SP goes up you will be kicking yourself for not getting more now :)

Then you will ensure 越来越好立场.

Im very confident it will to, i would just like it to move faster.
I thought it was going in a small uptrend again but it stopped at 87 a week ago, and back to normal fluctuations now.

[Harvey Specter]

Then you will ensure 越来越好立场.
Can we please stop with the foreign language. It all loos Greek to me.

είμαστε καλά τοποθετημένο

[percy]

Plain English then;
"we are well positioned."
sorry PT.!!!! lol.

[janner]

Plain English then;
"we are well positioned."
sorry PT.!!!! lol.

I say I say I say !!.. Are we not a multi-cultural nation now ??

Not good enough .. eh .. what ??

It's just not cricket !!.. Eh .. Eh.. speak up man .. Speak up !!..

[Snow Leopard]

The book The Galactic Pot-Healer by Philip K Dick presented a future world where a group of people are so bored that there main pleasure in life is to play a little game where they use computers to translate a phrase from language to language eventually arriving back at the original language in a much mangled form.

It appears that this nightmare scenario is finally arriving.

Best Wishes
Paper Tiger

[janner]

The book The Galactic Pot-Healer by Philip K Dick presented a future world where a group of people are so bored that there main pleasure in life is to play a little game where they use computers to translate a phrase from language to language eventually arriving back at the original language in a much mangled form.

It appears that this nightmare scenario is finally arriving.

Best Wishes
Paper Tiger

Off topic PT..

But you are priceless .. hahahaaaa..

[Snoopy]

I think some of you Heartlanders see ANZ on a pedestal that is higher than it should be. From a bankers perspective the amount available to loan is tied to the amount of 'tier' capital available to be loaned against. In the case of Heartland 'Tier Capital' and shareholders equity are one and the same thing. But the ANZ and the other big banks have other sources of 'Tier capital' not available to Heartland.

Perusing my latest ANZ report (from 2012) page 58 lists total shareholders equity as $41.22 billion.

Now go over to page 117 and you will $752m of US trust securities (currently also Tier 1 capital) and three issues of ANZ convertible preference shares adding up to $5,114m (I believe these currently rank as Tier 2 capital). Perpetual subordinated notes of $953m add more tier 2 capital.

Below that is a list of more subordinated notes. Those maturing five years into the future can be fully regarded as more tier 2 capital amounting to $4,632m. Those maturing in four years time ($582m) need to be discounted 20% to arrive at yet more tier 2 capital of $466m.

As at 30th June 2012 ANZ has $5,114m + $4,632m + $466m = $10.212b of Tier 2 capital. That is less than 50% of the available Tier 1 capital ($41,220m + 752m = $41.972b).

So all of that tier 2 capital is available to be borrowed against.

Summing up all the Tier 1 and Tier 2 capital then, ANZ has $52.184b of Tier 1 and Tier 2 capital to back up their loans.

For FY2012 the ROE based on end of year shareholders equity is:

$6,011m/$41.220m = 14.6%

But if you do the same calculation on tier 1 and tier 2 capital, the Return on 'backing capital' is a rather lower.

$6,011m/$52,184m = 11.5%

That is close to the 10% ROE that Heartland is projected to achieve for FY2013.


The other comparison you Heartlanders like to make is with Westpac. The WBC Annual report for 2013 landed in my mailbox last week. Using the profit from p83, and the balance sheet equity, the Return on Equity figure for Westpac was as follows:

$6.368b / $46.618b = 13.7%

However, as with ANZ Westpac makes their loans dependent on their holding of 'total Tier capital', which includes additional elements to just shareholders equity. On p173 of this report Westpac lists the following additional Tier 1 equity.

$1,177m (Westpac Convertible Preference Shares)
$1,367m (Westpac Capital notes)
$906m (Stapled Preferred Securities)
$616m (Convertible Debentures and Trust Prepared Securities)

Add in the shareholders equity and I get total Tier 1 equity of $50.684b

In addition there is $4.886m of subordinated Tier 2 debt which I have reduced by $270m to take into account the early maturity(less than five years) of some 2015 debt, and to which must be added $378m of Tier 2 subordinated perpetual notes. That amounts to $4.994b of tier two debt in total for calculation purposes.

If you now do the same return calculation on tier 1 and tier 2 capital, the Return on this 'total backing capital' is a rather lower.

$6.368b / ($50.684b + $4.994b) = 11.4%

That is within one decimal point of the ANZ FY2012 figure.

SNOOPY

[Snoopy]

If you now do the same return calculation on tier 1 and tier 2 capital, the Return on this 'total backing capital' is a rather lower.

$6.368b / ($50.684b + $4.994b) = 11.4%

That is within one decimal point of the ANZ FY2012 figure.


Just to bring this back to the Heartland context, here are the figures that Scotty worked out:

"For this financial year, HNZ is forecasting a profit of between $34 - 37m. By my calculations, the $34m bottom range projection equates to a 10% return on shareholder equity (88cps) which is about 9c per share. On say a pe of 12, this would give a share price of $1.08. Looking into the future, a return of 15% without any increase in equity but keeping the pe @ 12 would put the share price at $1.62."

If the bottom range figure of $34m is a 10% ROE then the top range figure of $37m is 10.9%. These figures seem entirely consistent with a smaller bank without the extra tier capital resources available to bigger banks. Why some here feel so resolute that Heartland can outperform the larger banks by so much on a tier capital basis (as a 15% ROE would imply) remains a mystery.

SNOOPY

PS I should add that since the annual report has been released NTA as of 30th June was confirmed at:

$331.2m/ $388.7m = 85c, not 88c. That in turn means the the projected ROE for FY2013, assuming NTA remains constant is forecast by Heartland themselves as between 10.3% and 11.3%.

However for those who insist on an ROE of 15% close your eyes and say "I believe, I believe, I believe." Who knows, it might just come true for you.

[Snoopy]

Since the annual report has been released NTA as of 30th June was confirmed at:

$331.2m/ $388.7m = 85c, not 88c. That in turn means the the projected ROE for FY2013, assuming NTA remains constant is forecast by Heartland themselves as between 10.3% and 11.3%.

However for those who insist on an ROE of 15% close your eyes and say "I believe, I believe, I believe." Who knows, it might just come true for you.


FY2013 looks to be shaping up quite well for Heartland. Looking further forward than that the new basal 3 Capital Conservation Buffer adding 2.5 percentage points to the amount of capital that must be held, plus another 0-2.5 percent for the countercyclical buffer means very little if any spare capital. So no growth beyond FY2013 if current dividend levels are maintained. A PE of 10 sounds about right in those circumstances.

Round figures I will go for an 11% ROE on shareholders equity of 85c giving earnings of 9.35c. A PE of ten translates that to a share price of 94c. Sounds about right.

However, all that assumes no more bad property debts that would further reduce the equity base. I would discount the share price by 10% to take account of that risk, and that leaves fair value at 85c, exactly where Heartland trades today. Heartland, a good solid company that is fairly and fully priced at 85c.

SNOOPY

[blobbles]

The book The Galactic Pot-Healer by Philip K Dick presented a future world where a group of people are so bored that there main pleasure in life is to play a little game where they use computers to translate a phrase from language to language eventually arriving back at the original language in a much mangled form.

It appears that this nightmare scenario is finally arriving.

Best Wishes
Paper Tiger

I read that book also!

I am learning Chinese though so don't need google translate to help me... most of the time! But definitely not on that one :)

[winner69]

I think Snoopy is on the verge of saying HNZ is a BUY .... yes a BUY

Better get in quick before the recommendation comes

[Snow Leopard]

I think Snoopy is on the verge of saying HNZ is a BUY .... yes a BUY

Better get in quick before the recommendation comes

If it only worth $0.85 and there is no growth then I would not touch it with a very long stick.

Best Wishes
Paper Tiger

*Take a long piece of bamboo and cut down the middle at one end, stick a little wedge in to keep the two halves far enough apart to hold a mango.
Lift bamboo up from underneath until the mango is cradled in the end.
Wiggle it a bit until the mango comes loose from the tree.
Lower bamboo and extract mango.

[percy]

I think Snoopy is on the verge of saying HNZ is a BUY .... yes a BUY

Better get in quick before the recommendation comes

Has me very concerned as his record is not exactly good on this stock! lol.

[K1W1G0LD]

Meanwhile back at the Ranch , kiwigold was counting the dosh made since selling HNZ for another better placed NZX coy and wishing he had done it sooner........................his faithful chinese manservant One Hung Low lamented "its just that the stubborn old codgers back at ST could'nt see the dog for the fleas" (or is that the wood for the tree's) and how much more they could be making over yonder in greener pastures. Nevermind, as Percy say's they're well postioned and still will be this time next year, HoHoHo. Mary Xmas

[vorno]

Breaking down to the basics, it's time for a rhetorical question.

How many of you have stock in Heartland?
Those of you who have HNZ stock, how many of you have opened a bank account with them?
If not, why not?

While their primary focus is not in typical retail sector there should be enough interest to attract a base. The interest rate on their savings account is what attracted me.

[percy]

Meanwhile back at the Ranch , kiwigold was counting the dosh made since selling HNZ for another better placed NZX coy and wishing he had done it sooner........................his faithful chinese manservant One Hung Low lamented "its just that the stubborn old codgers back at ST could'nt see the dog for the fleas" (or is that the wood for the tree's) and how much more they could be making over yonder in greener pastures. Nevermind, as Percy say's they're well postioned and still will be this time next year, HoHoHo. Mary Xmas

.
From Yahoo charts I note, from 27th November 2012 to this 26th November 2013 they are up 21.43% plus dividend.
From 28th November 2011 to 26th November 2013 they are up 73.47% plus dividend.
I continue to be a " very happy stubborn old codger" and hold Heartland as I feel they a fine company with a bright future,making Percy an even wealthier "old codger."

[simla]

I have a Heartland account. I like the fact that they lend out to industry whereas pretty well all the other banks mostly just lend to mortgages (percentage wise) - read their allocation figures in their reports. So I leave money in that account as just one more contribution to building up this country instead of adding to the carnage brought on by mortgage-backed house bidding wars. I heartily recommend it to others.

[vorno]

I have a Heartland account. I like the fact that they lend out to industry whereas pretty well all the other banks mostly just lend to mortgages (percentage wise) - read their allocation figures in their reports. So I leave money in that account as just one more contribution to building up this country instead of adding to the carnage brought on by mortgage-backed house bidding wars. I heartily recommend it to others.

Indeed you got some good points there.

On the sidelines the internet banking is very fast :)

[In4a$]

I have a Heartland account. I like the fact that they lend out to industry whereas pretty well all the other banks mostly just lend to mortgages (percentage wise) - read their allocation figures in their reports. So I leave money in that account as just one more contribution to building up this country instead of adding to the carnage brought on by mortgage-backed house bidding wars. I heartily recommend it to others.

I heartily agree. Holding and will build my holding when the times right.

[vorno]

Heartland Quarterly release:
http://www.heartland.co.nz/news/150/heartland-bank-releases-disclosure-statement-for-first-quarter.aspx

[Snow Leopard]

and would you look at that...

They have rebuilt their capital adequacy buffer from 1.76% to 2.45% in a single quarter.

Best Wishes
Paper Tiger

[psychic]

Yes - and market agrees with Snoopy - SP .85 :)

[Beagle]

Well I take an interest in these things due to the horrors of finance companies during the GFC so couldn't help but notice over $80m of receiveables either more than 90 days overdue or individually impaired. I presume the latter actually recognises a specific chance of impairment ?

Couldn't see any disclosure of how much of their $1.6 billion of receiveables are overdue by less than 90 days.
I used to love how Geneva finance thought their receivables overdue by more than 90 days were really worth full value, obviously this is a joke and often they're only worth a fraction of face value.
At an educated guess i'd say there's still a fair bit of work to do to clean up the balance sheet, more than 5% of receivables seriously impaired is not a satisfactory situation in my view and could dramatically impact on the audited annual results next year.

I think a PE of 10 as suggested by Snoopy above is actually a bit on the high side for the risks involved and what will earnings really be after proper bad and doubtful debtor provisioning ?

Wow, I'm glad I opened my eyes properly on this one. Gotta do your own homework, notwithstanding how likeable Uncle Percy is :)

[percy]

Quarterly disclosure notices in accordance to Reserve Bank requirements adds a huge margin of safety to Heartland for depositors and shareholders..
Growth rate will propel the PE.Excellent sustainable dividend will reward shareholders.
Adding runs to the board.
Heartland is well positioned for continued growth,there by delivering long term shareholder value.

[winner69]

only Q1 and they already made more than all of last year

That's good

[vorno]

only Q1 and they already made more than all of last year

That's good

I believe that is only because of a big write-off (on last year results)??
Otherwise it would've been a similar figure correct?

[simla]

I don't want to take sides in this lively ongoing debate! But possibly the following might be some middle ground?


1. Level for this type of business?

Looking at that latest Disclosure statement, we have Note 9 "Financial Receivables" on p15. Here we learn that there is a "provision for impairment" of 41.4m. I assume this to be the write offs on old assets announced in the last full year report. If so, then the remaining assets are those that they considered current after the write down.

In that case, the impaired and overdue assets listed on p15 are 87m, less 41.4m already provisioned = current potential impairments/overdues of 45.6m. This is 2.3% of total receivables of 1957m.

Looking at the Westpac report for September, p42 for 2012, they have 605m of 59,442 m, or about 1%. That is one big report, so sorry if I've picked up the wrong figures, don't think I have. http://www.westpac.co.nz/assets/Who-we-are/About-Westpac-NZ/Disclosure-statements/30092013-WNZ-DS-Secure.pdf

But now look at just the "Business loan" figures for Westpac, also p42, and they are 443m of 21,788m or about 2% which is not that different to Heartland?

I wonder if Heartland is in industry and rural, not in the mortgage business, and that this type of business might always carry a slightly higher level of loans that need management? If so, then perhaps there is not a problem? Westpac seem to be doing just fine with this sort of level on their own business portfolio, and they do not seem to be trying to exit that sector?

Further, p41 of the Heartland report also shows that the net 45.6m had been 49.0m just 3 months earlier, and also after the write down, or about 2.4%. So progress is being made, over that 3 months at least, which would eliminate the difference with Westpac's business loans within a year if it continued?


2. In P&L anyway?

Also, we note in the P&L statement on p8 that Heartland included impairment expenses of 1.7m while still arriving at the profit of 8.7m in line with the year's expectations. This too might be taken as an indication that the business sector Heartland is in may require slightly higher write downs than for just mortgages, and that this has been allowed for in the profit projections and profit model?


I hadn't seen this approach discussed here before so I mention it. Sorry if it's a repeat. I'm no expert on the banking sector either.

[Xerof]

Do the banks still carry a 1 or 2% impairment assumption across their books? this used to be common practise, just for conservatism

others used inventories to do the same thing - its called profit smoothing....not sure if it still goes on

Percy, I'm getting there - have an online high interest bizo account with them now.

[percy]

and would you look at that...

They have rebuilt their capital adequacy buffer from 1.76% to 2.45% in a single quarter.

Best Wishes
Paper Tiger
Excellent achievement.
I also note Note 16;Total liquidity is $459,886,000.Very liquid.So with equity ratio of 14.59,growing profits.strong liquidity I see any reasonable acquisition being self funded.ie no need to raise cash from shareholders.
The business is on track to achieve the goals directors have set.

[percy]

Do the banks still carry a 1 or 2% impairment assumption across their books? this used to be common practise, just for conservatism

others used inventories to do the same thing - its called profit smoothing....not sure if it still goes on

Percy, I'm getting there - have an online high interest bizo account with them now.

Now you have really made my day.
Should you be able to make it to Trevinos ,22 Riccarton Road at 7pm tomorrow night I will shout you a large drink.
I do not know the answer to your question.You may have to ring Jeff Greenslade [09] 927 9149 or Simon Owen[09] 927 9195 to get the correct answer,.

[Snow Leopard]

I don't want to take sides in this lively ongoing debate! But possibly the following might be some middle ground?


1. Level for this type of business?

Looking at that latest Disclosure statement, we have Note 9 "Financial Receivables" on p15. Here we learn that there is a "provision for impairment" of 41.4m. I assume this to be the write offs on old assets announced in the last full year report. If so, then the remaining assets are those that they considered current after the write down.

In that case, the impaired and overdue assets listed on p15 are 87m, less 41.4m already provisioned = current potential impairments/overdues of 45.6m. This is 2.3% of total receivables of 1957m.

Looking at the Westpac report for September, p42 for 2012, they have 605m of 59,442 m, or about 1%. That is one big report, so sorry if I've picked up the wrong figures, don't think I have. http://www.westpac.co.nz/assets/Who-we-are/About-Westpac-NZ/Disclosure-statements/30092013-WNZ-DS-Secure.pdf

But now look at just the "Business loan" figures for Westpac, also p42, and they are 443m of 21,788m or about 2% which is not that different to Heartland?

I wonder if Heartland is in industry and rural, not in the mortgage business, and that this type of business might always carry a slightly higher level of loans that need management? If so, then perhaps there is not a problem? Westpac seem to be doing just fine with this sort of level on their own business portfolio, and they do not seem to be trying to exit that sector?

Further, p41 of the Heartland report also shows that the net 45.6m had been 49.0m just 3 months earlier, and also after the write down, or about 2.4%. So progress is being made, over that 3 months at least, which would eliminate the difference with Westpac's business loans within a year if it continued?


2. In P&L anyway?

Also, we note in the P&L statement on p8 that Heartland included impairment expenses of 1.7m while still arriving at the profit of 8.7m in line with the year's expectations. This too might be taken as an indication that the business sector Heartland is in may require slightly higher write downs than for just mortgages, and that this has been allowed for in the profit projections and profit model?


I hadn't seen this approach discussed here before so I mention it. Sorry if it's a repeat. I'm no expert on the banking sector either.

I am SO pleased that someone is willing to read the accounts thoroughly, do some proper analysis and make sensible comments based on that.

Simla you are my hero.

Now the $41.4m is not actually written-off but is amount of the $2 billiion of finance receivables that they do not expect to ever recover. (Some of this amount is based on percentages of loan categories and some is calculated on the individual assets).
Writing them off (the accounts) is the final stage when the probability becomes a certainty.

So the remaining $45.6m they do expect to eventually receive.

Well done
Paper Tiger

Note: The book value of the receivables in the accounts is the $2B less the $41.4m, i.e the value is already discounted. Writing-off a receivable does not involve further accounting losses.

[Snow Leopard]

Do the banks still carry a 1 or 2% impairment assumption across their books? this used to be common practise, just for conservatism

others used inventories to do the same thing - its called profit smoothing....not sure if it still goes on

Percy, I'm getting there - have an online high interest bizo account with them now.

It is a a bit more complicated these days, but a lot of loans are stuffed into broad categories and a percentage impairment is applied, the percentage varies by risk category.
Other loans are treated individually and a unique percentage applied for that loan.

Best Wishes
Paper Tiger

Disc: I have no account with HNZ, beaten by the Anti-Money Laundering requirements :(.

[Harvey Specter]

Disc: I have no account with HNZ, beaten by the Anti-Money Laundering requirements :(.They're a nightmare aren't they. I'm trying to change to a Direct Broking account and along with a list detailing the colour of every pair of underwear I own, audited by a big four and certified by a lawyer, the want to hold my first born child as security.

[simla]

I am SO pleased
Hey, do I ever have some good used shares for you then ...! Thanks. The Westpac business loan portfolio of 22b does nevertheless show that Heartland hasn't entirely got it's business market to itself. Does show it's a good place to be though.

[Xerof]

PT, thanks for the comment re provision - I thought there were usually some nuts squirrelled away for a cold winter - Snoopdog, please take note!

Percy, thanks for the kind offer, but will have to pass on the drink - I shall endeavour to get along to one or two in 2014 if possible.

[vorno]

They're a nightmare aren't they. I'm trying to change to a Direct Broking account and along with a list detailing the colour of every pair of underwear I own, audited by a big four and certified by a lawyer, they want to hold my first born child as security.

Could be a good security to invest in ;)

[Harvey Specter]

Could be a good security to invest in ;)yip. I'll pay for his uni (in 15years) but expect him to pay for my retirement. :)

[GTM 3442]

Disc: I have no account with HNZ, beaten by the Anti-Money Laundering requirements :(.

Cheer up PT, you're not alone.

I tried with another bank, but the pain was such that the money went to Luxembourg and Australia instead. Both of which have the added advantage of running deposit insurance/protection/guarantee schemes - unlike the New Zealand compulsory short back'n'sides regime.

New Zealand's amateur-hour compliance culture is truly a wonder to behold.

[Longhaul]

OK, not sure whether to post this here or in the SUM thread. I've got a very modest sum to invest in something less speculative than the rest of my portfolio. The two I'm considering are HNZ and SUM but finding it difficult to make a decision. According to posters here, both may be undervalued and by all accounts should hit their strides over the next 2 years. I expect to hold for at least 3 years, and am looking for solid growth and average dividends.

Would really appreciate any insights or advice from more seasoned investors to help me make a decision. Thx

[Snow Leopard]

OK, not sure whether to post this here or in the SUM thread. I've got a very modest sum to invest in something less speculative than the rest of my portfolio. The two I'm considering are HNZ and SUM but finding it difficult to make a decision. According to posters here, both may be undervalued and by all accounts should hit their strides over the next 2 years. I expect to hold for at least 3 years, and am looking for solid growth and average dividends.

Would really appreciate any insights or advice from more seasoned investors to help me make a decision. Thx

Options:
1) Buy both.
2) If you do not have enough funds for both, sell some speccy stuff and buy both.
3) If not 1) or 2) toss a coin, if you like the answer go with it, if not do the opposite.

Best Wishes
Paper Tiger

Disc: in either or situations I actually do 3) and see how I feel about the 'answer'.

[percy]

OK, not sure whether to post this here or in the SUM thread. I've got a very modest sum to invest in something less speculative than the rest of my portfolio. The two I'm considering are HNZ and SUM but finding it difficult to make a decision. According to posters here, both may be undervalued and by all accounts should hit their strides over the next 2 years. I expect to hold for at least 3 years, and am looking for solid growth and average dividends.

Would really appreciate any insights or advice from more seasoned investors to help me make a decision. Thx

Both are very fine companies with excellent growth prospects .
I hold both.
You may have to go with Paper Tiger's 3rd option.

[winner69]

SMD position looks a little worse than it did this time last year
http://www.niwa.co.nz/climate/daily-climate-maps

SMD is soil moisture deficit

[Longhaul]

Thanks Paper Tiger, percy and snapiti. The 3rd option looks fairly agreeable, but leaning a little towards HNZ for a couple of reasons - not sure how robust they are but here goes.

1) HNZ SP up 25% over 52 weeks compared to SUM at 45% leads me to believe there is possibly more upside in HNZ in the next 12 months

2) Currently more buyer depth for HNZ, and not a lot of sellers even at these highs indicate holders willing to hold for even better times ahead

3) Better yield

4) (Not sure about this one, feel free to call me out on it) Banks benefit from ridiculous QE going on around the world (see this article about China's recent efforts (http://www.zerohedge.com/news/2013-11-25/chart-day-how-chinas-stunning-15-trillion-new-liquidity-blew-bernankes-qe-out-water))

(might have just convinced myself)

[Longhaul]

SMD position looks a little worse than it did this time last year

What are the wider implications of this? Is it (hate to say it) good for a rural lender?

[noodles]

2) Currently more buyer depth for HNZ, and not a lot of sellers even at these highs indicate holders willing to hold for even better times ahead


You say you want to invest for 3 years, yet you look at depth? I'd be looking at pe ratio's and potential growth.

[winner69]

I check this every day winner69 as i have a farm or two, have a look at the charts tommoro or monday and you will see a complete reversal.
I know much of the north island has had 50-100mm of rain over the last 2 days and more to come.
I know my two farms have never had so much grass.
But that is amazing research you have done if you are not a farmer as it was starting to dry out.

Plenty of good rain in lower north as well

I keep an eye on the SMD because the key drivers of economic activity in NZ are how much moisture is in the ground, commodity prices and the NZD. Put those three inputs into a model and you get a pretty good idea of where the underlying NZ economy is heading ...and then add a bit more for the Canterbury recovery.

So not just a forecadt for primary related industries but the economy as a whole. Stood the test of time that modelling.

[karen1]

I have been asked by another poster to post this link http://www.stuff.co.nz/auckland/local-news/business/9449239/Profit-jumps-for-new-bank

[percy]

Thanks Karen1.
Reads very well, thought we would all enjoy it .

[Snoopy]

I wonder if Heartland is in industry and rural, not in the mortgage business, and that this type of business might always carry a slightly higher level of loans that need management? If so, then perhaps there is not a problem? Westpac seem to be doing just fine with this sort of level on their own business portfolio, and they do not seem to be trying to exit that sector?


Logical Simla, but I would take issue with your original assumption. I know there has been a lot of talk about HNZ being a niche industry funder to business. However, the actual picture , as laid out in table 40a "Concentrations of Funding" from the FY2013 Annual Report, shows funding split between Finance $258.9m, Households $1.732.1m and listed bonds $106.5m.

So despite the hype, it would seem that Heartland is still largely funding real estate and property, probably a legacy of their PGC and CBS ingredients that went into the pot to make up Heartland.

SNOOPY

[ziggy415]

That is very accurate, I simplify it by saying when the farmers are spending profits the country will always prosper.

The more grass you can grow the better farmers do.
I also have to add rural commodity prices are looking very good and this will be very good for HNZ.
...factor in a labour greens coalition and bobs your....auntie im afraid

[Snow Leopard]

Logical Simla, but I would take issue with your original assumption. I know there has been a lot of talk about HNZ being a niche industry funder to business. However, the actual picture , as laid out in table 40a "Concentrations of Funding" from the FY2013 Annual Report, shows funding split between Finance $258.9m, Households $1.732.1m and listed bonds $106.5m.

So despite the hype, it would seem that Heartland is still largely funding real estate and property, probably a legacy of their PGC and CBS ingredients that went into the pot to make up Heartland.

SNOOPY

I fail to see how anybody can so consistently fail to understand a set of accounts and so consistently post incorrect drivel and fanciful made-up numbers.

We recently had you calculating the levels of Tier 1 & 2 capital for banks instead of just looking it up and your guess being nearly 50% higher than reality.

And now you apparently do not know the difference between lending and borrowing.

Paper Tiger

[Snoopy]

I fail to see how anybody can so consistently fail to understand a set of accounts and so consistently post incorrect drivel and fanciful made-up numbers.

We recently had you calculating the levels of Tier 1 & 2 capital for banks instead of just looking it up and your guess being nearly 50% higher than reality.

And now you apparently do not know the difference between lending and borrowing.


Yes well lending and borrowing are two sides of the same transaction. As always with these Heartland posts, I seem to be in a rush when posting and I only have the silly pdf version of the annual report which I can't bookmark. One thing I did know was that if I did get it horribly wrong you would take great delight in pointing it out PT - and so it proved. So thanks for that.

The actual answer then looks like it is contained in Note 37:

Corporate Rural: $528.1m (-6.5% from FY2012))
Corporate Property: $49.0m (-58% from FY2012)
Corporate Other: $805.1m (+11% from FY2012)
Residential: $231.0m (-29% from FY2012)
All Other: $397.3m (+12.7% from FY2012)

So reality hasn't quite matched the hype. Rural lending down, despite the push into that area. 'Corporate Financing Other' up which is I guess all that equipment HNZ are good at. Significant increase in the 'All Other' (too hard?) basket.

SNOOPY

[simla]

Don't worry, Snoopy, I'm actually quite glad you guys are having this argument. I haven't looked at banking shares before, so you're focusing my mind on the questions. (Banking isn't my sort of thing, but investing in NZ is, hence HNZ.)

The finance industry definitely has a couple of characteristics not found in other industries (as most industries do, of course). In particular, they inevitably borrow short and lend long to at least some extent, and they also have to worry about whether their customers will pay them back. Liquidity and profit seem to compete in this industry.

The other side of the argument is that this looks a very well run company who know how to manage that sort of thing as par for the course.

They're both seem fair points and so I'm finding this argument quite good for focusing my own mind on what is a reasonable response as an investor.

I happily own HNZ shares so obviously it isn't worrying me much, and indeed I see no obvious reason to have issues with HNZ as opposed to banking shares in general (but I'm no expert either way, so take no notice of my opinion on that.) But I do think it is relevant to just what percentage of a portfolio a cautious investor might run with. Does anyone know if the investment community has an accepted view on just where banking shares fit into an average portfolio? I have no idea whatsoever.

[vorno]

""Internet Banking is unavailable at the present time due to scheduled maintenance. Please try again later.""

Well... It's nice to know that I haven't been able to access my HNZ accounts this weekend.
I wonder how this will piss off a lot of people?!

[Bjauck]

""Internet Banking is unavailable at the present time due to scheduled maintenance. Please try again later.""

Well... It's nice to know that I haven't been able to access my HNZ accounts this weekend.
I wonder how this will piss off a lot of people?!
I have accounts with both the ANZ/National Bank and HNZ. ANZ Internet have had more outages than Heartland. Heartland Bank internet bank is in the process of incorporating PGG Wrightson Finance Internet customers at the moment which may explain the necessity to take banking poffline at the moment. Whichever bank you choose will mean that internet banking will not always be available 24/365.
Disc. Shareholder in ANZ and HNZ

[vorno]

Perhaps I've just had good luck then? My main banking is with ASB and I haven't had a single outage that I can remember in 13 years!

If its teething issues, sure no worries. It's just something I thought of pointing out.

[winner69]

I also use ASB but my last outage was about 12 months ago.

In today's modern era such outages should be a) very rare or b) planned for and of short duration (15 min, off peak).

HNZ need to do better.

Do HNZ accept Bitcoin?

[zs_cecil]

Do HNZ accept Bitcoin?

If HNZ accepts bitcoin trading, it will probably become the NO. 1 bank in NZ very quickly, I reckon. :cool:

[Harvey Specter]

Does any NZ bank?I wouldn't expect any wood. Bitcoin is a cross between a speculative bubble and a 'currency' for illegal transactions.

[Casino]

I wouldn't expect any wood. Bitcoin is a cross between a speculative bubble and a 'currency' for illegal transactions.


Speculator greed multiplied with criminal energy? New rating: Strong buy

[Harvey Specter]

Speculator greed multiplied with criminal energy? New rating: Strong buyI must admit, I thought the Silk Road closure would have had a serious impact but it bounced back even higher.

[winner69]

Good to see the hnz chief risk officer being proactive

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11166451

[percy]

Good to see the hnz chief risk officer being proactive

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11166451

Lets hope Heartland serve up "flame grilled peri-peri chicken" at next year's agm.!!
Thanks for posting the link winner69.

[percy]

Interesting announcement today:
"Chris Cowell appointed the new Head of South Island for Heartland Bank."
Chris has over 30 years banking experience, most recently as CEO of UDC."

[iceman]

Interesting announcement today:
"Chris Cowell appointed the new Head of South Island for Heartland Bank."
Chris has over 30 years banking experience, most recently as CEO of UDC."

Yes this looks good Percy. He seems to be very experienced. Just more of the same from HNZ, boring steady as she goes stuff, just what we like to see !!

[Sgt Pepper]

as a new shareholder expressed my aspirations to buy HNZ on another thread promptly got cold water thrown at it as not a good investment, however it hasnt put me off, no way (fingers crossed)

[K1W1G0LD]

as a new shareholder expressed my aspirations to buy HNZ on another thread promptly got cold water thrown at it as not a good investment, however it hasnt put me off, no way (fingers crossed)

Well its been well positioned for sometime now (just ask old mr P)
but check the graph , the shareprice is going nowhere .....................pays a good div though.

[janner]

Well its been well positioned for sometime now (just ask old mr P)
but check the graph , the shareprice is going nowhere .....................pays a good div though.

Well with the market going down !!

Going nowhere has to be good :-)

Will admit to " Lightening " my holding in HNZ.. Purely for balance reasons..

To many eggs .. etc..

As you say .. " pays a good div though ".. And will pay better ones in the not to distant future IMHO..

[percy]

as a new shareholder expressed my aspirations to buy HNZ on another thread promptly got cold water thrown at it as not a good investment, however it hasnt put me off, no way (fingers crossed)
Welcome aboard.No need to cross fingers,you are in wise strong safe hands.
The share price has risen 24.29% in the past year [since 7th December 2012].
The dividend yield is 7.14%.
Equity ratio and liquidity are excellent.
Earnings per share are expected to increase between 41% and 58% this year.

[noodles]

as a new shareholder expressed my aspirations to buy HNZ on another thread promptly got cold water thrown at it as not a good investment, however it hasnt put me off, no way (fingers crossed)
How dare they! Which thread? I bet it was those smug Peb'ers

[janner]

Welcome aboard.No need to cross fingers,you are in wise strong safe hands.
The share price has risen 24.29% in the past year [since 7th December 2012].
The dividend yield is 7.14%.
Equity ratio and liquidity are excellent.
Earnings per share are expected to increase between 41% and 58% this year.

Heheh !.. Good advice Percy..

Even though as said I have reduced my holdings for BALANCE reasons..

Still holding more than the HNZ Guru !!.. ( I think )..

A good investment in troubled times....

Unable to afford the TV repayments.. .. The Furniture.. Aah !!.. More DIC Fines.. Must go and see Welfare !!

The Rural person will still keep paying for the tractor.. .. Even if he has to live on porridge..
Rather than doing it ..

[percy]

Heheh !.. Good advice Percy..

Even though as said I have reduced my holdings for BALANCE reasons..

Still holding more than the HNZ Guru !!.. ( I think )..

A good investment in troubled times....

Unable to afford the TV repayments.. .. The Furniture.. Aah !!.. More DIC Fines.. Must go and see Welfare !!

The Rural person will still keep paying for the tractor.. .. Even if he has to live on porridge..
Rather than doing it ..

I think you were right to re-balance your portfolio.[You still have twice as many as me!].In my recent sell down I sold 20% of our share portfolio.I did not sell any HNZ ,so HNZ now make up 18.2% of our portfolio.
As you point out The Rural person will keep paying for the tractor.As a great deal of HNZ lending is to "the productive" sector I see few bad debts there.At a presentation I went to they said they had fewer problems with motor vehicle finance than housing.
" Guy needs his car to get to work,no work,no income."
For us as investors we are buying a very good company,at near asset backing,with strong earnings growth,with good equity and liquidity.We are buying a company on one years future earnings [$34 to $37mil],paying a good dividend.Not what it may,or may not earn in five years time.
We are not buying an un profitable company,that may grow earnings,that may become profitable,that may require more funds from shareholders,that has only one source of income,and that has no prospects of paying a dividend in the foreseeable future.
Plus we have the safety of HNZ being accountable to The Reserve Bank.
All makes good sense to me.
As Buffett would say "when the tide goes out,we will see who is swimming without their trunks on."

[Longhaul]

Just a question for existing holders with a lot of faith in HNZ, at what price would you be willing to top up? I'm trying to figure out when is a good time to jump on board but don't know how to determine if the current price represents good/fair value. Thanks.

[percy]

Just a question for existing holders with a lot of faith in HNZ, at what price would you be willing to top up? I'm trying to figure out when is a good time to jump on board but don't know how to determine if the current price represents good/fair value. Thanks.

The last parcel I brought of HNZ was at 87cents on 26th August as I thought they were great value.
I still hold that view.
I am buying with the intention of never selling,but rejoicing in the increasing dividends [which will drive a higher share price] .

[In4a$]

Just a question for existing holders with a lot of faith in HNZ, at what price would you be willing to top up? I'm trying to figure out when is a good time to jump on board but don't know how to determine if the current price represents good/fair value. Thanks.
I am lucky and got in at arounf 0.70c, if gets to 0.80c or under i would buy more, tempted at Current price which is not to bad considering many value it at over a dollar. Just wish it would hurry up and break the $, then I would relax a bit about the ones I own.

[K1W1G0LD]

Welcome aboard.No need to cross fingers,you are in wise strong safe hands.
The share price has risen 24.29% in the past year [since 7th December 2012].
The dividend yield is 7.14%.
Equity ratio and liquidity are excellent.
Earnings per share are expected to increase between 41% and 58% this year.

HaHaHa you'd make a good politician Percy, its the last 6 months thats more telling. in the last 5 months of the 12 you describe the share price has gone exactly nowhere , it was sitting on 87 cents in July and as of right now its at 86 cents

[percy]

HaHaHa you'd make a good politician Percy, its the last 6 months thats more telling. in the last 5 months of the 12 you describe the share price has gone exactly nowhere , it was sitting on 87 cents in July and as of right now its at 86 cents

True!!! lol.
Also true is the fact that HNZ share price has increased 81.25% over the last two years.
Where it goes over the next one or two years will be fun.Not sure whether I hope for 24.29% or 81.25% again!!!!!.Which ever, I will be enjoying increasing dividends [which will drive the share price trajectory].

[noodles]

Just a question for existing holders with a lot of faith in HNZ, at what price would you be willing to top up? I'm trying to figure out when is a good time to jump on board but don't know how to determine if the current price represents good/fair value. Thanks.

Longhaul, If you can't work out if the current price is good value, I suggest you ask a broker. This forum is for chat, not advice.

DISC: I hold HNZ. But like others have been "balancing" my portfolio

[winner69]

ITs a good observation ... but wait! ... Didn't the same thing happen between Oct and Feb the year before? ...

And the year before that? ...

By GOLLY - I think I'm onto something :)

Keep quiet Belg ...... the step up to the next true 'value' level is about to happen .... no doubt .....but you not meant to tell everybody until it is under way

[forest]

Just a question for existing holders with a lot of faith in HNZ, at what price would you be willing to top up? I'm trying to figure out when is a good time to jump on board but don't know how to determine if the current price represents good/fair value. Thanks.

Langhaul, normally its better to learn about an investment and feel confident before you buy, however with HNZ I do not see to much risk if you buy first and research later, current price in my opinion is a steal.

[Longhaul]

Longhaul, If you can't work out if the current price is good value, I suggest you ask a broker. This forum is for chat, not advice.

DISC: I hold HNZ. But like others have been "balancing" my portfolio

Thanks noodles for clarifying what this forum is for.

[777]

Longhaul, If you can't work out if the current price is good value, I suggest you ask a broker. This forum is for chat, not advice.

DISC: I hold HNZ. But like others have been "balancing" my portfolio

is this up for a Tui's ad? Just about every thread has posters offering advice. The thing is to filter it the best you can.

[hanth888]

Just a question for existing holders with a lot of faith in HNZ, at what price would you be willing to top up? I'm trying to figure out when is a good time to jump on board but don't know how to determine if the current price represents good/fair value. Thanks.

Hi Longhaul,

It depends on your appetite for risk and what you looking for in a particular stock.

I think that as a listed company HNZ strikes a pretty good balance between a company that is profitable, pays a dividend (or DRP a at small discount), is still in somewhat of a 'growth' phase (and hopefully more to come either organically or through acquisitions), and enjoys a near monopoly position on the type of products it provides (i.e. high-margin livestock/personal/business lending - they're not battling it out with the big 4 to see who can write more residential mortgages). The move to registered bank status means higher risk management requirements than the NBDT scheme and the need to adhere to bank capital ratios (Basel Accord etc.) which to me provides more certainty that there is a regulatory framework in place to ensure that credit risk is controlled. The key business risk I see is a stagnant/declining loan book (especially if the big banks start to move back into the space HNZ lends in), I don't think there will be many/any further write-downs in the loan book given the bath HNZ has taken on the legacy property portfolio this/last year.

There seems to be a lot more transactional work around than a year ago which should hopefully mean more business lending for HNZ as people get out there and starting trying things again. Additionally, the rural sector is strong and HNZ has strong grass-root ties with farmers, particularly in the South Island.

Price wise - I think anywhere in the 80s represents pretty good value. I've been buying since high 40s low 50s but have topped up as recently as last week. It is trading on a high PE at the moment of 47 compared to say ANZ on 13, but when you factor in EPS growth and actually achieving the $34-$37 mil profit next year it will drop back to a more reasonable level - certainly when you consider the potential upside for business lending growth as the economy continues to grow.

It is also difficult to compare HNZs data to other banks data as it's really apples and oranges in terms of where they are placed in the market. If you bought HNZ today at 86c you're essentially getting $1 worth of net assets for $1 invested (provided loans are healthy and valued correctly!) and a ~9% div yield at this price (dividends should continue nominally at the same level - maybe an increase if profit continues to improve/they don't acquire anything). I think it is natural to see a bit of resistance around the 80s as this was near the float price from memory and the share price has only just come back after a big decline and bumpy 2 years..

Key metrics to look out for will be growth/decline in the loan book, maintaining/improving cost of funds relative to lending rate, and reduced operating costs. If the big banks started to move back into the same space as Heartland I would be pretty concerned as they have the resources to simply run circles around Heartland. But I think you would have plenty of warning of this happening and would have to look closely at HNZs response.

Different people will have different ways of looking at how it is/should be priced. I think ultimately it always comes back to whether you believe in the company and what they are telling you where they want to be and what they will achieve and whether the price is reasonable (and it certainly isn't expensive/pricing in future growth at 86c).

[noodles]

is this up for a Tui's ad? Just about every thread has posters offering advice. The thing is to filter it the best you can.

So true, but most punters dont usually ask for advice.

[Longhaul]

So true, but most punters dont usually ask for advice.

Makes sense to ask far more seasoned and knowledgeable investors for advice which (just like with a broker) I and many other readers can ignore or take into consideration when making investment decisions. Particularly for companies in industries that I have little knowledge of.

[winner69]

Heartland not mentioned in this measure interest.co.nz keep an eye on
http://www.interest.co.nz/news/67820/weighted-average-leverage-ratio-across-countrys-banks-trending-down-rabobank-has-lowest-r

Hnz would have improved the average ....with their equity ratio of 14(?) the the leverage ratio as per this article would be 7. The lowest and some would say the best

Jeez that Kiwibank is pretty leveraged eh

As an aside had a 6 month TD to renew this week .....heartland dont seem keen on borrowing and rabobank were a bit so so so best deal was with anz.

[janner]

Heartland not mentioned in this measure interest.co.nz keep an eye on
http://www.interest.co.nz/news/67820/weighted-average-leverage-ratio-across-countrys-banks-trending-down-rabobank-has-lowest-r

Hnz would have improved the average ....with their equity ratio of 14(?) the the leverage ratio as per this article would be 7. The lowest and some would say the best

Jeez that Kiwibank is pretty leveraged eh

As an aside had a 6 month TD to renew this week .....heartland dont seem keen on borrowing and rabobank were a bit so so so best deal was with anz.

Both Banks are lenders to the Rural economy..

To early in the season for the Rural to be borrowing..

Why attract monies that are not going to be put to use ???

[noodles]

Makes sense to ask far more seasoned and knowledgeable investors for advice which (just like with a broker) I and many other readers can ignore or take into consideration when making investment decisions. Particularly for companies in industries that I have little knowledge of.

Langhaul.

Brokers have an average target of 89c. So current price is around 5% less than target price. According to brokers, there is some value. I'm still holding some.

http://www.4-traders.com/HEARTLAND-BANK-LTD-11344518/consensus/

[janner]

Makes sense to ask far more seasoned and knowledgeable investors for advice which (just like with a broker) I and many other readers can ignore or take into consideration when making investment decisions. Particularly for companies in industries that I have little knowledge of.

You are on the right track Longhaul ...

This what this site is all about..

Participate and enjoy !!.

[Wolf]

Where did all the Buy depth go? Little unnerving

[percy]

Where did all the Buy depth go? Little unnerving
I think it went to The Bay of Islands for Xmas.
Unnerving? Only if you are a seller!! lol.

[vorno]

Where did all the Buy depth go? Little unnerving

They're out having G&T's mate!

[K1W1G0LD]

I have to congratulate you Percy on indoctrininating all the newbies to your visions of grandeur for HNZ.
Particularly all the ones that have selected it in their top 5 picks for next years comp. Hope it does well.
Afraid I don't like the fact that the sellers now well outnumber buyers for this stock 1.38 Million for sale vs buyers only wanting 105,000 , what happened there?
That overhang of sellers is still there and looks like they want out again................not too encouraging for the shareprice.

[K1W1G0LD]

I have to congratulate you Percy on indoctrininating all the newbies to your visions of grandeur for HNZ.
Particularly all the ones that have selected it in their top 5 picks for next years comp. Hope it does well.
Afraid I don't like the fact that the sellers now well outnumber buyers for this stock 1.38 Million for sale vs buyers only wanting 105,000 , what happened there?
That overhang of sellers is still there and looks like they want out again................not too encouraging for the shareprice.

Correction buyers now 150,000 odd.

[simla]

Another year's track record would probably increase market confidence, yeah. But I haven't seen any news to suggest the profit outlook has changed, so seems more likely the PE will win over in the end if the outlook doesn't change? Too, people will probably feel safer when we see where the post-taper world is heading, as NZ remains a small boat on a big sea. Just my opinion.

[percy]

I have to congratulate you Percy on indoctrininating all the newbies to your visions of grandeur for HNZ.
Particularly all the ones that have selected it in their top 5 picks for next years comp. Hope it does well.
Afraid I don't like the fact that the sellers now well outnumber buyers for this stock 1.38 Million for sale vs buyers only wanting 105,000 , what happened there?
That overhang of sellers is still there and looks like they want out again................not too encouraging for the shareprice.

I think "newbies" and "the wise old foxes" have found the fundamentals compelling.
NTA. 85.2 cents. Dividend yield 6.98%.Forward PE ratio of between 9.12 and 9.93.Strong equity ratio,excellent liquidity and growth prospects.
The share price will react to more runs being put "on the board".The half year result, which I think will confirm they are on track, will be announced late February.
We have seen good volumes of HNZ traded over the past few months.I see this as a positive.

[noodles]

I don't ... Good volumes + rising price = A Positive!

Given the massive overhang of the old PGW shares being unloaded onto the market, the shares have performed ok. The only weakness was a sell down for Meridian. It quickly recovered. It has not participated in the recent NZX weakness.

But I think we will have to wait for Feb for a catalyst for any major price movement.

[percy]

Be very careful looking at depth and concluding any weakness ... For example, GPG has seen at many stages over the last few months almost no buying depth but the share price hasn't moved down and there has been some very big trading days with millions being traded.

Ditto, HNZ. In HNZ's case there's been a steady 'takeout' of sellers by buyers who are simply buying what's on offer. I suspect Percy and a few others have been steadily topping up at 85c when sellers have appeared. I have - gotta spend that pay packet somewhere.

Yes,Good to see the strong liquidity.Nice and steady on good volumes.

[Snow Leopard]

We're busy doin' nothin'
Workin' the whole day through
Tryin' to find lots of things not to do
We're busy goin' nowhere
Isn't it just a crime
We'd like to be unhappy, but
We never do have the time


One day HNZ will break out of it's current range and hopefully on the upside.
I can wait till then.


Best Wishes
Paper Tiger

[percy]

We're busy doin' nothin'
Workin' the whole day through
Tryin' to find lots of things not to do
We're busy goin' nowhere
Isn't it just a crime
We'd like to be unhappy, but
We never do have the time


One day HNZ will break out of it's current range and hopefully on the upside.
I can wait till then.


Best Wishes
Paper Tiger

I too think we are well positioned for the upturn,!! lol,.

[janner]

I too think we are well positioned for the upturn,!! lol,.

Must agree with noodles !!..

As you know perc.. Sold a third @ .87.

Enjoyed the rise in ATM..

Will be back topping up in about, Feb.

In the mean time .. as this is the praying season..

Will continue to PREY !!..

[janner]

We're busy doin' nothin'
Workin' the whole day through
Tryin' to find lots of things not to do
We're busy goin' nowhere
Isn't it just a crime
We'd like to be unhappy, but
We never do have the time


One day HNZ will break out of it's current range and hopefully on the upside.
I can wait till then.


Best Wishes
Paper Tiger

PT.. You have been blessed by being raised in an era with memorable musicals.. With still the remains of good old fashioned education..

More power to your pencil.. :-))

HNZ.. Slowly.. Slowly .. Catchee. Monkey.. :-))

Now tell me that I am not being PC. !!. :-))))

[janner]

217 guests looking at the Sharetrader forum .. .. 25/12/2013.. Time .. 21:17..

Augers well ??..

Hmmm.. ??..

[Snoopy]

Given the massive overhang of the old PGW shares being unloaded onto the market, the shares have performed ok.


There is no overhang of old PGW shares noodles. The absorption of PGW finance was a purely cash transaction for PGW, with all the guarantee risk reverting back to PGW.

SNOOPY

[percy]

There is no overhang of old PGW shares noodles. The absorption of PGW finance was a purely cash transaction for PGW, with all the guarantee risk reverting back to PGW.

SNOOPY

Your record remains intact, 100% wrong.!!!
PGW shareholding in HNZ,which was overhanging the market,and was recently divested.

[noodles]

There is no overhang of old PGW shares noodles. The absorption of PGW finance was a purely cash transaction for PGW, with all the guarantee risk reverting back to PGW.

SNOOPY

I meant pgw sold down their stake at a discount to the prevailing price. They had a 3% stake in HNZ. I can't find any evidence of the selldown, but pretty sure it happened around aug-sept 2013.

[percy]

Gee Whiz Sparky The Clown your input on this thread has been sorely missed.
Thanks for posting the links.

[janner]

Gee Whiz Sparky The Clown your input on this thread has been sorely missed.
Thanks for posting the links.

Agree Perc..

Noted also that Sparky is not throwing himself into all and every postings ..

Way to go Sparky.. :-))

Pace your self..

We missed you..

[Snoopy]

I meant pgw sold down their stake at a discount to the prevailing price. They had a 3% stake in HNZ. I can't find any evidence of the selldown, but pretty sure it happened around aug-sept 2013.

Ah yes, that $11m holding of HNZ shares owned by PGW was so small in the grand scheme of HNZ I had forgotten about it, in the context of your 'massive overhang' comment! But yes given the relatively low liquidity of HNZ I guess it was still significant!

SNOOPY

[winner69]

Disc - I inherited shares via PGC, .............

Maybe this the overhang noodles talking about

[Snoopy]

Maybe this the overhang noodles talking about

I think noodles clarified his specific overhang of concern. But you are right Winner. If you look back far enough, there are more overhangs to consider.

Pyne Gould Corporation (PGC) used to control their rural arm Pyne Gould Guinness. Pyne Gould Guinness merged with Wrightsons to form PGG Wrightson, and the controlling 50% stake dropped to about 25%. Then Alan Lai and Agria came on board in two stages, leaving what was a strategic controlling stake in PGG to become an overhang of 12.5% in the new combined PGW. Except it wasn't an overhang because PGC were going to morph into a rural investment entity with the PGW stake just being the opening gambit. Until plans changed and George Kerr decided that investing in motorway service stops in the UK offered steadier future cashflows. The NZ currency appreciation and cessation of dividends from the UK then put paid to Kerr's UK expansion.

While this was happening the GFC came along and put the skids under PGC's Marac and other financial deals involving property. So the banks demanded PGC recapitalise, and the 'good bit' became Heartland. But then Heartland decided their difficult loans would be better handled in house after all, so bought those back off PGC. Somewhere in all that recapitalisation PGC had to sell both of their remaining stakes in HNZ and PGW at rock bottom prices. Meanwhile during the formation of Heartland, PGW wanted out of their "in house" finance division, but in a completely unrelated transaction (insert Tui billboard here) decided to pick up a small 3% share of HNZ who bought it, just to make sure they really did have enough money to operate properly. It was this 'significant' PGW stake in HNZ that was most recently sold off.

None of the entities mentioned so far have been flush of cash since the GFC. From my perspective there was a lot of passing the cash parcel around to get PGW, PGC, HNZ and Agria through their worst times. When companies go through these kind of restructurings, I don't know how those who come in late do for clarity. In some ways these situations might have been better resolved if a new company division had been set up specifically to rip small shareholders off. That would at least have put everything out in the open.

SNOOPY

[noodles]

So much knowledge. It is clear you think Hnz is worth following. What would make you become a shareholder?

[percy]

I think noodles clarified his specific overhang of concern. But you are right Winner. If you look back far enough, there are more overhangs to consider.

Pyne Gould Corporation (PGC) used to control their rural arm Pyne Gould Guinness. Pyne Gould Guinness merged with Wrightsons to form PGG Wrightson, and the controlling 50% stake dropped to about 25%. Then Alan Lai and Agria came on board in two stages, leaving what was a strategic controlling stake in PGG to become an overhang of 12.5% in the new combined PGW. Except it wasn't an overhang because PGC were going to morph into a rural investment entity with the PGW stake just being the opening gambit. Until plans changed and George Kerr decided that investing in motorway service stops in the UK offered steadier future cashflows. The NZ currency appreciation and cessation of dividends from the UK then put paid to Kerr's UK expansion.

While this was happening the GFC came along and put the skids under PGC's Marac and other financial deals involving property. So the banks demanded PGC recapitalise, and the 'good bit' became Heartland. But then Heartland decided their difficult loans would be better handled in house after all, so bought those back off PGC. Somewhere in all that recapitalisation PGC had to sell both of their remaining stakes in HNZ and PGW at rock bottom prices. Meanwhile during the formation of Heartland, PGW wanted out of their "in house" finance division, but in a completely unrelated transaction (insert Tui billboard here) decided to pick up a small 3% share of HNZ who bought it, just to make sure they really did have enough money to operate properly. It was this 'significant' PGW stake in HNZ that was most recently sold off.

None of the entities mentioned so far have been flush of cash since the GFC. From my perspective there was a lot of passing the cash parcel around to get PGW, PGC, HNZ and Agria through their worst times. When companies go through these kind of restructurings, I don't know how those who come in late do for clarity. In some ways these situations might have been better resolved if a new company division had been set up specifically to rip small shareholders off. That would at least have put everything out in the open.

SNOOPY
Your time line is incorrect,and your "facts" are wrong.
PGC were never going to morph into a rural investment entity.In fact the board of PGC were talking of selling the the PGW holding.
GK was investing in Epic [Thames Water and Moto] long before he became involved in the recap of PGC.

[percy]

So much knowledge. It is clear you think Hnz is worth following. What would make you become a shareholder?

Knowledge??? Yeah right.! lol.

[Snoopy]

So much knowledge. It is clear you think Hnz is worth following. What would make you become a shareholder?


Snoopy an HNZ shareholder? For that to happen, I would have to assure myself of the quality of the assets that are underpinning HNZs equity. I want to understand how much of the troublesome assets are already provisioned for and how much of the equity base is still vulnerable to erosion of value by further loan write-downs.

Contrary to what some assume here, I am happy with the business model that HNZ has and the niches where management are pushing to expand. I think they are good operators. But having a tidy front desk, with nice flowers on display for the punters, season after season, does not guarantee that all is in order in the back office.

Finally I would look at how HNZ stacks up against other NZX listed companies that are occupying finance niches. Motor vehicle finance is very lucrative (ask Percy). In relative proportional terms, the likes of TUA are better capitalised. The market is not dumb and knows this which is why TUA is more expensive (comparing share price to NTA) than HNZ (because TUA doesn't carry the potential downside risks of HNZ). But which is the better investment at today's prices is another question entirely.

SNOOPY

discl: hold TUA

[Snoopy]

Snoopy an HNZ shareholder? For that to happen, I would have to assure myself of the quality of the assets that are underpinning HNZs equity. I want to understand how much of the troublesome assets are already provisioned for and how much of the equity base is still vulnerable to erosion of value by further loan write-downs.


I have only obtained a hard copy of the HNZ 2013 annual report in the last month. It is far easier to cross reference between pages (and believe me you have to do this) than on the pdf version. So here is a summary of where I am to date, for those who want something to chew over in the new year.

1/ The statement of financial position p24 shows that HNZ's largest asset is 'Finance Receivables'. You have to go to note 37 to find out what is really going on here. The total listed on p24 matches the total on the bottom RH corner of table 37d.

2/The on the book receivables assets are split into a 'judgement portfolio', where loans are graded on a scale 1 to 9 and a 'behavioural portfolio' where loans are graded according to how far they are in arrears, and where the bank is at recovering those loans that are in arrears. Some of these potentially troublesome loans have been provisioned against already by Heartland.

3/ As at 30th June 2013, the provision for collectively impaired assets was $15.961m. If I interpret note 37e correctly, this "collective provision" relates entirely to Grade 7 (Substandard) and Grade 8 (doubtful) loans, which collectively add up to nearly $40m of loans. Loans of Grade 9 (At risk of loss) are meant to be individually assessed for impairment. But despite Grade 9 loans being the most risky I can't find any provision for those in the accounts at all. Perhaps this is because applying a rule of thumb to individual troublesome assets doesn't really work. But my best reading of these notes is that $27.761m of Grade 9 loans are sitting on the books unprovided for. This is a potential write down per share of 7.1c.

4/ Also unprovided for is the largest category of loans needing attention, the grade 6 loans valued at $198.370m. These apparently have strong security and are typically rural exposures. But rural land value doesn't always go up. And with the NZ dollar set to rise further, I don't believe that rural land prices will rise in 2014. I have to take Heartland's word that their capital is not at risk with these farm loans. But if they have to tip farmers off their land to recover these debts, their credibility as a rural lender will be shot, even if shareholder funds are recovered.

5/ The biggest problem I have with the Grade 6 to Grade 9 loans is that when you add them all up for FY2013 I get $265.683m. Do the same for FY2012 and I get $268.242m, barely different. So this tells me that the 'management' of difficult debts has been accomplished by shuffling the same debt into different shoeboxes. In times of very low interest rates, I feel Heartland should have done better. And if they haven't sorted out their 'Monitor Plus' (Grade 6 to 9) loan portfolio now, how will they achieve it when interest rates start rising again?

SNOOPY

[Master98]

I have only obtained a hard copy of the HNZ 2013 annual report in the last month. It is far easier to cross reference between pages (and believe me you have to do this) than on the pdf version. So here is a summary of where I am to date, for those who want something to chew over in the new year.

1/ The statement of financial position p24 shows that HNZ's largest asset is 'Finance Receivables'. You have to go to note 37 to find out what is really going on here. The total listed on p24 matches the total on the bottom RH corner of table 37d.

2/The on the book receivables assets are split into a 'judgement portfolio', where loans are graded on a scale 1 to 9 and a 'behavioural portfolio' where loans are graded according to how far they are in arrears, and where the bank is at recovering those loans that are in arrears. Some of these potentially troublesome loans have been provisioned against already by Heartland.

3/ As at 30th June 2013, the provision for collectively impaired assets was $15.961m. If I interpret note 37e correctly, this "collective provision" relates entirely to Grade 7 (Substandard) and Grade 8 (doubtful) loans, which collectively add up to nearly $40m of loans. Loans of Grade 9 (At risk of loss) are meant to be individually assessed for impairment. But despite Grade 9 loans being the most risky I can't find any provision for those in the accounts at all. Perhaps this is because applying a rule of thumb to individual troublesome assets doesn't really work. But my best reading of these notes is that $27.761m of Grade 9 loans are sitting on the books unprovided for. This is a potential write down per share of 7.1c.

4/ Also unprovided for is the largest category of loans needing attention, the grade 6 loans valued at $198.370m. These apparently have strong security and are typically rural exposures. But rural land value doesn't always go up. And with the NZ dollar set to rise further, I don't believe that rural land prices will rise in 2014. I have to take Heartland's word that their capital is not at risk with these farm loans. But if they have to tip farmers off their land to recover these debts, their credibility as a rural lender will be shot, even if shareholder funds are recovered.

5/ The biggest problem I have with the Grade 6 to Grade 9 loans is that when you add them all up for FY2013 I get $265.683m. Do the same for FY2012 and I get $268.242m, barely different. So this tells me that the 'management' of difficult debts has been accomplished by shuffling the same debt into different shoeboxes. In times of very low interest rates, I feel Heartland should have done better. And if they haven't sorted out their 'Monitor Plus' (Grade 6 to 9) loan portfolio now, how will they achieve it when interest rates start rising again?

SNOOPY

Since i sold my HNZ shares still sit on side line waiting for entry point, you snoopy supply me more deeper analysis than any other poster, well done snoopy!

[Snoopy]

Since i sold my HNZ shares still sit on side line waiting for entry point, you snoopy supply me more deeper analysis than any other poster, well done snoopy!


Glad you have had some financial benefit from my posts on HNZ Master. I just post the facts as I see them on HNZ (not always correctly as other posters have pointed out) and if that overall helps others to decide for themselves whether they want to be in or out of HNZ, well that is fine by me.

Personally I am still positive on HNZ, although not positive enough to own any shares. The problem with most bank shares is that it is all very easy to pick with hindsight. Those who bought in between 50-60c have done very well, albeit with some risk along the way that having 'succeeded' they are now oblivious to.

I guess by the time I decide that HNZ is worth investing in myself, the price may already have bolted. But I don't see any compelling value at 85c, with the credit rating only barely investment grade. Mind you I could say the same about a lot of shares on the NZX.

SNOOPY

[Snow Leopard]

Happy New Year Snoopy.

Don't bang Your Head against that Hard Copy for too long.

Best Wishes
Paper Tiger

[percy]

Happy New Year Snoopy.

Don't bang Your Head against that Hard Copy for too long.

Best Wishes
Paper Tiger

Paper Tiger another classic.!!! lol.

[percy]

Risk is a reflection of price as well as metrics within the balance sheet. Was buying Heartland at 50c more or less risky than buying Heartland at today's prices?

I would suggest Percy was being greedy while others were being fearful, in a beautiful Buffett kind of way.

Or that he didn't let paralysis through analysis take over his thinking.

Sparky The Clown.
Love that phrase "paralysis through analysis."
Being a rather simple sort of fellow I find if your simplify things, you can see the wood from the trees.
HNZ directors said what they were going to do,how they were going to do it,and the result, is they are doing it.
At the AGM they said where HNZ was,where it was going and how they were going to achieve it.
Profit forecast to be $34mil to $37mil for the year ended 30/6/2014,and that they intend growing the business through acquisition/s.They stated the equity ratio is high and they have very strong equity.
As they achieve more "runs on the board" the risk reduces.

[forest]

5/ The biggest problem I have with the Grade 6 to Grade 9 loans is that when you add them all up for FY2013 I get $265.683m.
SNOOPY[/QUOTE]

Snoopy your are right that Grade 6 to 9 loans add up to $265mil. But HNZ is likely to have more than $200mil of security for those loans so potential loss is only a fraction of the at risk loans.
Also some of the the secured assets might appreciate in todays economic climate therefore I see HNZ as a good investment at todays SP.

[Marilyn Munroe]

All this argyle bargy about impaired loans begs the question;

Would CBS Canterbury shareholders have been better off to remain clear of MARAC and steer their own more prosaic course?

Boop boop de do
Marilyn

[janner]

Glad you have had some financial benefit from my posts on HNZ Master. I just post the facts as I see them on HNZ (not always correctly as other posters have pointed out) and if that overall helps others to decide for themselves whether they want to be in or out of HNZ, well that is fine by me.

Personally I am still positive on HNZ, although not positive enough to own any shares. The problem with most bank shares is that it is all very easy to pick with hindsight. Those who bought in between 50-60c have done very well, albeit with some risk along the way that having 'succeeded' they are now oblivious to.

I guess by the time I decide that HNZ is worth investing in myself, the price may already have bolted. But I don't see any compelling value at 85c, with the credit rating only barely investment grade. Mind you I could say the same about a lot of shares on the NZX.

SNOOPY

" Those who bought in between 50-60c have done very well, albeit with some risk along the way that having 'succeeded' they are now oblivious to. "..

No Snoopy.. Have sold down one third @ 0.87. Watching diligently.. ( No that is not where the monies went to )..

The price will bolt.... Nothing surer.. A few more months to go.. IMHO.

[janner]

All this argyle bargy about impaired loans begs the question;

Would CBS Canterbury shareholders have been better off to remain clear of MARAC and steer their own more prosaic course?

Boop boop de do
Marilyn


Argyle !!!.. Trust a woman to bring Fashion into the subject :-)

But a good question :-)

[percy]

All this argyle bargy about impaired loans begs the question;

Would CBS Canterbury shareholders have been better off to remain clear of MARAC and steer their own more prosaic course?

Boop boop de do
Marilyn

Yes, CBS shareholders should have sold their shares on market and brought Ryman,then sold their Ryman shares earlier last year and invested in Xero,until the day before yesterday,taken their profits and then invested in Heartland.

[kizame]

Yes, CBS shareholders should have sold their shares on market and brought Ryman,then sold their Ryman shares earlier last year and invested in Xero,until the day before yesterday,taken their profits and then invested in Heartland.

So maybe you should have had the same strategy Percy,except sell your HNZ and follow the same procedure,wouldn't you have a bigger smile right now.

[percy]

So maybe you should have had the same strategy Percy,except sell your HNZ and follow the same procedure,wouldn't you have a bigger smile right now.

Not perfect timeing,however I did well buying HNZ.
Sold out of XRO far to early and sold down Ryman too early as well.[enjoyed huge profits]
Never was interested in buying CBS,although I did look at buying them when the merger was announced.
ps.My dividend yield on funds invested in HNZ is now over 10%pa.Lovely people doing good things.!

[kizame]

Good on you Percy.

If HNZ stay on track and aren't bought out,and continue to run as a more or less a conservative bank,mixed with great advertising,I can see them holding a pretty prominent position in years ahead,much like kiwi bank.

[Snoopy]

My main concern with Heartland is if the legacy property assets getting into trouble will disrupt the business plan going forwards. But let's put this issue aside for now and look at the ongoing business as Heartland sees it



Key metrics to look out for will be growth/decline in the loan book,


Heartland have defined their ongoing business focus as 'Rural', 'Business Receivables' and 'Retail & Consumer Receivables' (including domestic mortgages).

On a like for like basis, the three end of year comparative figures (from Note 4: Segment Analysis) for assets in the respective annual reports are as follows:

Sector, FY2011, FY2012, FY2013

Rural, $476.6m, $478.6m, $456.6m
Business, $476.4m, $540.2m, $549.2m
Consumer, $1,035.1m, $989.3m, $987.8m

Total, $1,988.1m, $2,008.1m, $1,993.6m

The growth is coming from the Business sector, but the overall picture is largely static.



maintaining/improving cost of funds relative to lending rate,


Net interest Income, FY2011, FY2012, FY2013

$61.594m, $83.646m, $95.454m

A big improvement is the trend here. I would go so far as to say all of the improved profitability has resulted from reducing borrowing costs relative to lending costs. The underlying levels of business have not changed.



and reduced operating costs.


Operating Expenses, 2011, 2012, 2013

$45.674m(*), $69.547m, $70.347m

The asterisked figure is not strictly comparable, because it excludes the operating expenses of PGGW Finance, not absorbed on FY2011 balance date. The slight increase in operating expenses for FY2013 is probably not significant.

Nevertheless the 'key performance metrics' as selected by 'hanth888' (not me) seem to show that profit growth is entirely attributable to the management of the borrowing/lending margin.

SNOOPY

[percy]

A big improvement is the trend here. I would go so far as to say all of the improved profitability has resulted from reducing borrowing costs relative to lending costs. The underlying levels of business have not changed.





Nevertheless the 'key performance metrics' as selected by 'hanth888' (not me) seem to show that profit growth is entirely attributable to the management of the borrowing/lending margin.

SNOOPY

Lets go back to the formation of HNZ.
Objectives:1] Obtain Bank licence to reduce cost of funds.
2]Concentrate on higher margin lending.
Outcome; Objectives obtained.!
Lower cost of funds with higher margin lending.
Heartland have a record of achieving their stated objectives.

[winner69]

A share price going nowhere can be fatal - in a TA metaphorical sort of way.

If the price hangs around 85 or even worse drifts slightly to 83 to 84 one of Belgie's infamous death crosses will occur on the chart, invariably a bad sign.

C'mon guys, esp you who picked in the competition, get you act together and start buying before this death cross happens.

I expect to see some action from you guys soon .....needs to get to 90 and staying there for a while to be safe ....go on even enlist Snoopy to help out

C'mon guys

[percy]

The share price is sitting around the 50 day moving average,and above the more important 200 day moving average.
Just marking time until it starts it's next upward trajectory,which should be signalled by breaking 87cents.!!!

[winner69]

The share price is sitting around the 50 day moving average,and above the more important 200 day moving average.
Just marking time until it starts it's next upward trajectory,which should be signalled by breaking 87cents.!!!

MA50 is 85 and MA200 is 83 so not much in it Percy

Just asking everybody to help out to make the new trajectory start sooner than later ....wouldn't want a death cross would we

Note: would need to see 83 or less for a while to see that death cross though. Best form of mitigating that is to stop it happening so c'mon buy buy buy

[Snow Leopard]

MA50 is 85 and MA200 is 83 so not much in it Percy

Just asking everybody to help out to make the new trajectory start sooner than later ....wouldn't want a death cross would we

Note: would need to see 83 or less for a while to see that death cross though. Best form of mitigating that is to stop it happening so c'mon buy buy buy

I personally feel that the use of arbitrary number such as 50 & 200 for average periods carries no significance what so ever.

If you want proper meaningful death crosses then your periods need to be prime numbers, such as 47 and 199*, and obviously you need to have your doom confirmed by either the eruption of your local volcano (if using exponential averages) or Snoopy finally reading the HNZ accounts correctly (for linear averages).

Best Wishes
Paper Tiger

*53 and 211 would be better for HNZ :)

[Snoopy]

Lets go back to the formation of HNZ.
Objectives:1] Obtain Bank licence to reduce cost of funds.
2]Concentrate on higher margin lending.
Outcome; Objectives obtained.!
Lower cost of funds with higher margin lending.
Heartland have a record of achieving their stated objectives.


There is some truth in a largely static picture not telling the full story. From page 9 of the HNZ FY2013 annual report.

"The Retail and Consumer receivables book was flat over the full year ended 30th June 2013, with motor vehicle receivables growth of $89.0m (+14%, up from from $636m to $725m) offset by an $88.4m (-27% down from to $327m to $239m) reduction in the residential mortgage book."

(note figures in italics added by me)

So while at a casual glance nothing much has changed from an asset perspective, that doesn't mean nothing has changed from a profit perspective.

I guess the question is how much growth can be squeezed out of a loan book that overall isn't growing? Perhaps quite a bit? And how does HNZ measure up against vehicle loans from the listed competition, DPC and TUA?

SNOOPY

[percy]

There is some truth in a largely static picture not telling the full story. From page 9 of the HNZ FY2013 annual report.

"The Retail and Consumer receivables book was flat over the full year ended 30th June 2013, with motor vehicle receivables growth of $89.0m (+14%, up from from $636m to $725m) offset by an $88.4m (-27% down from to $327m to $239m) reduction in the residential mortgage book."

(note figures in italics added by me)

So while at a casual glance nothing much has changed from an asset perspective, that doesn't mean nothing has changed from a profit perspective.

I guess the question is how much growth can be squeezed out of a loan book that overall isn't growing? Perhaps quite a bit? And how does HNZ measure up against vehicle loans from the listed competition, DPC and TUA?

SNOOPY

Heartland have already stated their profit for the year ended 30/6/2014 will be between $34 and $37mil.
Not a great deal more can be squeezed out of savings,so future profits for year ending 30/6/2015 will come from growth,but more likely, as they have indicated, from acquisition/s.
HNZ compared to TUA ? I can only speak for myself,I have sold my TUA.Thank you TUA for a great profit and wonderfull dividends.TUA yield now 6.15% compared to HNZ's 7.06%.
HNZ compared with DPC ? My research tells me DPC have to get a great deal more "runs on the board" than HNZ,so I will watch them to see how they go,but at this stage I rate them an avoid.

[percy]

I personally feel that the use of arbitrary number such as 50 & 200 for average periods carries no significance what so ever.

If you want proper meaningful death crosses then your periods need to be prime numbers, such as 47 and 199*, and obviously you need to have your doom confirmed by either the eruption of your local volcano (if using exponential averages) or Snoopy finally reading the HNZ accounts correctly (for linear averages).

Best Wishes
Paper Tiger

*53 and 211 would be better for HNZ :)
As always Paper Tiger thank you for you post. 53 and 211 noted for HNZ..
On another thread KW gave great advice on timing entry and exit of shares.On shares KW held ,KW felt it paid to wait a few days after the 200 day ma had been broken as often the SP recovered quickly to be back above the 200 day ma.
With the latest announcement confirming they are on track,I think the interim, to be announced in late Feb , will also be positive.I am also looking forward to them making an acquisition/s ,which will project their future growth to new greater heights.

[Snoopy]

From page 9 of the HNZ FY2013 annual report.

"The Retail and Consumer receivables book was flat over the full year ended 30th June 2013, with motor vehicle receivables growth of $89.0m (+14%, up from from $636m to $725m) offset by an $88.4m (-27% down from to $327m to $239m) reduction in the residential mortgage book."

(note figures in bold added by me)



Continuing with my roll out of the comparison of vehicle financing across the NZ listed sector.

Heartland (vehicle loan book totalling $725m out of total retail and consumer assets of $988m) are a much bigger player in vehicle finance than Dorchester with a vehicle loan book of around 0.7 x $34m = $23.8m and Turners Auctions with a vehicle loan book of $22.4m.

So on an operating profit level, Heartland should be able to use their economies of scale and produce a superior operating margin, right?

Turn to page 33 of AR2013 for HNZ and there you find 'Retail & Consumer' operating profit of $35.687m. Divide that by the total assets of $988m and I get an operating margin for the 'Retail & Consumer' division of 3.6%. The overall asset value of loans in 'Retail & Consumer' has been largely static over the year. This 3.6% operating margin compares unfavourably with Turners Auctions at 4.5% and Dorchester Pacific at 8.1%.

I wonder why HNZ, with all their scale in this stated core business area compare so badly with their competitors?

SNOOPY

[percy]

Continuing with my roll out of the comparison of vehicle financing across the NZ listed sector.

Heartland (vehicle loan book totalling $725m out of total retail and consumer assets of $988m) are a much bigger player in vehicle finance than Dorchester with a vehicle loan book of around 0.7 x $34m = $23.8m and Turners Auctions with a vehicle loan book of $22.4m.

So on an operating profit level, Heartland should be able to use their economies of scale and produce a superior operating margin, right?

Turn to page 33 of AR2013 for HNZ and there you find 'Retail & Consumer' operating profit of $35.687m. Divide that by the total assets of $988m and I get an operating margin for the 'Retail & Consumer' division of 3.6%. The overall asset value of loans in 'Retail & Consumer' has been largely static over the year. This 3.6% operating margin compares unfavourably with Turners Auctions at 4.5% and Dorchester Pacific at 8.1%.

I wonder why HNZ, with all their scale in this stated core business area compare so badly with their competitors?

SNOOPY

Snoopy,
To save yourself,and us, a lot of time please ring either Jeff Greenslade 09 927 9149 or Simon Owen 09 927 9195 M 021 563 593.I am sure either, or both will help you.

[amalgam]

Realy appreciate all the effort involved in your Heartland research Snoopy..I am a bit lazy ( or probably incapable) of doing research to this level
All this information is dificult to find & helps build up an overall picture of Heartland.....a share which I do hold for its dividend & hopefully future growth.I have held Turners for some years..they have been a good solid performer, but have poor liquidity

[Snoopy]

Continuing with my roll out of the comparison of vehicle financing across the NZ listed sector.

Heartland (vehicle loan book totalling $725m out of total retail and consumer assets of $988m) are a much bigger player in vehicle finance than Dorchester with a vehicle loan book of around 0.7 x $34m = $23.8m and Turners Auctions with a vehicle loan book of $22.4m.

So on an operating profit level, Heartland should be able to use their economies of scale and produce a superior operating margin, right?

Turn to page 33 of AR2013 for HNZ and there you find 'Retail & Consumer' operating profit of $35.687m. Divide that by the total assets of $988m and I get an operating margin for the 'Retail & Consumer' division of 3.6%. The overall asset value of loans in 'Retail & Consumer' has been largely static over the year. This 3.6% operating margin compares unfavourably with Turners Auctions at 4.5% and Dorchester Pacific at 8.1%.


On the DPC thread, Paper Tiger has suggested that I rework my figures for both DPC Finance and TUA Finance to get a better 'Apples with Apples' comparison. I was considering whether I need to rework my Heartland 'Retail & Consumer' divisional figure as well. I think - no.

Heartland is the only one of the three to take deposits from the public directly. When they calculate 'operating profit' (EBIT in my language) for their divisions they have already taken off the interest payable so technically the declared operating profit is EBT, not EBIT. However, almost all of this interest paid is money paid to depositors. There is no underlying 'bank debt' any more (AR2013, note 26). If there had been underlying bank debt, I would have added the interest paid on that back onto Heartland's 'operating profit' to get EBIT. But since there is not underlying bank debt anymore, there is no need to do this.

So for Heartland, the operating margin for 'Retail & Consumer' remains:

$35.687m/$988m = 3.6%

For Turners Auction's finance, I have recalculated the operating margin to be

$0.856m / $22.415m = 3.8%, which is quite comparable.

The standout operating margin in vehicle finance though, through Dorchester's finance division, is even further ahead than I thought though!

$4.19m / $34.391m = 12.2%

SNOOPY

[Snoopy]

Continuing with my roll out of the comparison of vehicle financing across the NZ listed sector.


Today's look at Heartland is from a slightly different angle. I am looking at the underlying 'Operating Profit' measured against the end of year asset values being financed.

The NPAT for FY2013 was a mere $6.912m. However students of Heartland will know this was not representative, because it included $22.527m of impaired asset expense (AR2013, p21). That means the underlying NPAT was:

$6.912m + 0.7($22.547m) = $22.680m

To get a normalized earnings figure before tax is paid,we have to add back the actual tax paid and the extra tax that would have been paid if the asset write downs had not happened.

NPBT = $22.680m + 0.3($22.527m) + $2.504m = $31.943m

Since there is effectively no term debt outside that due to depositors that $31.943m figure also doubles as my estimate of EBIT, or operating profit. So we can use this figure and the total finance receivables of $2,010.376m (note 18) to find the operating return on the loan portfolio.

$31.940m / $2,010.376m = 1.59%

The comparative figure for ANZ in New Zealand I calculate to be 2.104% (see ANZ thread).

SNOOPY

[K1W1G0LD]

BIGG YAWN........................zzzzzzzzzzzzzzzzzzzzzz zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.

[Arbitrage]

Keep up the good work Snoopy. It is good to have some detailed technical analysis for a change.
I am surprised that Heartlands share price has levelled out recently. All the economists saying that a boom year is ahead, especially driven by the dairy industry which I would imagine would be a major client of Heartland with its rural lending focus. All the stars appear to be aligning for this bank unless there is something we don't know about...

[noodles]

$31.940m / $2,010.376m = 1.59%

The comparative figure for ANZ in New Zealand I calculate to be 2.104% (see ANZ thread).

SNOOPY
Snoopy, The banking licence for heartland was granted last year. The company has stated that this has improved their profit and has given guidance. I think it would be much more accurate to assume the midpoint of their forecasts or the 1st quarter report as an input for profit. I suspect HNZ would beat ANZ once this is taken into account.

[vorno]

Snoopy, The banking licence for heartland was granted last year. The company has stated that this has improved their profit and has given guidance. I think it would be much more accurate to assume the midpoint of their forecasts or the 1st quarter report as an input for profit. I suspect HNZ would beat ANZ once this is taken into account.

Lets just hope there isn't another drought!

[Harvey Specter]

Lets just hope there isn't another drought!Why. Unless the farmers go insolvent, this is not an issue. If fact it could be a good thing as they require short term funding for extra feed.

[vorno]

Why. Unless the farmers go insolvent, this is not an issue. If fact it could be a good thing as they require short term funding for extra feed.

Could be viewed as good & bad. If its ongoing & gets worse with each year, it will not be sustainable (for the farmers).

Come to think of it however, the bank always wins.

[Snoopy]

Today's look at Heartland is from a slightly different angle. I am looking at the underlying 'Operating Profit' measured against the end of year asset values being financed.

The NPAT for FY2013 was a mere $6.912m. However students of Heartland will know this was not representative, because it included $22.527m of impaired asset expense (AR2013, p21). That means the underlying NPAT was:

$6.912m + 0.7($22.547m) = $22.680m

To get a normalized earnings figure before tax is paid,we have to add back the actual tax paid and the extra tax that would have been paid if the asset write downs had not happened.

NPBT = $22.680m + 0.3($22.527m) + $2.504m = $31.943m

Since there is effectively no term debt outside that due to depositors that $31.943m figure also doubles as my estimate of EBIT, or operating profit. So we can use this figure and the total finance receivables of $2,010.376m (note 18) to find the operating return on the loan portfolio.

$31.940m / $2,010.376m = 1.59%

The comparative figure for ANZ in New Zealand I calculate to be 2.104% (see ANZ thread).


The above calculation is based on end of year Heartland loan value. To be consistent with what I have done on the ANZ thread, I (now) think I should have used total assets values, as listed in the balance sheet (AR2013 p24).

This changes my return on end of year asset calculation as follows:

$31.940m / $2,504,627m = 1.28%

That only makes the comparison with ANZ Bank less flattering!

SNOOPY

[noodles]

The above calculation is based on end of year Heartland loan value. To be consistent with what I have done on the ANZ thread, I (now) think I should have used total assets values, as listed in the balance sheet (AR2013 p24).

This changes my return on end of year asset calculation as follows:

$31.940m / $2,504,627m = 1.28%

That only makes the comparison with ANZ Bank less flattering!

SNOOPY

As I said, you can't do comparisons because Heartland is now a bank and has better profit margins. It wasn't a bank for part of last year.