HGH - Heartland Group Holdings

[Beagle]

The offer is conditional on DD (ie the court case) unlike Turners which is unconditional. Basically they have floated a high offer out there to stop holders taking Turners offer, knowing they can reduce the offer if the court case is unfavorable. If they didn't do this, Turners would get a blocking holding and it would be all over.

Fair enough but the board of MTF appear to dislike both offers
http://www.sharechat.co.nz/article/eb560605/mtf-board-says-turners-offer-undervalues-lender-heartland-bid-uncertain.html?utm_medium=email&utm_campaign=MTF+board+says+Turners+offer+underval ues+lender+Heartland+bid+uncertain&utm_content=MTF+board+says+Turners+offer+undervalu es+lender+Heartland+bid+uncertain+CID_a3a4fc4c94c3 42d4782338a8a90e6b79&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticleeb560605mtf-board-says-turners-offer-undervalues-lender-heartland-bid-uncertainhtml

[Harvey Specter]

Fair enough but the board of MTF appear to dislike both offersOf course they dislike - if Heartland gets 100%, they lose their job. So in the extremely rare event that a board does support a takeover, it is unlikely it will be for an offer with conditions which they know will likely reduce the price (due to the court action).

[Harvey Specter]

Fair enough but the board of MTF appear to dislike both offersOf course they dislike - if Heartland gets 100%, they lose their job. So in the extremely rare event that a board does support a takeover, it is unlikely it will be for an offer with conditions which they know will likely reduce the price (due to the court action).

[sb9]

Today's sp of $1.19 is very pleasing, for those of us who took the DRP shares at $1.11.

Couldn't agree more, happy the price was low at the time of DRP period.

[RTM]

http://www.heartland.co.nz/news/231/fitch-affirms-credit-rating-for-heartland-bank.aspx

Amazing...didn't they check with Roger ?:)

[Bjauck]

https://www.nzx.com/companies/HNZ/announcements/271848
Fitch affirms Heartland's credit rating. Stable outlook. It gave Heartland a vote of confidence with this statement: “core asset quality to remain sound, benefiting from continued improvement in underwriting standards and good economic conditions”.

[Beagle]

http://www.heartland.co.nz/news/231/fitch-affirms-credit-rating-for-heartland-bank.aspx

Amazing...didn't they check with Roger ?:)

HNZ are very fortunate that GDT auction prices have rebounded very substantially since I expressed my view. They got lucky.

[RGR367]

HNZ are very fortunate that GDT auction prices have rebounded very substantially since I expressed my view. They got lucky. Sarcasm is the lowest form of wit.

Next time we'll notice is that Roger has once again "well positioned" re his stand about this stock. How soon will that be Roger :t_up:

[Beagle]

Next time we'll notice is that Roger has once again "well positioned" re his stand about this stock. How soon will that be Roger :t_up:

We saw a substantial increase in doubtful debt provisioning for consumer loans in the most recent financial result and by my reckoning there should have been a commensurate increase in provisioning for dairy loans based on known financial information and heavily stressed loans at that time. I guess they couldn't do that otherwise they wouldn't get their nice juicy bonus's for the year ?
Relying on luck to get you out of potential trouble is not a prudent way to run a bank in my opinion and I remain unconvinced about some of their new consumer loan initiatives.

With a lack of feasible takeover opportunities I'm concerned these extremely well paid senior managers are not really adding a lot of value. HER acquisition didn't really add a lot of value did it. I predict the MTF fiasco will drag on for quite a considerable time.

The internal controls in the Harmoney system have yet to prove themselves up so could we see further significant provisioning on loans through this "unproven" channel ?
Was the head of new product development pushed or did he jump before the custard hits the fan in this regard ?

I'm not convinced they're all that well positioned.

[percy]

Some take-out from Fitch's report.
"The stable outlook reflects our view that HBL [Heartland Bank Limited] is likely to continue its solid performance over the next 12 to 24 months."
High household leverage and NZ high property prices."The impact for HBL is limited as its residential mortgage exposure is insignificant."
Dairying."HBL conducted stress tests to assess the impact of prolonged low dairy prices,which were found to be manageable as of August 2015"
"The bank benefits from a more balanced asset-liability-maturity profile relative to domestic peers as HBL's lending products typically have a shorter term maturity."
"HBL's capital position benefits from strong profitability and sound levels of retained earnings."
I guess the only surprise to me ,was after reading such glowing commentary, Fitch's did not upgrade HNZ's credit rating.!!! lol.

[warthog]

I guess the only surprise to me ,was after reading such glowing commentary, Fitch's did not upgrade HNZ's credit rating.!!! lol.

Who pays Fitch? :cool:

[percy]

Who pays Fitch? :cool:

So very true.."He who pays the piper calls the tune."
Maybe next year if Fitch's want to increase their fees.?.lol.
However HNZ still remains,as far as I know,the only listed NZ company, that reports quarterly to The Reserve Bank of NZ.This is a great safety net for any HNZ investor .

[Bjauck]

Some take-out from Fitch's report.
"...I guess the only surprise to me ,was after reading such glowing commentary, Fitch's did not upgrade HNZ's credit rating.!!! lol. The potential clouds on the horizon seem to be those facing the NZ economy in general: slower NZ growth rate and high household leverage and high property prices posing a risk to the financial system.

[percy]

The potential clouds on the horizon seem to be those facing the NZ economy in general: slower NZ growth rate and high household leverage and high property prices posing a risk to the financial system.

I think you are correct.

[K1W1G0LD]

HNZ are very fortunate that GDT auction prices have rebounded very substantially since I expressed my view. They got lucky.

Lucky haha .................................another myth exposed.
they don't make Guru's like they used to

[Beagle]

Lucky haha .................................another myth exposed.
they don't make Guru's like they used to

The whole country got lucky but most especially directors in HNZ that thought their dairy loan book didn't need prudent level's of extra bad debt provisioning. As for me, I'm happy to have sold out at $1.32 months ago and reinvested in stocks like SKL and AIR that have made solid moves up by 10% or more not down by 10% and before you bring up the fact that HNZ have just gone ex divvy so have both those stocks I've been buying in good volume....be a lazy pirate or a proactive sucessful guru :)

[RTM]

Lucky ?????

Saw this in Commentary on Chapt 4 - BG

"When you leave it to chance, then all of a sudden you don't have any more luck" Pat Riley.

Not really sure it was luck on the part of the HNZ directors.


The whole country got lucky but most especially directors in HNZ that thought their dairy loan book didn't need prudent level's of extra bad debt provisioning. As for me, I'm happy to have sold out at $1.32 months ago and reinvested in stocks like SKL and AIR that have made solid moves up by 10% or more not down by 10% and before you bring up the fact that HNZ have just gone ex divvy so have both those stocks I've been buying in good volume....be a lazy pirate or a proactive sucessful guru :)

[Beagle]

Dairy customers with 65% LVR loans have been struggling to honour their obligations for going on two years now and have required further bank support. The ECB will be lucky if the Greeks can repay their loans and HNZ are fortunate that the price has recovered and they stand a better chance to recover most of their's. Call it luck or a lucky increase in the GDT auction price or the natural swings and runabouts of the commodity market aided by the extra 50 cent interest free loan of Fonterra...whatever term grabs your fancy. I guess Fonterra were in a better position to cop a credit rating hit so they had to do something.

[winner69]

I have no idea how much heartland has lent through the harmoney p2p platform but it seems reasonably significant

A few weeks ago discussed p2p lending in the context of people (and hedge and pension funds) seeking excessive returns.

He mentioned that a lot of the underlying loans on these platforms could e the new 'subprime'

Could be interesting times ahead for p2p lenders

http://www.chrislee.co.nz/index.php?page=newsletter-display&list=2&month=September&year=2015

[Beagle]

As a matter of record, banks anticipate an 8% delinquency rate for their credit card book
Scary stuff. Is it a coincidence that we saw a dramatic increase in doubtful debt write-offs and general consumer provisioning in the same half year that HNZ started lending through Harmoney ?
Is it a coincidence that the head man in charge of new product development resigned / was pushed around the same time as this dramatic new level of provisioning was made and he hasn't been replaced ?
Overseas evidence suggests the loan write-off's in PEP lending really start to accelerate in the second and third years so are these earlier initial provisions for bad unsecured loans just the tip of the iceberg ?
Interesting times lie ahead for this brave new frontier of lending.

[janner]

[QUOTE=Roger;

Interesting times lie ahead for this brave new frontier of lending.[/QUOTE]

I agree .. Have sold half of everything..

Why ?...

Makes one concentrate....

Time to sort the wheat from the chaff..

IMHO.. :-)))

Think that I am OK.. Pass the Tui !!..

[trader_jackson]

I would like to think Harmoney is well regulated as I'm sure the people giving it licenses are well aware of the risks involved.

I see the above comments as interesting, but at the end of the day, just speculation.

As for Heartland exposure to Harmoney... I believe they have a 15% shareholding, so one could argue it isn't alot of exposure anyway

[winner69]

I would like to think Harmoney is well regulated as I'm sure the people giving it licenses are well aware of the risks involved.

I see the above comments as interesting, but at the end of the day, just speculation.

As for Heartland exposure to Harmoney... I believe they have a 15% shareholding, so one could argue it isn't alot of exposure anyway

I think Roger was referring to the loans that Heartland have made through the Harmoney platform .... not an insignificant amount I believe

As an aside Harmoney valued at more than $100m (based on what latest new shareholder paid) so heartland share now worth over $10m. Revalue the holding in their books and profits would jump.

[Beagle]

I think Roger was referring to the loans that Heartland have made through the Harmoney platform .... not an insignificant amount I believe

As an aside Harmoney valued at more than $100m (based on what latest new shareholder paid) so heartland share now worth over $10m. Revalue the holding in their books and profits would jump.

I was...and that would be very creative accounting. I'm amazed they actually considered doing that !

[beetills]

Should HNZ miss out on a slice of the MTF pie,can anyone see where further growth with aquisitions would come from.

[Marilyn Munroe]

The Harmoney business model has its attractions especially its potential to cut high cost financial intermediaries like banks out of the loop.

However a large part of the business of lending is trying to determine who amongst your potential clients can’t or won’t pay the money back. Banks are pretty good at this as they have a good handle on their clients cash flows and financial behaviour. My opinion is they use the advantage this gives them to overcharge for credit.

Harmoney will not thrive unless it cracks the nut of assessing borrowers credit worthiness accurately.


Boop boop de do
Marilyn

[Marilyn Munroe]

Duplicate post

[Harvey Specter]

Harmoney will not thrive unless it cracks the nut of assessing borrowers credit worthiness accurately.Who says they haven't already? They have 30 categories of risk and defaults are (currently) running below estimates. Sure times have been good but banks get it wrong when times are bad too.

[winner69]

I was...and that would be very creative accounting. I'm amazed they actually considered doing that !

Did they actually say they were considering/considered bringing the 'profit' (so far) on this investment to profit?

[black knat]

Who says they haven't already? They have 30 categories of risk and defaults are (currently) running below estimates. Sure times have been good but banks get it wrong when times are bad too.

My understanding is that Heartland and Harmoney have worked closely together on credit risk assessment and both companies have a very similar approach. I guess you would expect that given the amount of money Heartland invest via Harmoney.

[Beagle]

Did they actually say they were considering/considered bringing the 'profit' (so far) on this investment to profit?

Yes they hinted at it at the half year result in February, said they were thinking about it. Maybe they could hire the CFO leaving VIL...probably quite good at being "creative"
Speaking of being extremely creative...it must be time for a couple of your special sandwiches eh ?

[Joshuatree]

Nice looking 1 year chart atm and good uptrend above M/A. S/P re $1.23 and rising.

[winner69]

Nice looking 1 year chart atm and good uptrend above M/A. S/P re $1.23 and rising.

Finally broken out of that 9 month downtrend.

Will be 140 soon and this time next year 160/170

Even if consumer and dairy loans blow out and there huge bad debts one day we won't know until mid 2017 anyway. Share price be over 2 bucks then so may as well make hay while the sun shines.

Just make sure one takes profit if the **** hits the fan - watch those charts

[Beagle]

The ol I see nothing...nothing at all ! theory eh Winner...good luck with that mate.

[winner69]

Yes they hinted at it at the half year result in February, said they were thinking about it. Maybe they could hire the CFO leaving VIL...probably quite good at being "creative"
Speaking of being extremely creative...it must be time for a couple of your special sandwiches eh ?

You in the office (sorry home) tomorrow lunch time

I'll pop around with a sandwich special - sounds pretty simple - sausage and caramelised onions and some secret ingredients

Generally English pub food pretty ordinary (and outrageously expensive) but I had one of these in a Surrey pub. So yummy I had a chat with the chef and seeing I was nice and friendly and a foreigner to boot he gave me the recipe (even the secret part) and showed me how he put it together

I reckon you enjoy, esp if still warm when I get there - more wholesome than fancy smoked salmon and avocado and special cheese with a bit of rabbit food ones

[Joshuatree]

Suggest you pm each other ;this is not a personal food fest blogg.This is Share trader , we talk about shares without ramping /personal self enrichment agendas and the subject is Heartland. Thank you

[janner]

Suggest you pm each other ;this is not a personal food fest blogg.This is Share trader , we talk about shares without ramping /personal self enrichment agendas and the subject is Heartland. Thank you


Ouch !!!!.. :-)))))

[pierre]

Suggest you pm each other ;this is not a personal food fest blogg.This is Share trader , we talk about shares without ramping /personal self enrichment agendas and the subject is Heartland. Thank you


Poor old Roger thinks it's all going to turn to tears with this innovative and progressive bank. He's completely blind to the great cap gain and dividend opportunity (over 10% gross) that HNZ offers (and that many of us have already enjoyed), so he's probably upset that the SP has moved up again today to 124. There are six times more buyers lined up than sellers too - so Winner's SP predictions just might come true.

I think, by offering Roger a sausage sandwich, Winner is very kindly trying to take his friend's mind off the fact that he's missed out on the HNZ success story over the past 2-3 years. Roger and Winner are both informative and entertaining posters on ST - surely we can allow them one or two food related comments without bringing down the axe?

[Beagle]

Poor old Roger thinks it's all going to turn to tears with this innovative and progressive bank. He's completely blind to the great cap gain and dividend opportunity (over 10% gross) that HNZ offers (and that many of us have already enjoyed), so he's probably upset that the SP has moved up again today to 124. There are six times more buyers lined up than sellers too - so Winner's SP predictions just might come true.

I think, by offering Roger a sausage sandwich, Winner is very kindly trying to take his friend's mind off the fact that he's missed out on the HNZ success story over the past 2-3 years. Roger and Winner are both informative and entertaining posters on ST - surely we can allow them one or two food related comments without bringing down the axe?

Winner and me good mate. I bought HNZ at 85 early 2014, sold at $1.32 about five months ago - 55% gain in a year or so plus divvies and made plenty by reinvesting funds in AIR, SKL and others in the last five months as well as avoiding a 9 cent capital loss so no need to feel sorry for me mate.

[Crackity]

Winner and me good mates, not worried about what Nigel no mates JT thinks. Bought HNZ at 85, sold at $1.32 about five months ago - 55% gain in under a year plus divvies and made plenty by reinvesting funds in AIR, SKL and others so no need to feel sorry for me mate. I think JT totally gutted he missed out on buying AIR when they were cheap :D

Pack your thermals Rog - Siberia is chilly :)
or maybe not - see you very sensibly deleted the last comment.... Though unfortunately Pierre was quicker.

[pierre]

Winner and me good mates, not worried about what Nigel no mates JT thinks. Bought HNZ at 85, sold at $1.32 about five months ago - 55% gain in under a year plus divvies and made plenty by reinvesting funds in AIR, SKL and others so no need to feel sorry for me mate. I call it as I see it whether JT or anyone else likes it or not...

Well, 55% gain, divvies - and a sausage sandwich! Life is good for you Roger.

[Felonius]

The last few posts have turned to rubbish.
Back to Heartland.
Thanks

[winner69]

The last few posts have turned to rubbish.
Back to Heartland.
Thanks

If it hadn't for those completely ridiculous few weeks early this year when the share price shot up to 140 (and its subsequent decline) one could say that today is almost a new all time high

Things all back to normal - strong steady increases from here .... 130 ....140 and then to 160 next year

But keep an eye on those charts and lock in profits (like Roger did) if things don't quiet turn out as expected

[pierre]

Pack your thermals Rog - Siberia is chilly :)
or maybe not - see you very sensibly deleted the last comment.... Though unfortunately Pierre was quicker.

Fixed it Crackity - thank goodness for the edit button - can't have Roger flying Siberian airlines!

Apologies Felonius and others - I promise to stick to the script from hereon and always to mention Heartland in every post. There - I've done it.

[Beagle]

If it hadn't for those completely ridiculous few weeks early this year when the share price shot up to 140 (and its subsequent decline) one could say that today is almost a new all time high

Things all back to normal - strong steady increases from here .... 130 ....140 and then to 160 next year

But keep an eye on those charts and lock in profits (like Roger did) if things don't quiet turn out as expected


Fixed it Crackity - thank goodness for the edit button - can't have Roger flying Siberian airlines!

Apologies Felonius and others - I promise to stick to the script from hereon and always to mention Heartland in every post. There - I've done it.

Eight and a half months ago it hit a peak of $1.42. Its been a tough year for loyal HNZ shareholders....suppose that's why some of them are especially grumpy. Thanks Pierre, I prefer the warmth of flying Air N.Z. :)

[Arbroath]

If it hadn't for those completely ridiculous few weeks early this year when the share price shot up to 140 (and its subsequent decline) one could say that today is almost a new all time high

Things all back to normal - strong steady increases from here .... 130 ....140 and then to 160 next year

But keep an eye on those charts and lock in profits (like Roger did) if things don't quiet turn out as expected

I think Heartland is worth no more than 12 times forward earnings so 12c max for FY16 gives a valuation of $1.44. You can buy ANZ in Oz at 10 times earnings and NAB/CBA etc at 12-13 times. Heartland is more tax efficient from a NZ yield perspective and does have some growth runway as a second tier operator with so many competitors knocked over in 2007-2010 period but it is still a BBB rated small player so for me 12 times is fully valued.
I'll hold for the medium term and see if Jeff can continue to tidy HNZ up from an ROE and bad loan perspective because maybe 15c or so EPS is doable giving a $1.80 valuation in say 3 years time and a strong yield while we wait.

Just my 2c worth

[janner]

I think Heartland is worth no more than 12 times forward earnings so 12c max for FY16 gives a valuation of $1.44. You can buy ANZ in Oz at 10 times earnings and NAB/CBA etc at 12-13 times. Heartland is more tax efficient from a NZ yield perspective and does have some growth runway as a second tier operator with so many competitors knocked over in 2007-2010 period but it is still a BBB rated small player so for me 12 times is fully valued.
I'll hold for the medium term and see if Jeff can continue to tidy HNZ up from an ROE and bad loan perspective because maybe 15c or so EPS is doable giving a $1.80 valuation in say 3 years time and a strong yield while we wait.

Just my 2c worth

A good 2c worth IMHO..

Not being a pencil pusher.. :-))))

Do think HNZ will advance.. ( Onwards and Upwards )...

Will happen... Other better opportunities are out there..

Disc.. Still hold many..

[Jantar]

I think Heartland is worth no more than 12 times forward earnings so 12c max for FY16 gives a valuation of $1.44. ....
That sounds pretty good to me. That's a 10% return on current prices just from Dividends. Much better than cash in the bank.

Discl: Holding for the long term

[sb9]

Having good run after few horrible few months recently, $1.30 in the near term I reckon.

[tim23]

Why not if the markets stay stable, like I've said the Harmoney and reverse mortgages investment is not really rated by market, more gains to come I reckon.

[winner69]

Dairy customers with 65% LVR loans have been struggling to honour their obligations for going on two years now and have required further bank support. The ECB will be lucky if the Greeks can repay their loans and HNZ are fortunate that the price has recovered and they stand a better chance to recover most of their's. Call it luck or a lucky increase in the GDT auction price or the natural swings and runabouts of the commodity market aided by the extra 50 cent interest free loan of Fonterra...whatever term grabs your fancy. I guess Fonterra were in a better position to cop a credit rating hit so they had to do something.

The REINZ Dairy Farm Price Index, which adjusts for differences in farm size and location, .........was down 17.6% compared to September last year.
http://www.interest.co.nz/rural-news/78196/reinz-says-dairy-farms-sales-and-prices-are-falling-lifestyle-block-sales-surge


Suppose that 65% LVR figure could be a bit higher now?

[nextbigthing]

Having good run after few horrible few months recently, $1.30 in the near term I reckon.

$1.60 by Christmas is the word on the street.

[Beagle]

The REINZ Dairy Farm Price Index, which adjusts for differences in farm size and location, .........was down 17.6% compared to September last year.
http://www.interest.co.nz/rural-news/78196/reinz-says-dairy-farms-sales-and-prices-are-falling-lifestyle-block-sales-surge
Suppose that 65% LVR figure could be a bit higher now?

Absolutely mate. As you know and I do from my own experience with finance companies including running a medium sized one for a while, one thing people don't seem to understand, (you and I do), is that provisioning for bad and doubtful debts requires a lot of best guess estimations at balance date. This is usually based on historical default rates for various loan types.

Thing is we haven't seen this sort of dairy decline for over a decade so any sort of estimation, (appears there was no extra provisioning for dairy loan defaults as at 30 June notwithstanding dairy being in the absolute doldrums at that point and some customers on life support unable to service their existing loans for nearly two years), is prone to wide variation from the standard deviation models through lack of recent and reliable empirical evidence, also exacerbated by potentially serious declines in the underlying security value, the extent thereof being incredibly difficult to gauge with any degree of accuracy.

I maintain, (based on my experience in this sector) this is an incredibly irregular position for HNZ to take and based on that evidence of their (prima facie under-provisioning in this area), this leads me to speculate that despite a dramatic increase in consumer loan provisioning, maybe this wasn't sufficient for this asset class either ?

Looking at the speed and severity of the decline in farm sales, (in all likelihood this hasn't run its course by any stretch of the imagination), HNZ's average LVR ratio would now appear to be well over 70% based on current farm sale prices. Dairy farmers have VERY low cash flow this year so HNZ are undoubtedly still carrying, (they call it "supporting" to make themselves out to be good corporate citizens), many of their customers...some for a third year. The European Central Bank seems extremely reluctant to write off its loans to Greece so I suppose HNZ are following their "prudent" example.

The thing with estimations for provisioning, which has a material effect on profit, (which is nothing more than estimated profit) is you never really know whether you got it right for a number of years down the track therefore I suspect the under-provisioning in the dairy sector will catch up with HNZ in future years and erode profit growth. My estimate for FY16 is 11 cps because of this factor and additional provisioning required in the consumer loan sector because of the type of customer they're chasing.

We have seen PE's in the financial sector pull back all around the world based on asset quality concerns in a slowing global economy. In my view a PE of no more than 11 is warranted for HNZ given the specific risks known and the type of lending they're doing. ANZ bank for example has a far better credit rating, a vastly longer track record and is trading on a PE currently under 11.

I see a maximum fair value of 11 cps x 11 PE = $1.21 based on FY16 profit so will remain on the side-lines despite the clear break through the 100 day MA because at my core I believe fundamental analysis trumps technical analysis.

I note the company has been very slow to move on the acquisitions and capital management initiatives they strongly hinted at a full year ago at the last annual meeting. These $1m plus salary bankers aren't really doing a heck of a lot to add value to shareholders and justify their extremely generous remuneration packages are they ?

Investors will no doubt take some comfort from the recent Fitch report but I remain sceptical. Not trying to down-ramp as I'm not especially interested in getting back in unless its at a 10% plus variation to my own assessment of fair value..just my 3 cents worth.

http://www.interest.co.nz/property/78218/sp-says-robust-auckland-house-price-growth-heightening-risk-nz-banks-although-they Somewhat interesting article on how S & P model risk to the housing sector, little exposure for HNZ but interesting to note their observations on credit worthiness in a 30% correction scenario. Also of interest is the advertisement at the top of the page touting over 2,000 working farms for sale. Things might get "pretty interesting" if farm prices fall another 20% on top of the existing 17.6% fall.

[winner69]

Roger, suppose that's the sort of stuff that people are looking for on the Heartland thread instead of discussing sausage sandwiches. (by the way just picked up the rashly baked bread from the bakery)

I take heart from nextbigthing's comment that the word on the street is 160 by Christmas. He could be right as things will still be looking rosy then.

[Beagle]

Roger, suppose that's the sort of stuff that people are looking for on the Heartland thread instead of discussing sausage sandwiches. (by the way just picked up the rashly baked bread from the bakery)

I take heart from nextbigthing's comment that the word on the street is 160 by Christmas. He could be right as things will still be looking rosy then.

Yes it probably is mate. I thought after yesterday's discussion of gourmet delights at lunchtime I'd give the punters something meaningful to chew over this lunchtime...not nearly as flavoursome though :)
I suppose as a short term punt this could push higher before they have to do a reality check on doubtful debts next balance date, (to keep the auditors happy) but I see bluer skies elsewhere. One could ride the technical signals and rush for the exit when it breaks back down through the 100 day MA like I did last time. Wouldn't mind having a couple of bob bet on that being your cunning plan :D

[Leftfield]

We have seen PE's in the financial sector pull back all around the world based on asset quality concerns in a slowing global economy. In my view a PE of no more than 11 is warranted for HNZ given the specific risks known and the type of lending they're doing. ANZ bank for example has a far better credit rating, a vastly longer track record and is trading on a PE currently under 11.

I see a maximum fair value of 11 cps x 11 PE = $1.21 based on FY16 profit so will remain on the side-lines despite the clear break through the 100 day MA because at my core I believe fundamental analysis trumps technical analysis.



Good post Roger, your shared experience is much appreciated by this ex HNZ holder. There are better investments at the mo'.

[SCOTTY]

Good post Roger, your shared experience is much appreciated by this ex HNZ holder. There are better investments at the mo'.

Would be interested to know what you consider better investments than HNZ? Especially considering growth and yield prospects.
Cheers

[pierre]

Would be interested to know what you consider better investments than HNZ? Especially considering growth and yield prospects.
Cheers

Hey Roger. Forget lunch at home. Better jump on the Heartland bus and enjoy it while you're travelling - SP up to 126 so far today. Winner's 130 getting close now.

[Joshuatree]

HNZ / ANNOUNCEMENTS

Fitch Affirms Credit Rating for Heartland Bank

8:57am, 16 Oct 2015 | CREDIT

NZX Release
Fitch Affirms Credit Rating for Heartland Bank
16 October 2015
Heartland New Zealand Limited (Heartland) (NZX: HNZ) is pleased to announce that Fitch Australia Pty Ltd (Fitch) has affirmed its long term issuer credit rating on Heartland subsidiary Heartland Bank Limited (Bank) of ‘BBB’ outlook stable. The full report from Fitch is attached.
The Fitch report notes the Bank’s continuing improvements to its risk management practices and its simple and transparent business model which provides the Bank with pricing power in its target markets. Fitch expects the Bank’s “core asset quality to remain sound, benefiting from continued improvement in underwriting standards and good economic conditions”. Fitch notes its expectation that New Zealand’s economic growth will continue, albeit at a slower pace than the last two years.


Heartland is pleased with the report and the affirmation of the Bank’s ‘stable’ outlook which reflects Fitch’s view that the Bank is likely to continue its solid performance over the next 12 to 24 months.

[stoploss]

HNZ / ANNOUNCEMENTS

Fitch Affirms Credit Rating for Heartland Bank

8:57am, 16 Oct 2015 | CREDIT

NZX Release
Fitch Affirms Credit Rating for Heartland Bank
16 October 2015
Heartland New Zealand Limited (Heartland) (NZX: HNZ) is pleased to announce that Fitch Australia Pty Ltd (Fitch) has affirmed its long term issuer credit rating on Heartland subsidiary Heartland Bank Limited (Bank) of ‘BBB’ outlook stable. The full report from Fitch is attached.
The Fitch report notes the Bank’s continuing improvements to its risk management practices and its simple and transparent business model which provides the Bank with pricing power in its target markets. Fitch expects the Bank’s “core asset quality to remain sound, benefiting from continued improvement in underwriting standards and good economic conditions”. Fitch notes its expectation that New Zealand’s economic growth will continue, albeit at a slower pace than the last two years.


Heartland is pleased with the report and the affirmation of the Bank’s ‘stable’ outlook which reflects Fitch’s view that the Bank is likely to continue its solid performance over the next 12 to 24 months.

JT , Back to the future was yesterday , any reason why you have posted this ?

[winner69]

Still tracking the long term trend

That short period of excitement was really irrational - but bonus time for some who took advantage of the opportunity

So 140 soon and then 160 and the .... who knows

[Joshuatree]

Whoops.Missed the thread on it.May have helped the s/p strength.Not big on ratings agencies ; however this is a good read.



"Today is the tomorrow you worried about yesterday"

[percy]

Good post Roger, your shared experience is much appreciated by this ex HNZ holder. There are better investments at the mo'.

I have been waiting with bated breath for you to name them.

[Leftfield]

I have been waiting with bated breath for you to name them.

I'm v humbled that you consider my opinion so important. I've never claimed to by a guru….but perhaps you should scan PAY up 181% since Jan, TIL up 166%, ATM up 27.5% EBO up 46.4% NZR up 56.11%, even BLT up 31.58%. (Disc four of these in my humble portfolio) 'Nuff said methinks.

[percy]

I'm v humbled that you consider my opinion so important. I've never claimed to by a guru….but perhaps you should scan PAY up 181% since Jan, TIL up 166%, ATM up 27.5% EBO up 46.4% NZR up 56.11%, even BLT up 31.58%. (Disc four of these in my humble portfolio) 'Nuff said methinks.

Thank you for your reply.
I have held EBO for over 23 years.I also hold TIL.So can agree with you there.
PAY looks interesting.
I do not hold any of the others,and wish you well with them.

[SCOTTY]

I'm v humbled that you consider my opinion so important. I've never claimed to by a guru….but perhaps you should scan PAY up 181% since Jan, TIL up 166%, ATM up 27.5% EBO up 46.4% NZR up 56.11%, even BLT up 31.58%. (Disc four of these in my humble portfolio) 'Nuff said methinks.

Very impressive Left Field. With these picks you could have been the winner in this years Share Picking Comp ��

[Leftfield]

Very impressive Left Field. With these picks you could have been the winner in this years Share Picking Comp ��
Thanks but I'm no threat to Moosey. On Jan 14 in post #238 (on the 2015 stock pick thread) I posted, "Just returned from an extended holiday and have missed placing my entry. However I plan to piggy back on XROF's entry as his/her picks are the same as mine."

So currently sitting #81 with 9.71% YTD along with XROF, and now heading out to enjoy the long weekend.

[kizame]

Egos really shouldn't come into this,its not a nice trait.

[couta1]

Egos really shouldn't come into this,its not a nice trait.
Nothing like a few years of carrying heavy paper losses plus a couple of hefty actual losses to keep humility close at hand and ego in its cage.

[Beagle]

I'm v humbled that you consider my opinion so important. I've never claimed to by a guru….but perhaps you should scan PAY up 181% since Jan, TIL up 166%, ATM up 27.5% EBO up 46.4% NZR up 56.11%, even BLT up 31.58%. (Disc four of these in my humble portfolio) 'Nuff said methinks.

I just wanted to offer my support seeing as your original comment was in response to me expressing my opinion on HNZ. I think you handled yourself extremely well and brought a great deal of credit upon yourself so please allow me to offer you a little tip in return. Never hurts to take a little cream off the top of a tasty cappuccino just in case its got a little too frothy..hope you catch my drift with two of those top performers of your's. All the best mate.

[Onion]

Never hurts to take a little cream off the top of a tasty cappuccino just in case its got a little too frothy.

I thought EBO was getting a bit frothy so drank it all recently. It's a pity 'cos they seem to have swapped to a bigger mug and it hasn't overflowed yet. Frothy overflows are hard to predict.

[Beagle]

I thought EBO was getting a bit frothy so drank it all recently. It's a pity 'cos they seem to have swapped to a bigger mug and it hasn't overflowed yet. Frothy overflows are hard to predict.

Yes they are which is why I advocate only taking some of the cream off the top of the cappuccino and still leaving room for further tasting later :) That said...there's plenty of stocks that have performed better than EBO in the last two years and plenty more that have performed better than HNZ this year so its all relative to what you did with the money after selling.

[Leftfield]

I just wanted to offer my support seeing as your original comment was in response to me expressing my opinion on HNZ. I think you handled yourself extremely well and brought a great deal of credit upon yourself so please allow me to offer you a little tip in return. Never hurts to take a little cream off the top of a tasty cappuccino just in case its got a little too frothy..hope you catch my drift with two of those top performers of your's. All the best mate.

All good Roger, your comments appreciated. Thanks! :)

[Plutus]

Watching the MTF play with interest. HNZ have started DD but Turners close to a 10% blocking stake. Interesting watching this play out. Money on Turners though as an existing originator and a head start.

[trader_jackson]

Watching the MTF play with interest. HNZ have started DD but Turners close to a 10% blocking stake. Interesting watching this play out. Money on Turners though as an existing originator and a head start.

I think, at the end of the day, Heartland will get there, they are going to pay more than turners, and also have deeper pockets, resulting in 'greater flexibility' regarding a MTF bid.

I also think MTF will actually do better (as in prosper more) under Heartland than it would under Turners (and I think some dealerships know/feel this as well).

PS: Yes I am a bit late with my 'homework' but I do think it is a 'good deal' for Heartland to do what they are doing (regarding bid price and due diligence clause). I also think this week we could see heartland crack $1.30

[percy]

Watching the MTF play with interest. HNZ have started DD but Turners close to a 10% blocking stake. Interesting watching this play out. Money on Turners though as an existing originator and a head start.

Must agree with you,yet I feel MTF dealers/originators would be better off with HNZ owning MTF.
For HNZ,MTF would be a good bolt on acquisition.
Should HNZ walk away from the MTF,HNZ will be able to do a bigger share buy back,so as HNZ shareholder I am not too concerned how it plays out,although I would prefer HNZ to takeover MTF.
We should hear in the next two weeks how the MTF Sportzone court case pans out,then the fun could start.

[Beagle]

Must agree with you,yet I feel MTF dealers/originators would be better off with HNZ owning MTF.
For HNZ,MTF would be a good bolt on acquisition.
Should HNZ walk away from the MTF,HNZ will be able to do a bigger share buy back,so as HNZ shareholder I am not too concerned how it plays out,although I would prefer HNZ to takeover MTF.
We should hear in the next two weeks how the MTF Sportzone court case pans out,then the fun could start.

High court took five months to make its ruling so just because the hearing is in the Supreme court next month doesn't mean you'll get an early decision.
Looking at what MTF dealers and originators are paid, they get by far the lion's share of what little profit there is in the MTF business model. Really looking at MTF's accounts and outlook report I don't know why HNZ would want to take them over, other than to get access to the really cheap preference share funding and to possibly change the commission model so the dealers get less. The board of MTF must give approval for any shareholder to take over a 10% stake so if they're acting for their members in accordance with their appointment I'd suggest they'll be seeking assurances that the lucrative commission structures the dealers currently enjoy remains uncharged.

Turners have first mover advantage and I think its likely the decision from the supreme court could be months away. Shareholders best hope for a SP rise appears to be with the prospect of a tier 2 Basil 3 compliant issue and the company buying its own stock back...financial engineering, decide for yourselves whether this is a good or bad thing.

[iceman]

Roger I think one potential benefit to originators (card dealers) with having HNZ onboard may be access to cheaper funding for their car financing. But I agree that Turners have a 1st mover advantage.

[percy]

Roger I think one potential benefit to originators (card dealers) with having HNZ onboard may be access to cheaper funding for their car financing. But I agree that Turners have a 1st mover advantage.

Cheaper more secure finance would result from a HNZ takeover.
The attraction to HNZ of MTF is MTF's strong dealer network,whose customers I am sure would be happier knowing their loan is from Heartland Bank.Dealers/originators would also gain by having a larger "product" range to sell.

[Plutus]

Cheaper more secure finance would result from a HNZ takeover.
The attraction to HNZ of MTF is MTF's strong dealer network,whose customers I am sure would be happier knowing their loan is from Heartland Bank.Dealers/originators would also gain by having a larger "product" range to sell.

The reason MTF works (IMO) is that the business is full recourse to the dealer who then gets the lion share of the profit. Change that model and you break it. Dealers invariably have several financiers to whom they place business and select deal by deal where to put the paper. The other observation I would make is that the assets are high quality because the Dealers only put the best business on a recourse basis - as you would. With NTA of $1.81 or so, the Turners and Heartland offers are well below NTA. Can see $2 being paid by the time this is over. Peanuts, popcorn.... The big assumption here is that MTF will allow a shareholder over 10% -without that, nothing happens.

[percy]

The reason MTF works (IMO) is that the business is full recourse to the dealer who then gets the lion share of the profit. Change that model and you break it. Dealers invariably have several financiers to whom they place business and select deal by deal where to put the paper. The other observation I would make is that the assets are high quality because the Dealers only put the best business on a recourse basis - as you would. With NTA of $1.81 or so, the Turners and Heartland offers are well below NTA. Can see $2 being paid by the time this is over. Peanuts, popcorn.... The big assumption here is that MTF will allow a shareholder over 10% -without that, nothing happens.

MTF was formed by car dealers, who at the time could not arrange finance for their customers' via finance companies.
In some ways the business may have run its course, and a lot of those dealers would like their capital out.
I think "the noise" we are hearing,ie MTF not interested in HNZ's proposals,HNZ are the competition are far from being correct.I would think most dealers would see TNR as their competition,and I think the majority of MTF shareholders would be keen sellers into a takeover.

[Plutus]

MTF was formed by car dealers, who at the time could not arrange finance for their customers' via finance companies.
In some ways the business may have run its course, and a lot of those dealers would like their capital out.
I think "the noise" we are hearing,ie MTF not interested in HNZ's proposals,HNZ are the competition are far from being correct.I would think most dealers would see TNR as their competition,and I think the majority of MTF shareholders would be keen sellers into a takeover.

HNZ are doing DD, but I think its a bit more complex than that. The biggest originators for MTF are now the brokers not the dealers, and MTF's largest originator overall is actually Turners (around 10% I understand). If Heartland or Turners acquire MTF, I could see Dealers and Brokers going elsewhere, so yes you're right, maybe its run its course - so what are they buying, a good ledger and database but with an 18 month average run off ?? And why would shareholders take less than NTA ? Turners will be on the phones flat out accumulating shares as fast as they can.

[McD]

Just noticed the Head of Rural Banking is no longer on the web-site - can't see an NZX announcement - did I miss something ?

[percy]

HNZ are doing DD, but I think its a bit more complex than that. The biggest originators for MTF are now the brokers not the dealers, and MTF's largest originator overall is actually Turners (around 10% I understand). If Heartland or Turners acquire MTF, I could see Dealers and Brokers going elsewhere, so yes you're right, maybe its run its course - so what are they buying, a good ledger and database but with an 18 month average run off ?? And why would shareholders take less than NTA ? Turners will be on the phones flat out accumulating shares as fast as they can.

I guessing a lot here.Should HNZ takeover MTF I would expect they would be able to retain most dealers/originators and maybe even Turners.
I think Turners should get to 10% easily, as the price offered is a lot higher than the 90 to 95 cents price range MTF has traded at over the past year,and I think there are a lot of willing sellers..
It is what happens to the 80% to 90% of MTF shareholders who are locked in to MTF should HNZ walk away. Turners are in no position to make a full takeover.
The value of MTF shares will drop considerably.
Would a lot of dealers just transfer their business elsewhere further eroding the value of MTF.?

[Plutus]

I guessing a lot here.Should HNZ takeover MTF I would expect they would be able to retain most dealers/originators and maybe even Turners.
I think Turners should get to 10% easily, as the price offered is a lot higher than the 90 to 95 cents price range MTF has traded at over the past year,and I think there are a lot of willing sellers..
It is what happens to the 80% to 90% of MTF shareholders who are locked in to MTF should HNZ walk away. Turners are in no position to make a full takeover.
The value of MTF shares will drop considerably.
Would a lot of dealers just transfer their business elsewhere further eroding the value of MTF.?

I see Turners as direct competition to Marac/HNZ so they for one would leave. The only reason they are putting business into MTF would be to 'share up' past the 10%. I agree the MTF ownership model is not perfect, but the value to active shareholder originators is not just the dividend but the up front volume based profit share which they wouldn't get under HNZ. Turners could offer a takeover based on part shares / part cash if they didn't have the balance sheet. Interesting game to watch. Advantage Turners, but Heartland yet to serve.

[beetills]

Turners have 7.6% of MTF shares according to their latest announcement.

[iceman]

So MTF originators are not exactly jumping at the opportunity to sell to TNR ! This game has a long way to go yet but my money is on HNZ getting what they want

[winner69]

BNZ say their rural loan book is 'extremely sound' but I note HY have put aside 'a big pile of cash for potential bad debts' (as The Herald put it)

I think HNZ actually reduced their provision in rural sector last financial year.

No worries though. If there is going to be a big bad debt problem it won't come out to late next year at the earliest and by then the share price will be 160 anyway.

Share price still going OK at the moment - 130 soon methinks

[stoploss]

BNZ say their rural loan book is 'extremely sound' but I note HY have put aside 'a big pile of cash for potential bad debts' (as The Herald put it)

I think HNZ actually reduced their provision in rural sector last financial year.

No worries though. If there is going to be a big bad debt problem it won't come out to late next year at the earliest and by then the share price will be 160 anyway.

Share price still going OK at the moment - 130 soon methinks
Would have been a bit embarrassing , and Winston Peters would have got on his high horse re excessive profits by offshore banks if they hadn't tucked a wee bit away ......

[McD]

HNZ v Turners. Would get interesting odds at the TAB. Place your bets.


So MTF originators are not exactly jumping at the opportunity to sell to TNR ! This game has a long way to go yet but my money is on HNZ getting what they want

[trader_jackson]

would be an easy bet, HNZ would win...

[kizame]

I think Turners are in it for a nice profit,knowing HNZ want it.

[Plutus]

Yes, there is that win-win scenario. In that context the blocking stake is smart.
I think Turners are in it for a nice profit,knowing HNZ want it.

[trader_jackson]

Yes, there is that win-win scenario. In that context the blocking stake is smart.

Lets not get to excited, they might not even get a blocking stake yet...
... isn't Turners shareholding like 7.6%? not exactly a huge rise from their initial shareholding (giving the significant amount of time that has passed since they made the offer)

None the less, Turners stand to profit (potentially) a little bit, but may (probably will) fail to get a blocking stake, and therefore Turners will 'get some choc chips', but HNZ 'gets the cake'

[Beagle]

My view is that it hasn't taken Turners long to get to where they are. They're playing a brilliant hand and are setting themselves up sweetly to greenmail HNZ into a very fulsome offer.
How well has HNZ really done from its last fulsome offer regarding the HER business ?

[K1W1G0LD]

Lets see if the good vibes from the world cup win filter through to the sharemarket and HNZ today.:p

[Beagle]

http://www.interest.co.nz/personal-finance/78405/john-boltons-squirrel-money-goes-live-first-real-p2p-lending-service

[winner69]

http://www.interest.co.nz/personal-finance/78405/john-boltons-squirrel-money-goes-live-first-real-p2p-lending-service

You suggesting Heartland take some stake in this?

Seems to be their niche

[Beagle]

You suggesting Heartland take some stake in this?

Seems to be their niche

No not really mate...I would have thought with all those staff at HNZ getting close too or above a $1m salary one or two of them might have had the skills to develop HNZ's own P2P platform :confused:
They must be traditional finance company executives then, opps sorry, bankers.

[nextbigthing]

http://www.stuff.co.nz/business/money/73612560/asb-anz-bnz-and-westpac-rake-in-459-billion-of-profits

[Beagle]

However, all the banks made large increases to provisions for bad debts, some of which related to dairy farmer loans.
Tripe said it would take a while for the full extent of the downturn to filter through, and it was unsurprising that most banks had not yet foreclosed on farmers.

I found this bit quite interesting NBT. Curiously HNZ made no extra provision for bad debts in the dairy sector despite having an average LVR based on farm values as at 30 June of 65%, (remember farm values have fallen 17% since then so current LVR is probably into the mid late 70% range now). How is it that HNZ think they're immune to this dairy issue but all the other banks think otherwise ?
All HNZ have done is kick this can down the road and this must inevitably come back to bite them in subsequent year's financial results. GDT auction results overnight are expected to show a 5% fall according to the futures, (article in Herald this morning). This dairy sector is not out of the woods by any stretch of the imagination. Bankers massive bonus's for the FY15 year couldn't possibly have had something to do with this apparent dairy under-provisioning, surely not...

[Snow Leopard]

I found this bit quite interesting NBT. Curiously HNZ made no extra provision for bad debts in the dairy sector despite having an average LVR based on farm values as at 30 June of 65%, (remember farm values have fallen 17% since then so current LVR is probably into the mid late 70% range now). How is it that HNZ think they're immune to this dairy issue but all the other banks think otherwise ?
All HNZ have done is kick this can down the road and this must inevitably come back to bite them in subsequent year's financial results. GDT auction results overnight are expected to show a 5% fall according to the futures, (article in Herald this morning). This dairy sector is not out of the woods by any stretch of the imagination. Bankers massive bonus's for the FY15 year couldn't possibly have had something to do with this apparent dairy under-provisioning, surely not...

I find your whole rant 'quite interesting' Roger.

HNZ made a large increase to provisions for bad debts, some of which related to dairy farmer loans (from FY accounts)
They increased their provisioning in the rural sector, even though the quality of the rural loan book improved over the year (from FY accounts).
The 65% was actually 61% (from NZX announcement).
They do not think they are immune to anything (from FY accounts & NZX announcement etc).

I am sure that Heartland will have segments of their business that under-perform and others may well over-perform.
There will come a time when their year on year profit will fall and there is the [currently remote] possibility of worse things.

Best Wishes
Paper Tiger

[Beagle]

61% as at 30 June 2015. 65% after some additional data showing farm prices had started to fall. Winner69 posted official stat's for the September quarter some time back showing average farm prices had fallen 17% in the Sept quarter and also showing sales were down dramatically, (classic sign of an illiquid market with few buyers) so their exposure as at 30 September was 61 / 0.83 = LVR of 73.5% PLUS the further additional support HNZ have had to give negative cash flow dairy farmers over the lean winter, call it 75% and that would probably be conservative. I posted a link recently showing a website with over 2,000 farms for sale so I guess its no surprise the banks don't want to forcibly liquidate anyone in an illiquid market as what would that do to their remaining security values :eek2:

October stat's on farm prices will be interesting as will the overnight GDT auction result.

If I get time I'll have a look at the provisioning tomorrow. Yes agreed there was a lot more but the vast majority was consumer loans IIRC.

[axe]

http://www.interest.co.nz/personal-finance/78405/john-boltons-squirrel-money-goes-live-first-real-p2p-lending-service

Harmoney has a few advantages in this space.

First mover. Up and running over a year now?
HNZ on board with seed capital and finance expertise
TME on board. I think every TME member got an email from TME advertising Harmoney when TME got their stake. TME is NZ's largest online marketplace. Harmoney probably NZ's largest P2P platform.

It will be a large hill to climb for any newcomers into this space.

[Beagle]

So yesterday Paper Tiger alleged they'd made significant extra provisioning in their financials for the exposure to Dairy losses in their FY15 accounts.
Can you please direct me to where exactly in the accounts this is done ?

The financials all look lovely, beautiful pictures and images and even the Maori translation. They're sure to include a good gender, age and ethnicity balance in their photo's too...all very lovely and tremendously politically correct...must be trying to win the annual report of the year award surely ?

But scratch beneath the glossy surface and one wonders if they simply haven't put lipstick on an otherwise somewhat unattractive situation.

From my read all the provisioning has gone into other areas.

From note 19(e) in the accounts where they lump all agricultural loans together, (they don't appear to separate out dairy loans from my read) we get total provision for impaired loans both individually impaired and collectively impaired in 2014 of $2.114m on total loans in this sector of $490.7m = 0.43% total provisioning.
In 2015 we have total provisioning of $2.173m on total agricultural sector loans of $571m = 0.38%.
This material reduction in the percentage rate of provisioning is against known information at the time that dairy was at a ten year low and many of their clients required ongoing support..go figure but this seems to defy logic seeing as the outlook in June 2014 was better than in mid winter 2015 ?

How much of the extra $81m loaned to that sector was ongoing support to dairy farmers that required it, we don't know as they won't and don't disclose that.

Here's a small extract of their blurb on how their judgement's are made


Credit impairments are recognised as the difference between the carrying value of the loan and the discounted value of management’s best estimate of future cash repayments and proceeds from any security held (discounted at the loan’s original effective interest rate). All relevant considerations that have a bearing on the expected future cash flows are taken into account, including the business prospects for the customer, the likely realisable value of collateral, the Group’s position relative to other claimants, the reliability of customer information and the likely cost and duration of the work-out process. Subjective judgements are made in this process. Furthermore, judgement can change with time as new information becomes available or as work-out strategies evolve, resulting in revisions to the impairment provision as individual decisions are taken. Changes in judgement could have a material impact on the financial statements. Emphasis added.

As mentioned yesterday with the Sept 30 quarter farm sale data now known and a 17% fall in that quarter alone, their 61% LVR ratio becomes 61 / (100-17) = 73.5% as at 30 September 2015.
Further, from previous serious downturns we know that once farm prices start trending downwards its never over in a single quarter so in my view its highly likely that many banks will presently be talking to cash flow negative clients in this sector inviting them to "consider their options". (This is "bank speak" for we can't continue to support you so get out or refinance before we have to enforce our security rights). Its my view that its likely that for every forced sale currently being contemplated by the banks, i.e. officially a mortgagee sale, there are many more where the clients are effectively taking instructions from their bankers even though the property is not being marketed as a mortgagee sale so the weight of supply going forward is highly likely to depress farm prices further, perhaps quite significantly in my opinion.

If farm prices fall another 17% in total in the balance of FY16 spread over the next three quarters, which seems like a reasonably conservative assumption to me, HNZ's average Loan to valuation ratio becomes 61 / (100-34) = 92.4% ! (A client of mine told me his farm worth approx. $8m at the peak, he'd be lucky to get $5m for and that was back in August). I'd suggest he might get $4m now, about half. Nobody can sell in that district is the other comment he made. I think another 17% fall spread over the current quarter and the next two, i.e. nine months could be quite conservative and it could fall materially further than that and then we really have a serious problem. Do HNZ carry and provide further support to dairy farmers for a third year when their LVR is over 100% ?

I will leave people to judge for themselves whether they think total collective loan provisioning of $2.17m on an agricultural sector loan book as at 30 June 2015 of $571m is adequate or not, but please keep in mind that they talk a lot about providing ongoing support so the LVR can only go one way when that's happening and that's on top of the issue being exacerbated by rapidly falling farm values.

We have had any number of expert economists in the media in recent months saying highly indebted dairy farmers are losing serious money with a pay-out at last year's level and this year isn't much of a recovery so far...extremely challenging times for the dairy industry meaning the loan provisioning for that sector can only head one way...perhaps quite dramatically and impact FY16 and FY17 profits ?...you be the judge.

I think shareholders would be wise to keep an eagle eye on the future farm sale data as any further material deterioration in values could seriously undermine HNZ's asset quality and future profits.
My 3 cents but please DYOR and don't accept glossy pictures and images at face value.

[winner69]

PT reckons HNZ execs at Melbourne Cup (pput the asm off eh)

Prob being looked after by the Bendigo people before getting down to the nitty gritty discussions later in the week.

[Beagle]

http://www.interest.co.nz/business/78334/bnz-annual-cash-earnings-rise-2-income-growth-outpacing-rise-expenses

Further to this mornings comment, here's the BNZ's approach, nearly doubling collective provisioning because of the outlook for dairy. Quite a stark contrast to HNZ's approach of reducing provisioning as a percentage of the agri loan book...hmmmm. Even mentioned a new accounting standard IFRS9 that other banks aren't adopting yet. http://www.ifrs.org/Alerts/PressRelease/Pages/IASB-completes-reform-of-financial-instruments-accounting-July-2014.aspx I see mandatory adoption isn't until 1 January 2018 but voluntary early adoption like the BNZ have done is allowed.

Interesting that using the more rigorous and up to date methodology regarding accounting for financial instruments, (i.e. measuring bad debts and provisioning for doubtful debts), the BNZ are taking quite a different approach to HNZ. One bank appears to be kicking the can down the road and simply hoping for the best and the other taking a more realistic approach to impending and current problems.

[Snow Leopard]

PT reckons HNZ execs at Melbourne Cup (pput the asm off eh)

Prob being looked after by the Bendigo people before getting down to the nitty gritty discussions later in the week.

You are attributing all of that to the wrong feline.

Never mentioned the Melbourne Cup or started the Bendigo rumour.

Best Wishes
Paper Tiger

[Snow Leopard]

So yesterday Paper Tiger alleged they'd made significant extra provisioning in their financials for the exposure to Dairy losses in their FY15 accounts.
Can you please direct me to where exactly in the accounts this is done ?
...

19(d) Provisions for Rural collectively impaired assets went from:
$583K on $491M (or 0.119%)
to
$1M356 on $572M (or 0.237%)

Best Wishes
Paper Tiger

[winner69]

Keeping well clear of Melbourne Cup and Show Weeks....

Sorry PT ...it was Xerof

Always get you two mixed up

[Beagle]

19(d) Provisions for Rural collectively impaired assets went from:
$583K on $491M (or 0.119%)
to
$1M356 on $572M (or 0.237%)

Best Wishes
Paper Tiger

Individually and collectively impaired loans went down as a percentage of total loans advanced as per yesterday's post...and that with dairy outlook at a ten year low.

Even if you take your viewpoint that's hardly the substantial new provisioning you called it in your previous post...really quite minuscule in the context of the loan book with so many customers unable to meet their current loan obligations.

There's been several recent articles in the press about substantial new draw-down's of loans in the sector in the last quarter to 30 September...I guess if people can't pay their existing loans and can't sell their farms its better to loan them even more money, (dress it up as showing support, that's really politically correct), and cross your fingers and hope it all comes out in the wash...opps it isn't...GDT dairy prices down 8% overnight.

[nextbigthing]

Roger,

Let's say things aren't looking good for a farmer and HNZ 'invites' them to sell their farm/herd. The original loan was $1M. Worst case scenario for HNZ, it was a reasonably new loan so they've paid almost nothing off it, it's sitting just under $1M. The farm was worth $1.2M but has dropped 20% and is now worth - just under $1M. HNZ get all their money back bar a few fees and can apply it to loans elsewhere.

Sure land/herd prices may drop further, however of all the loans they carry, how many were written at the peak? Then of those, how many are actually the peak LVR. Then of those, how many aren't backed up by other security eg they're second farms with the original as collateral. The number of high risk loans is surely small. They're a bank, they manage this risk.

Then out of all of this, how many are HNZ actually going to let go under and not do a thing? Any that show some promise and have appropriate collateral may be given extra loans (more revenue for HNZ) and any that are 'iffy' are going to be carefully managed. You can't tell me the competent managers at HNZ are simply going to stand aside and do nothing.

The extra revenue from extra loans is great because it's simply stealing the future spending on new Landcruisers and giving it to HNZ. Perfect.

We miss you on the cheerleading squad Roger. There's still a spot available :p

[nextbigthing]

PS Older dairy farmers who have made their $$$ already are simply 'retiring' by converting to beef which is a lot easier while the prices are so good. This decrease in supply will help the dairy cause.

[iceman]

Even if you take your viewpoint that's hardly the substantial new provisioning you called it in your previous post...really quite minuscule in the context of the loan book with so many customers unable to meet their current loan obligations.



Roger what do you base that statement on ? Do you have some information on a large increase in HNZ "customers unable to meet their current obligation" as you claim ? Please show us where you get this info from.

Below is copied text from NBR's Margin Call from end of September. You will note the analysts like HNZ because of their low exposure (7.6% of total loan book) to dairy with only 9 customers with loans in excess of $5m. While I agree with you that us SH need to carefully monitor what, if any, effect downturn in dairy will have on HNZ, I feel your comments on HNZ are increasingly alarmist.

From NBR 19/09/2015:
Forsyth Barr has marked up only one stock, Heartland New Zealand, from
underperform to outperform after the latest reporting season.
It says the rural, motor vehicle and South Island-focused lender has the combination of a more attractive risk profile and still some price upside.
Heartland is also rated “outperform” by First NZ Capital analysts, who note the low exposure to the dairy industry
(Heartland says it is just 7.6% of its total lending book).
While Heartland has received a generally favourable press since its listing in February 2011, the share price
hasn’t always reflected that. It surged in the latter part of last year and early this year but has since dropped back.
On a 12-month basis it is up 23%, peaking in February at $1.41. But at this week’s price of $1.17 it is back to near
where it was at the start of the year.
It has indicated a share buyback since announcing its result in mid-August. No timing has been set for this, though
the bank says it will depend on market conditions in the current financial year (to June 30, 2016).
Forsyth Barr notes the solvency ratio is well ahead of the minimum 10.5% at 12.9% (June 30) and the bank could
raise $50-75 million in Tier 2 debt to optimise its capital structure.
First NZ Capital says $50 million is feasible and this would mean 10% of its capitalisation being returned to
shareholders.
Heartland has indicated net profit after tax guidance of $51-55 million, with improvements in asset growth,
margins and stable impairments providing an earnings rise of 6-14%.
In the 2015 result, an impairment of $1 million from a Court of Appeal decision was cancelled out by a similar revaluation of its interest in peer-to-peer lender Harmoney.

[Beagle]

http://www.interest.co.nz/rural-news/78449/latest-blow-global-dairy-prices-comes-amid-over-supply-and-expectations-prices-will

Hi Iceman,

Have you seen all the economists opinions over winter saying dairy farmers need mid-late $5 per kg as a minimum to break even if they have meaningful debt ?

Why do you think there's been such a huge draw-down of new debt in the agri sector in the last quarter ? Why do you think farm prices are falling at a rapid rate ?

For what its worth I am not a fan at all of Forsyth Barr's research, (used to be a client), just look how they're performing in this year's sharetrader comp. Feltex, Credit Sails, SCF e.t.c.

if you'dike me to post more links substantiating what I'm saying I'm happy to do so tomorrow when I have more time.

The problem NBT is that dairy farm sales have increasing dried up and its become an illiquid market. Best for me to simply post some more links when I have more time.

[iceman]

http://www.interest.co.nz/rural-news/78449/latest-blow-global-dairy-prices-comes-amid-over-supply-and-expectations-prices-will

Hi Iceman,

Have you seen all the economists opinions over winter saying dairy farmers need mid-late $5 per kg as a minimum to break even if they have meaningful debt ?

Why do you think there's been such a huge draw-down of new debt in the agri sector in the last quarter ? Why do you think farm prices are falling at a rapid rate ?

For what its worth I am not a fan at all of Forsyth Barr's research, (used to be a client), just look how they're performing in this year's sharetrader comp. Feltex, Credit Sails, SCF e.t.c.

if you'dike me to post more links substantiating what I'm saying I'm happy to do so tomorrow when I have more time.

The problem NBT is that dairy farm sales have increasing dried up and its become an illiquid market. Best for me to simply post some more links when I have more time.

Hi Roger. Yes of course I have seen the various economic commentary. However I have not seen any reports on HNZ having "many customers unable to meet their current loan obligations". I look forward to receiving your links to substantiate it

[Snow Leopard]

Sorry PT ...it was Xerof

Always get you two mixed up

http://beeflambnz.co.nz/pics/sportsambassadors_carolineandgeorgina_2648096694.j pg

That's understandable.

Best Wishes
Paper Tiger

[Snow Leopard]

Individually and collectively impaired loans went down as a percentage of total loans advanced as per yesterday's post...and that with dairy outlook at a ten year low.

Even if you take your viewpoint that's hardly the substantial new provisioning you called it in your previous post...really quite minuscule in the context of the loan book with so many customers unable to meet their current loan obligations.

There's been several recent articles in the press about substantial new draw-down's of loans in the sector in the last quarter to 30 September...I guess if people can't pay their existing loans and can't sell their farms its better to loan them even more money, (dress it up as showing support, that's really politically correct), and cross your fingers and hope it all comes out in the wash...opps it isn't...GDT dairy prices down 8% overnight.

You are digging a pretty deep hole for yourself, Roger.

I should not be in a position where I feel the need to explain Company Account's 101 to an accountant.

There exists the real possibility that HNZ will have to make further provision for loans to dairy, that is not in dispute and there also exists the possibility that they have already made more than enough.

But they have to make reasonable, rational decisions.

Best Wishes
Paper Tiger

[Beagle]

Hi Roger. Yes of course I have seen the various economic commentary. However I have not seen any reports on HNZ having "many customers unable to meet their current loan obligations". I look forward to receiving your links to substantiate it

That's good then mate as I don't need to waste the time repeating what most economic commentators have been saying many times and that's generally been that the dairy price needs to be in the late $5 range + for farmers with debt to just break even.
Of course I can't provide links saying HNZ's customers can't pay their bills but what do you think a loan to farm value ratio of approx. 73% on current farm values implies, (amongst the most indebted in the sector surely ?) and that combined with HNZ's own statements that they're giving ongoing support to their customers. Support means lending more money to them because their cash flow is insufficient to survive, see this.
http://www.interest.co.nz/news/78394/agriculture-debt-and-housing-debt-rise-fastest-annual-pace-6-and-7-years-respectively I dunno mate but I'm pretty sure those dairy farmers weren't borrowing money hand over fist to travel to the Rugby World Cup.

Not at all PT, I think its pretty clear than the BNZ and HNZ have taken quite distinct approaches to their provisioning and I think that's clear for people to see, even those that don't want to understand the latest IFRS, (International Financial Reporting Standards). HNZ might squeak through though, the new standard doesn't come into force till 1 January 2018..suppose they're hoping the dairy storm has blown over by then. Time will tell, nuff said.

[iceman]

Roger I don't think anyone on this forum is disagreeing with you mate about the risks the dairy downturn has for banks. Not just HNZ but even more so the big banks, some of which have much higher proportion of their books in dairy than HNZ.
Most of them also have a huge risk in the Auckland property market which is stalling, no less risky than dairy in my view. HNZ has wisely stayed out of that potential bubble territory.

nextbighting has outlined clearly in post 6622 how he/she thinks the situation is with regard to dairy. I think that is a fair summary and agree with it. Particularly the bit about HNZ not relying solely on securities over land. We know they also hold securities over machinery as well as personal guarantees. Many struggling farmers will be receiving support from family and I think it is entirely appropriate for HNZ and other banks to help those farmers (by lending them more) they deem to have appropriate collateral as well as the skill to manage through the downturn. That is the business banks are in. I have no doubt that HNZ's management is well aware of the state of the dairy industry and I have full faith in them managing it appropriately.

Other posters obviously have much greater concerns by the sounds of it and I assume are not HNZ holders anymore.

Careful monitoring of their loan book and bad debts over the coming 2-3 years will be very important. It is possible that us SH will at some stage look back and say "Roger was right and HNZ was indeed reckless". I think that is unlikely. Only time will tell my friend.

[K1W1G0LD]

Amalgamation and possible Capital return to shareholders.

HNZ
06/11/2015 09:24
GENERAL
PRICE SENSITIVE
REL: 0924 HRS Heartland New Zealand Limited

GENERAL: HNZ: Heartland - Strategy Update

NZX Release

Heartland - Strategy Update

6 November 2015

Heartland New Zealand Limited (Heartland) (NZX: HNZ) advises its intention to
amalgamate with its wholly-owned subsidiary, Heartland Bank Limited
(Heartland Bank). Heartland also wishes to update the market in relation to
the previously advised proposal for Heartland Bank to issue Tier 2 capital
and for Heartland to subsequently return capital to shareholders.

Current Group Structure and Amalgamation Proposal

Heartland's current group structure is the product of the merger of three
separate financial institutions in 2011, the corporatisation of what was then
Heartland Building Society and a number of key business acquisitions
(including most recently the Seniors Finance acquisition). This has resulted
in an overly complex structure for a business of Heartland's size. For
example, as a registered bank, Heartland Bank is required to have a separate
board of directors, including additional independent directors, from its
parent, Heartland. This results in duplication and complexity, which is only
expected to increase as the group grows and choices need to be made as to
where assets are held within the group.

The boards of Heartland and Heartland Bank have therefore reviewed the group
structure with a view towards implementing a more efficient structure within
which the group can best achieve its objectives and which provides
transparency for its stakeholders. Accordingly, the boards of Heartland and
Heartland Bank have determined to merge those companies by way of a short
form amalgamation (Amalgamation). On Amalgamation, Heartland will continue
as the amalgamated company (Continuing Company) but will change its name from
"Heartland New Zealand Limited" to "Heartland Bank Limited". The
Amalgamation will take effect on 31 December 2015 (Effective Date).

As a result of the Amalgamation, all of Heartland's businesses currently
sitting outside of Heartland Bank will be brought into the banking group.
The most significant of these businesses is the Australian reverse mortgage
business, known as Heartland Seniors Finance. Other strategic investments,
such as Heartland's shareholdings in Harmoney Corp Limited and Ora HQ
Limited, as well as MARAC Insurance Limited, will also be brought into the
banking group.

The Reserve Bank of New Zealand (RBNZ) is not required to consent to the
Amalgamation, however we have notified them of it and are awaiting a formal
response from them. Fitch has recently affirmed Heartland Bank's long term
credit rating of BBB (outlook stable) and we do not believe that the
Amalgamation will affect that rating.

No shareholder approvals are required to effect the Amalgamation. However,
shareholders will be asked to vote on the appointment of directors to the new
board of the Continuing Company (which will be comprised of existing
directors of Heartland and Heartland Bank) and to amend the constitution of
the Continuing Company to reflect the Amalgamation at the upcoming Annual
Meeting. Further information on these resolutions will be provided in the
Notice of Meeting to shareholders for the Annual Meeting.

Issue of Tier 2 Capital Instrument

Heartland advised the market on 18 August 2015 of its intention for Heartland
Bank to issue a Tier 2 regulatory capital instrument (Tier 2 Capital) during
the financial year as part of its capital management strategy, subject to
market conditions remaining favourable.

Heartland's current intention is for the Continuing Company to proceed with
the issue of Tier 2 Capital in April 2016. At this stage, the indicative
issue amount is $50 million with up to $25 million of oversubscriptions. An
issue of Tier 2 Capital would improve the Continuing Company's capital
efficiency through diversification of the sources and types of capital
funding, and would mean that the Continuing Company's capital structure is
more closely aligned with that of other New Zealand registered banks.

No shareholder approvals would be required to effect the Tier 2 Capital
issue, though further information will be provided in the Notice of Meeting
to shareholders for the upcoming Annual Meeting.

Return of Capital

In the market announcement dated 18 August 2015, Heartland noted that a Tier
2 Capital issue could (in the absence of any other use) allow Heartland to
return excess capital to shareholders by way of a share buyback.

Heartland confirms that, following the Amalgamation and the Tier 2 Capital
issue, the Continuing Company will hold levels of regulatory capital in
excess of that required by RBNZ and in excess of Heartland's own internal
capital requirements (which provide for buffers above that required by RBNZ).

Whilst Heartland remains interested in acquiring Motor Trade Finances
Limited, there is currently insufficient certainty as to whether an
acquisition will proceed. In the absence of any other imminent
value-creating investment opportunity, the board's current view is that the
most appropriate use of the Continuing Company's excess capital is to return
it to shareholders.

The exact amount of excess capital to be returned to shareholders would
depend on the extent of oversubscriptions that may be received under the Tier
2 Capital issue and the business and economic factors present at the time the
capital return was conducted. Accordingly, Heartland will seek shareholder
approval at the upcoming Annual Meeting to return an amount of capital within
a range of not less than $58 million (which equates to 10% of Heartland's
average market capitalisation over the 20 trading days prior to this
announcement) and not more than $100 million.

However, circumstances may arise whereby the return of capital may not
proceed even if it is approved by shareholders. In summary, this would be if
the Tier 2 Capital issue did not proceed (or did not complete successfully)
or if the board identified an investment requirement or opportunity prior to
the return of capital being undertaken (including an acquisition of Motor
Trade Finances Limited), which leads the board to consider that a return of
capital is no longer the most appropriate use of the Continuing Company's
excess capital.

Method of Return of Capital

Heartland intends to conduct the return of capital by way of a Court-approved
scheme of arrangement (Arrangement). Under the Arrangement, a proportion of
each shareholder's shares would be cancelled and each shareholder would be
given a cash payment in return for the cancellation of those shares. The
board has determined that this would be the preferred method to return
capital due to the certainty of timing and quantum of return which it would
afford over other mechanisms. In addition, the Arrangement would be fair to
all shareholders as it would ensure the capital is returned on a pro rata
basis, leaving the relative voting and distribution rights of all
shareholders unaffected, subject only to rounding.

Heartland will shortly file an application with the High Court of New Zealand
seeking initial orders that, if granted, will allow the Arrangement to be
voted on by shareholders at the Annual Meeting on 11 December 2015. Inland
Revenue has confirmed that the Arrangement would not be a payment in lieu of
a dividend.

Further information in relation to the Tier 2 Capital issue and the
subsequent return of excess capital will be provided to shareholders in the
Notice of Meeting.

- Ends -

[Not too Flash]

C'mon Roger there MUST be something negative to say about this announcement ....

[mouse]

Percy was right!

[couta1]

Looks all solid stuff to me although I'm a bit green on the return of capital concept, I take it you get more cash than the value of your cancelled shares?

[nextbigthing]

Name change? Thats got to be worth 40cps?!

[Joshuatree]

Opening price re $1.27 plus 1 43,000 thru. Some digestion required.

[percy]

Another very positive announcement by HNZ.
A simpler structure will save time and money.
Bond issues are very popular at present and depending on terms I would expect HNZ's will be oversubscribed.So $75mil .
So we are in a win win situation.Buy MTF if it stacks up,and we increase eps.Walk away from MTF and do a larger share buy back which too will increase eps.
Couta1.No details yet,however you will be free to buy HNZ shares on market with the cash HNZ pays you for your "return of capital shares" HNZ brought from you. You end up with a bigger slice of the pie.
Mouse.You're onto it.!! lol.

[iceman]

I would have preferred on-market buyback But can't complain I suppose. Like the restructure of the setup as the 2 Boards/Companies setup was an unnecessary complication

[winner69]

Name change? Thats got to be worth 40cps?!

Well it looks like that might happen - share price rocketing ahead and on its way to that 40 cents

[iceman]

Mr Market likes the announcement :-)

[winner69]

Maybe 12% of the shares bought?

Heck what will eps be then - times 12 gives something more than 130

[iceman]

Maybe 12% of the shares bought?

Heck what will eps be then - times 12 gives something more than 130

Could even be a safer bet than AIR :confused:

[Baa_Baa]

Another very positive announcement by HNZ.
A simpler structure will save time and money.
Bond issues are very popular at present and depending on terms I would expect HNZ's will be oversubscribed.So $75mil .
So we are in a win win situation.Buy MTF if it stacks up,and we increase eps.Walk away from MTF and do a larger share buy back which too will increase eps.
Couta1.No details yet,however you will be free to buy HNZ shares on market with the cash HNZ pays you for your "return of capital shares" HNZ brought from you. You end up with a bigger slice of the pie.
Mouse.You're onto it.!! lol.

Can someone explain please why the bank borrows money through a tier-2 raise then has too much cash so cancels shares and pays out borrowed cash to shareholders. What's the point, or have I just got this wrong?

[winner69]

Can someone explain please why the bank borrows money through a tier-2 raise then has too much cash so cancels shares and pays out borrowed cash to shareholders. What's the point, or have I just got this wrong?

It's called capital management or financial engineering - mainly to get financial/capital ratios looking better

Often the motivation for doing this stuff is a means to boost management bonuses

[Baa_Baa]

It's called capital management or financial engineering - mainly to get financial/capital ratios looking better

Often the motivation for doing this stuff is a means to boost management bonuses

Is there any advantage or disadvantage to shareholders?

[couta1]

Is there any advantage or disadvantage to shareholders?
The bondholders rank ahead of shareholders in event of a default, but that's standard for this sort of capital raise.

[winner69]

Is there any advantage or disadvantage to shareholders?

Most would say one good thing is EPS increases (less shares) so if earnings multiplies remain the same the share price will be higher

Is a bit of a balancing act because profits are impacted to sum degree by higher interest expenses - hence the need to 'engineer' the right proportions to ensure it is favourable.

Some commentators call share buy backs as 'wealth extraction' (returning money to shareholders) as opposed to 'value creation' (making the company more valuable)

[Beagle]

What they're doing here makes good common sense and will give them financial headroom to take advantage of opportunities and face the challenges that lie ahead.
Baa Baa - In effect there's a value shift from those people who invest in a Tier 2 capital investment to those investing in the ordinary shares. (I would suggest many people investing in a Tier 2 capital compliant fixed interest opportunity don't understand the risks they're taking especially in regard to the Reserve Bank's open bank resolution). Stocks on a Pe of about 11.5 = 8.7% earnings yield...issue 75m debt at say 6% and in effect there's a value shift of about 2.7% on $75m = $2m per year of extra value for ordinary shareholders. By cancelling a certain number of shares they're able to increase EPS marginally on the remaining shares.

An extra $2m a year of earnings at a PE of circa 11.5 = $23m..devided by 470m odd shares = 4.9 cents a share and what do you know that's what the SP is up by today.
That said some of the senior bankers in the company will probably get a nice juicy bonus for boosting the EPS so how much value shareholders actually see remains to be seen, as does whether they get the issue over the line.

Overall though it looks like a sound move as does streamlining of the corporate structure which will add some efficiency.

[percy]

Is there any advantage or disadvantage to shareholders?

A big advantage to shareholders.
Less shares on issue mean we own a larger slice of the pie,and ROE and EPS improve which means HNZ will have a greater capacity to pay increasing dividends.
I look at it this way,HNZ pay 5% on bonds ,the interest is deductible, and they use the funds to replace excess shareholders equity, and can earn return on those funds of over 11%.
What remains is HNZ retain a strong equity ratio.

[winner69]

I hope that none of the female directors of both entities don't lose out with the restructure.

[winner69]

Percy - everybody having some shares cancelled - your 'share of the pie' stays the same - yes?

[Baa_Baa]

Percy - everybody having some shares cancelled - your 'share of the pie' stays the same - yes?

That's what the announce said.

Thanks folks for helping to explain this.

[Onion]

Percy - everybody having some shares cancelled - your 'share of the pie' stays the same - yes?

If you reinvest the cash back into shares your 'share of the pie' will grow.

[winner69]

If you reinvest the cash back into shares your 'share of the pie' will grow.

..... but I could buy shares today as well and increase my share of the pie

[Snow Leopard]

Company owns banks = two sets of accounts to read
Company is bank = one set of accounts to read

If that does not double the share price then I will eat my lunch

Best Wishes
Paper Tiger

[iceman]

If you reinvest the cash back into shares your 'share of the pie' will grow.

I am sure there will be many SH that use the cash they'll get to buy more shares. That's why I would have preferred an on market buyback. Much simpler for us !

[Deej5]

AIA bought back 10% of my shares last year. The price per share was decided before the buy back and it was less than the price per share when paid. I paid more to replace the shares but because there are less shares (by 10%) the share price increased. I'm a bit happy.

[tim23]

Market likes, I said last month great yield and the market doesn't seem to (may be now) realise the value of Harmoney stake and reverse mortgage growth potential.

[winner69]

That's what the announce said.

Thanks folks for helping to explain this.

But are you any the wiser BaaBaa

Key is debt is cheaper than equity

[Baa_Baa]

But are you any the wiser BaaBaa

Key is debt is cheaper than equity

Wiser, as in wisdom, or applied knowledge with good judgement? According to Rogers calculations (thanks) the market has already, and quickly priced in the EPS. Wise might have been buying instantly on the announce. I'll have to be satisfied just being more knowledgeable.
🤓

[Master98]

Fitch already response to HNZ amalgamation:
http://www.reuters.com/article/2015/11/06/idUSFit93916620151106#std9FsR0pvO5xSGk.97
Fitch: Heartland Bank's Restructure Credit Neutral

[Joshuatree]

What they're doing here makes good common sense and will give them financial headroom to take advantage of opportunities and face the challenges that lie ahead.
Baa Baa - In effect there's a value shift from those people who invest in a Tier 2 capital investment to those investing in the ordinary shares. (I would suggest many people investing in a Tier 2 capital compliant fixed interest opportunity don't understand the risks they're taking especially in regard to the Reserve Bank's open bank resolution). Stocks on a Pe of about 11.5 = 8.7% earnings yield...issue 75m debt at say 6% and in effect there's a value shift of about 2.7% on $75m = $2m per year of extra value for ordinary shareholders. By cancelling a certain number of shares they're able to increase EPS marginally on the remaining shares.

An extra $2m a year of earnings at a PE of circa 11.5 = $23m..devided by 470m odd shares = 4.9 cents a share and what do you know that's what the SP is up by today.
That said some of the senior bankers in the company will probably get a nice juicy bonus for boosting the EPS so how much value shareholders actually see remains to be seen, as does whether they get the issue over the line.

Overall though it looks like a sound move as does streamlining of the corporate structure which will add some efficiency.

Thanks for the informative objective post

[K1W1G0LD]

Fitch already response to HNZ amalgamation:
http://www.reuters.com/article/2015/11/06/idUSFit93916620151106#std9FsR0pvO5xSGk.97
Fitch: Heartland Bank's Restructure Credit Neutral

All this good news in one day and the shareprice has hit $1.30.
I'm so happy I could burst!

[mouse]

Can someone explain please why the bank borrows money through a tier-2 raise then has too much cash so cancels shares and pays out borrowed cash to shareholders. What's the point, or have I just got this wrong?

Because, at the present, the Greedy Shareholders want a reasonable return on share capital. But money on deposit comes at a lower rate. So, shareholder cash is more at risk now, due to less shareholder cash in shares. Swings and whatever.

[kiora]

Because, at the present, the Greedy Shareholders want a reasonable return on share capital. But money on deposit comes at a lower rate. So, shareholder cash is more at risk now, due to less shareholder cash in shares. Swings and whatever.

I agree Mouse .The risk for provisioning will be higher IMHO

[percy]

Heartland Bank is a bank.It is run be very experienced bankers,and has a board made up of people with proven business experience.
The business is based on money,the best use of money,borrowing at the best price,and lending at good margins to people who can repay their loans, and their interest.Heartland Bank must make sure they have diversified sources of funding and a diversified loan book.Heartland Bank must report quarterly to The Reserve Bank of NZ.It is subject to Fitch's Credit Ratings.The board of Heartland must make sure they keep their capital ratios right.
As we would expect HNZ have been doing all of these things.So it is only natural that HNZ look at themselves with "the owner's eye".[Directors and management are large shareholders].
They have seen that HNZ has too much capital and making use of "capital management" they can use a bond issue, and spare cash, to return the excess to shareholders,without weakening capital ratios.
They are only doing what they are experts at,banking and use of money.HNZ's EPS,ROE and capacity to increase dividends will improve with this capital return.
Should Heartland Bank need to raise funds for a large acquisition in a couple of years time,they will be well supported because the market knows they make great use of their capital.
HNZ are returning capital,while the Aussie Banks are raising capital.!!..I think that says it all.!
ps.www.scoop.co.nz and www.stuff.co.nz are both talking of $100mil return.I think they are right.$75mil from a bond issue and $25mil from "petty cash".

[kizame]

AND... What I specifically like about them is that they don't make rash aquisitions (except maybe Harmoney,but this may yet prove me wrong) They don't overpay or overstretch themselves in order to get what they want. The prudence shown over MTF is a good example.
This tells me that my capital invested in their shares is being nurtured.
Normally I am an impatient person wanting growth to happen quickly,but you can't beat a continuing steady increase over time.

[percy]

AND... What I specifically like about them is that they don't make rash aquisitions (except maybe Harmoney,but this may yet prove me wrong) They don't overpay or overstretch themselves in order to get what they want. The prudence shown over MTF is a good example.
This tells me that my capital invested in their shares is being nurtured.
Normally I am an impatient person wanting growth to happen quickly,but you can't beat a continuing steady increase over time.

I agree with you.They want to be the best bank,not the biggest.
Harmoney.I think if they had not taken a shareholding, we all would be disappointed in them, not being it that" new growing" sector.It looks to me HNZ have first right to pick the loans they want,so maybe it is very successful for HNZ.
And yes "you can't beat a continuing steady increase over time."

[winner69]

Because, at the present, the Greedy Shareholders want a reasonable return on share capital. But money on deposit comes at a lower rate. So, shareholder cash is more at risk now, due to less shareholder cash in shares. Swings and whatever.

Yes - Heartland will be increasing its leverage

Some will say good, some will have reservations

[nextbigthing]

Yes - Heartland will be increasing its leverage

Some will say good, some will have reservations

Even Roger said it's good. Shame we can't buy more on a Saturday. Next stop $1.60

[horus1]

I have a lot , buying more . well run do what they say. Good directors ,not ex politicians.

[winner69]

Even Roger said it's good. Shame we can't buy more on a Saturday. Next stop $1.60

Be patient nbt - next stop is $1.90 anyway (revised my outlook taking into account the recent exuberance)

[trader_jackson]

Be patient nbt - next stop is $1.90 anyway (revised my outlook taking into account the recent exuberance)

Almost tempted to sell out of my GNE or MRP holding to buy (more) HNZ now...

[pierre]

Almost tempted to sell out of my GNE or MRP holding to buy (more) HNZ now...

I did that a couple of weeks ago TJ. Sold GNE and topped up my HNZ and AIR. Both have moved in the right direction.

[kiora]

Yes - Heartland will be increasing its leverage

Some will say good, some will have reservations

Yes and the credit rating will drop and interest rate % it pays to attract funds will increase as a result.May be OK in good times but we all know they don't last forever.

[Beagle]

Even Roger said it's good. Shame we can't buy more on a Saturday. Next stop $1.60

The Tier 2 capital raise is a good idea...issuing capital notes at circa 6% and taking advantage of interest rates at multi decade lows and people who may not understand the risks they're taking, (Reserve Bank open bank resolution and other clauses that leave them exposed more than a conventional senior debt obligation)

Looking at the text of what HNZ had to say the other day I think people may be getting a little ahead of themselves thinking there could be $100m repaid to ordinary shareholders. Nothing in the text of the news release would suggest that, (in fact they suggest some of it could be used for the MTF purchase), and the issue hasn't even been successfully executed yet. If anything they might play this a little conservatively and pay out less than any amount that may be raised given the uncertain economic conditions even if they don't secure MTF, which itself is far from a done deal) which wouldn't be a bad way to play it IMO.

There was a big increase in consumer debt provisioning in the FY15 accounts at a time that the unemployment figures were relatively stable. With some economists anticipating a meaningful increase in unemployment next year on top of that recently announced to 6%, this could prove to be another challenge in the year ahead especially when a lot of this lending is being done on an unsecured basis through an unproven channel, (Harmoney).

When you compare the PE of HNZ to other Australasian banks which also have their own opportunities and challenges HNZ's shares at $1.30 appear quite fully priced to me with all of the apparent benefits of the Tier 2 issue already fully priced in notwithstanding it hasn't been squared away yet.

Disc: Not holding - One swallow doesn't make a summer.

[Arbroath]

Roger

I agree at 11-12 times earnings HNZ are priced similarly to the big Aussie banks but there is one crucial advantage for NZ taxpayers in owning Heartland over the Aussie banks and that is the tax effectiveness. At $1.30 an 8cps dividend for 2016 is a gross yield of 8.5%. NAB is on a similar multiple and payout ratio and its A$1.98 dividend on the A$28.65 share price is a gross yield of 6.9%. Heartland effectively pays an extra 1.5-2% per annum gross return more than all four Aussie lenders. Now the big Aussies are AA- and Heartland is BBB+ so some premium is justified so maybe the extra income is already priced into Heartland given it trades on a similar multiple.

Disc: I hold HNZ

[Beagle]

Yes Arbroath the inability of Kiwi's to claim Australian franking credits is quite an inequitable situation in the light of so called closer economic relations with Australia and in my opinion is a major unresolved sore point with Kiwi investors so if you are looking at HNZ purely in the context of its ability to pay Kiwi's a higher yield by virtue of its imputation credits then yes the advantage at this stage in that respect is clear. On the other hand you have Australian banks with a vastly longer track record than HNZ and a significantly superior credit rating.

For much of 2014 HNZ traded at a meaningful PE discount to the major Australian banks.

[kizame]

And of course one point you forget when valuing hnz compared to the aussie banks is the growth potential of the former.
HNZ being a small bank with a big desire to grow,has way more potential now to return substantial capital gains and dividend growth,than the big cumbersome mature aussies.
Therefore with their stated intentions to grow organically,and through aquisition,in my view justifies a higher pe,being a small growth company.

[Beagle]

I don't forget growth "potential". Potential is contingent on successful execution and the degree and extent to which HNZ are chasing unsecured consumer lending and funding it through paying the highest call account rate of the N.Z. banks at 3.6%, (support that is literally here today and gone tomorrow at the slightest hint of any drama), would worry this worry worm, if I was a shareholder in addition to other worries previously articulated.

Anyway it was well worth the exercise to look over 4 traders to see consensus growth expectations for the next three years earnings for the bank's I follow and they're broadly supportive of your argument with the exception of Bank of Queensland currently trading on a PE of 13 with consensus growth expectations of 34% in total for the next three years, approx. 10% growth compounding. 83 cps in Fy15, to 101, 105 and 111 forecast in Fy18.

This is a bank formed in 1874 so has a track record longer than your great grandparents arms and their parents before them.

Consensus growth expectations for HNZ are for earnings to grow from 10 cps in 2015 to 11, 12.1 and 12.7 in 2018, total growth of 27% or approx. 8.2% compound per annum.

HNZ currently trades at 11.8 times consensus FY16 earnings and BOQ at 13 times. This is the best proxy comparison as the major banks as you say have lower projected growth rates.

On the basis of the superior growth rate of BOQ that has to be worth an extra PE of at least 1.8 (the greater compound growth rate per annum), in fact the legendary Ben Grahame would argue growth should be valued at 2 x so you could easily make the case their superior consensus growth rate is worth more than an extra PE of 2.

Then there's BOQ's vastly longer track record and better credit rating and how you value that...you decide.

Anyway for those that believe consumer and dairy debt won't be an untoward sized problem I would agree HNZ are the better hold as a dividend yield play for the reason of being able to claim the imputation credits but they look fully priced to me, but for those looking for capital growth it looks to me the BOQ are the better play. No way do the rampers have any comparative valuations to support their lofty SP aspirations IMO. That said we live in an ultra low interest rate environment where most banks are paying 2.0 - 2.5 % on call and only another ~ 1% to lock your money away on term deposit so yield hunters could easily drive this and a number of other high dividend yielding shares on the NZX beyond fair value. A prime example of this is HLG which despite having clearly articulated currency and competition headwinds saw its SP rise.

[Snow Leopard]

...Looking at the text of what HNZ had to say the other day I think people may be getting a little ahead of themselves thinking there could be $100m repaid to ordinary shareholders. Nothing in the text of the news release would suggest that,...

from Heartland announcement (https://nzx.com/companies/HNZ/announcements/272954)

...Accordingly, Heartland will seek shareholder approval at the upcoming Annual Meeting to return an amount of capital within a range of not less than $58 million (which equates to 10% of Heartland’s average market capitalisation over the 20 trading days prior to this announcement) and not more than $100 million. ...

Best Wishes
Paper Tiger

[Beagle]

Probably too busy calculating what a $75m exercise in financial engineering might be worth to the potential value of ordinary shares (if they can execute it), and glossed over the detail, see post #6648.

There's plenty more in there regarding a possible acquisition of MTF, (as you know), so a substantial share capital return even if they get the Tier 2 issue done successfully is far from a done deal already.

[Snow Leopard]

As they say: the devil is often in the detail.

I would not bother doing anymore sums, it is all highly unlikely to be EPS negative and is probably worth at least 2%.

Best Wishes
Paper Tiger

[Beagle]

Devil sure is in the detail, emphasis added. I guess we don't want the unemployment rate to blow right out or the GDT auction prices to collapse back down then do we ?


The exact amount of excess capital to be returned to shareholders would
depend on the extent of oversubscriptions that may be received under the Tier
2 Capital issue and the business and economic factors present at the time the
capital return was conducted. Accordingly, Heartland will seek shareholder
approval at the upcoming Annual Meeting to return an amount of capital within
a range of not less than $58 million (which equates to 10% of Heartland's
average market capitalisation over the 20 trading days prior to this
announcement) and not more than $100 million.

However, circumstances may arise whereby the return of capital may not
proceed even if it is approved by shareholders. In summary, this would be if
the Tier 2 Capital issue did not proceed (or did not complete successfully)
or if the board identified an investment requirement or opportunity prior to
the return of capital being undertaken (including an acquisition of Motor
Trade Finances Limited), which leads the board to consider that a return of
capital is no longer the most appropriate use of the Continuing Company's
excess capital.

How have they gone in terms of the HER business acquisition being EPS accretive ?

So the 4.9 cent net benefit I calculated isn't a certainty by any means..oh wait, the market has already priced that in fully...people counting their chickens before they arrive ?

[gv1]

Why would they want to return capital when dairy outlook doesn't look good.

[percy]

Why would they want to return capital when dairy outlook doesn't look good.

Because they have a low exposure to dairying,and having made adequate provisions against impairments,most probably don't want to take on more dairying loans.

[Snow Leopard]

Why would they want to return capital when dairy outlook doesn't look good.

If I open my fridge door, there, sitting right in the middle, at the front, of the second shelf from the top is an unopened 250g block of Mainland Vintage.

It does not get much better than that.

But seriously:

If and only if they raise this $50 to $75 of Tier 2 capital (which would equate to about 2% of capital adequacy for the larger 2016 version of the bank)
and they fail to find something EPS positive to buy with it
then they will have more (money, not cheese) kicking around than is sensible and they will very graciously let me have some of it.

HNZ will make provisions for impairment based on the reality of the situation and maintain its capital position in order to remain within its RBNZ requirements given their analysis of future economic possibilities.

So all is probably OK, but everything comes with some degree of risk.

Best Wishes
Paper Tiger

[percy]

MTF or any other acquisition will have to be fantastic to be better than the up to $100mil share by back.!!!

[Snow Leopard]

MTF or any other acquisition will have to be fantastic to be better than the up to $100mil share by back.!!!

It depends upon the interest rate they pay on any new Tier 2 and at what price they buy back existing shares. (The announcement mentions 10% for $58 which is only $1.225, but do not take that as what will be).

But a $50m Tier 2/Tier 1 swap is about 2.7% EPS positive
and a $75m swap is about 4.2% EPS positive

Both with Tier 2 paying 6% and capital return at $1.30 a share

Best Wishes
Paper Tiger

[Snow Leopard]

apropos of my previous post Harvey Specter makes a highly relevent comment on the CEN thread (http://www.sharetrader.co.nz/showthread.php?2674-CEN-Chart&p=596913&viewfull=1#post596913) about pro-rata buybacks needing to be over 10% of market cap and I will presume that this would apply here.

If this is true then do not bid the price up too much; any buy-back could become un-affordable.

Best Wishes
Paper Tiger

[Beagle]

If they get the issue underway in April then by May or June 16 they will be in a better position to judge how the economy is going, how their consumer and dairy loan books are performing, have some idea of the extent of provisioning for Fy16 in respect of same and the visibility on the dairy recovery, if any, should be better. Supreme court decision on MTF should be in by then too and due diligence done but I think MTF directors will play very, very hard to get and this could easily degenerate into a protracted Briscoes v Kathmandu situation. I'd imagine MTF directors like their comfortable position and directors fees just as much as Kathmandu directors do. Acting in best interests of shareholders or feathering their own nests ?

[gv1]

I was thinking the same, some big holders wants to empty the vault before existing.. my 2cents.

[sb9]

Well, for what its worth I got out of HNZ the other day and shifted those funds into better prospect like TIL. Between those two I'm sure HNZ would do ok, however TIL would fetch far better return in my opinion. I know this is not TIL thread, sorry for the distraction and back to HNZ discussion.

[trader_jackson]

http://www.stuff.co.nz/business/73882826/motor-trade-finance-battles-commerce-commission-in-supreme-court

Will be watching carefully

[iceman]

Well, for what its worth I got out of HNZ the other day and shifted those funds into better prospect like TIL. Between those two I'm sure HNZ would do ok, however TIL would fetch far better return in my opinion. I know this is not TIL thread, sorry for the distraction and back to HNZ discussion.

I probably bought them mate. Just topping up a bit to increase my average buy in price of $ 0.67, Doubled my shares value in 4 years, expect same for the shares I just bought of you. My mate Roger is my guarantour with Percy a well positioned 2nd guarantor behind Roger.

[blockhead]

I think I saw Roger passing through here yesterday morning, he was off down to Waimate on a wallaby hunt, they look like kangaroos and from what I hear he is doing extremely well.

[sb9]

I probably bought them mate. Just topping up a bit to increase my average buy in price of $ 0.67, Doubled my shares value in 4 years, expect same for the shares I just bought of you. My mate Roger is my guarantour with Percy a well positioned 2nd guarantor behind Roger.

Good on ya mate.

I do believe in HNZ doing ok, however needed funds for further investment and that was only stock that could sell from portfolio.

[iceman]

Reserve Bank asking 5 banks to stress test dairy loans, but leaves HNZ out so obviously the RB is satisfied HNZ is well positioned !
http://www.nbr.co.nz/article/reserve-bank-asks-banks-stress-test-dairy-loans-b-181416

[percy]

HNZ has low exposure to dairying.
HNZ has low exposure to Auckland property market.[the odd REL]
HNZ has no exposure to the Australian mining sector.
HNZ has no exposure to the weak Australian manufacturing sector.
HNZ has no exposure to the weak Australian retail sector.
HNZ has no exposure to the Asian Banking sector.
If HNZ has any exposure to Australian roperty sector it is only via REL loans where the security is first rate.
HNZ has no exposure to the volatile wholesale market for funding.
HNZ does no need to raise more capital,in fact they have excess.
Yet the market will react as though HNZ alone are totally at risk with the dairy sector.

[nextbigthing]

HNZ has low exposure to dairying.
HNZ has low exposure to Auckland property market.[the odd REL]
HNZ has no exposure to the Australian mining sector.
HNZ has no exposure to the weak Australian manufacturing sector.
HNZ has no exposure to the weak Australian retail sector.
HNZ has no exposure to the Asian Banking sector.
If HNZ has any exposure to Australian roperty sector it is only via REL loans where the security is first rate.
HNZ has no exposure to the volatile wholesale market for funding.
HNZ does no need to raise more capital,in fact they have excess.
Yet the market will react as though HNZ alone are totally at risk with the dairy sector.

Good post Percy.

I would like to point out however HNZ is exposed to one thing - upside potential of the shareprice. Quite a worry.

[Snow Leopard]

HNZ has low exposure to dairying.
HNZ has low exposure to Auckland property market.[the odd REL]
HNZ has no exposure to the Australian mining sector.
HNZ has no exposure to the weak Australian manufacturing sector.
HNZ has no exposure to the weak Australian retail sector.
HNZ has no exposure to the Asian Banking sector.
If HNZ has any exposure to Australian roperty sector it is only via REL loans where the security is first rate.
HNZ has no exposure to the volatile wholesale market for funding.
HNZ does no need to raise more capital,in fact they have excess.
Yet the market will react as though HNZ alone are totally at risk with the dairy sector.

HNZ is a tiny little bank:

ANZ $134B of liabilities;
ASB $71B of liabilities;
HNZ $3B of liabilities.


Best Wishes
Paper Tiger

[percy]

Good post Percy.

I would like to point out however HNZ is exposed to one thing - upside potential of the shareprice. Quite a worry.

One I am quiet comfortable, living with.
,In fact you could say "I am "comfortably positioned."!!!!

[percy]

PT's question.
Do we actually lend anything to anybody or borrow anything from anyone?
Answer;Yes and do it well.!

[SCOTTY]

HNZ has low exposure to dairying.
HNZ has low exposure to Auckland property market.[the odd REL]
HNZ has no exposure to the Australian mining sector.
HNZ has no exposure to the weak Australian manufacturing sector.
HNZ has no exposure to the weak Australian retail sector.
HNZ has no exposure to the Asian Banking sector.
If HNZ has any exposure to Australian roperty sector it is only via REL loans where the security is first rate.
HNZ has no exposure to the volatile wholesale market for funding.
HNZ does no need to raise more capital,in fact they have excess.
Yet the market will react as though HNZ alone are totally at risk with the dairy sector.
and HNZ has no exposure to ROGER �� (post 6676)

[winner69]

Chris Lee does another rave on Heartland
http://www.chrislee.co.nz/taking-stock

But he does say - I have never believed in banks returning capital. My view is they can never have too much capital and should accept lower returns on equity as the offset of greater balance sheet strength.

I agree with Mr Lee

[percy]

I think it is time we remembered Kerry Packer.Kerry liked money to be earning its way.Kerry had just brought another business and was talking to it's CFO.
"What's this money hidden in the accounts"?
"It's our rainy day fund."
"Look outside son,it's p.ssing down."!!!!!!!!!!!!!!!!!!!!!!!

[winner69]

I think it is time we remembered Kerry Packer.Kerry liked money to be earning its way.Kerry had just brought another business and was talking to it's CFO.
"What's this money hidden in the accounts"?
"It's our rainy day fund."
"Look outside son,it's p.ssing down."!!!!!!!!!!!!!!!!!!!!!!!


No, no Percy. What you suggesting must be wrong

Heartland would never do such things like 'hiding things' in their accounts. Their strong governance wouldn't allow such activity would it.

[winner69]

Man from MTF on the radio today says HEARTLAND been doing due diligence for the last few weeks.

[winner69]

With apologies to those whose posts did not warrant deletion but

Let us start today again and do so with good grace:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11546646


(http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11546646)

We need to keep pace with developments as to how dairy farmers are coping. It is very relevant to Heartland

If things do get bad Heartland will have increased bad debts which will affect profitability. Even a couple of million is significant relative to a $50m earnings base

Heartland themselves did say this re Rural a few months ago: low impairments for FY15 and include adequate provisions for the dairy sector- expect higher level of impairments for FY16

[stoploss]

Always good to keep abreast of new developments in the sector . However the RBNZ obviously sees the concentration of risk with the big 5 , hence the stress test .
I note HNZ was left out of this .

http://www.nbr.co.nz/article/reserve-bank-asks-banks-stress-test-dairy-loans-b-181416

[Snow Leopard]

Always good to keep abreast of new developments in the sector . However the RBNZ obviously sees the concentration of risk with the big 5 , hence the stress test .
I note HNZ was left out of this .

http://www.nbr.co.nz/article/reserve-bank-asks-banks-stress-test-dairy-loans-b-181416


HNZ is a tiny little bank:

ANZ $134B of liabilities;
ASB $71B of liabilities;
HNZ $3B of liabilities.


Best Wishes
Paper Tiger

HNZ falling over is not such a significant risk to NZ, unlike the big five.

But I would rather it not go phut!

Best Wishes
Paper Tiger

[winner69]

Always good to keep abreast of new developments in the sector . However the RBNZ obviously sees the concentration of risk with the big 5 , hence the stress test .
I note HNZ was left out of this .

http://www.nbr.co.nz/article/reserve-bank-asks-banks-stress-test-dairy-loans-b-181416

I don't think anybody is doubting Heartland ability to withstand a major dairy downturn. Dairy after all only 7% odd of total loans. No need to 'stress test' Heartland.

The so named other banks exposure to dairy is irrelevant to any discussion re Heartland.

What's important is the impact on Heartlands future earnings if more than expected of the $200m plus dairy loans under perform. Remember earnings are only $50m odd so it doesn't take too much extra bad debt to make a dent in that.

As Heartland themselves say 'expect higher levels of impairment in FY16. I wonder how much more?

[winner69]

What could be the impact on Heartland's future profits?

Maybe as high as $9m a year

This from the Cows in Calf thread (where good stuff is often posted). They refers to the RBNZ


They're not worried about HNZ because its a small lender with a higher capital ratio already and they know HNZ are planning to raise more capital early next year.

By their own estimations 18% losses in the sector implies HNZ could get hit for about $37m (18% of $207m). Expect HNZ to spread that over a number of years to make it manageable, amortised over 4 years = $9m a year reduction in profits and seeing as they're forecasting $50m then its not going to upset the financial stability of the economy other than shareholders expecting profit growth, (Reserve bank doesn't care about them).

[winner69]

Dairy farm prices down 19% from a year ago

Could mean that the 62% LVR that Heartland touts is now about 78% (based on averages applying to Heartland)

https://www.reinz.co.nz/shadomx/apps/fms/fmsdownload.cfm?file_uuid=897BB383-B643-421A-8D4F-3DF037BB4F4F&siteName=reinz

[kiora]

Dairy farm prices down 19% from a year ago

Could mean that the 62% LVR that Heartland touts is now about 78% (based on averages applying to Heartland)

https://www.reinz.co.nz/shadomx/apps/fms/fmsdownload.cfm?file_uuid=897BB383-B643-421A-8D4F-3DF037BB4F4F&siteName=reinz

My view is the Heartland lending to the dairy sector would be at a higher risk end of the market compared to the big 5(when considering client financial health & reason for the loan) .So if the big 5 may have 5-10% dairy lending impaired I would expect 2-3(maybe higher) times this % impairment with the Heartland loan book.My understanding is the Heartland loan book is more likely for stock etc rather than over land.

[winner69]

HNZ share price on fire today - up to $1.32

Even the DRP shares if lastvApril soon to be in the money

Steady rise from here and $1.40 by the time of ASM and then who knows what might happen ....confirmation of $56m earnings and a good old Jeff ramp up might shoot up to $1.50 ---- yippee

[percy]

There have been two recent brokers' reports on HNZ.Both were very impressed with HNZ's capital management proposals,the use of Tier2 capital to fund the possible share buy back, and the positive affects that will have on eps,roe and dividends.

[winner69]

There have been two recent brokers' reports on HNZ.Both were very impressed with HNZ's capital management proposals,the use of Tier2 capital to fund the possible share buy back, and the positive affects that will have on eps,roe and dividends.

Maybe that's why the share price is pushing into the mid 130's

[winner69]

There have been two recent brokers' reports on HNZ.Both were very impressed with HNZ's capital management proposals,the use of Tier2 capital to fund the possible share buy back, and the positive affects that will have on eps,roe and dividends.

If everything else remains constant doesn't paying interest on these bonds reduce profits = value of dividends paid out is reduced as a consequence

[percy]

No.
ROE increases.
Interest paid on bonds is debuctible.

[winner69]

No.
ROE increases.
Interest paid on bonds is debuctible.

No

Yes - ROE does increase

Yes - I know interest is tax deductible

But - NPAT reduces by amount of interest paid on bonds (after tax) ---> means value of dividends paid out is reduced by same amount.

You might see a higher dividend per share but with the lower number of shares your $ dividend is less (assuming everything else remains constant)

[Snow Leopard]

No.
ROE increases.
Interest paid on bonds is debuctible.


No

Yes - ROE does increase

Yes - I know interest is tax deductible

But - NPAT reduces by amount of interest paid on bonds (after tax) ---> means value of dividends paid out is reduced by same amount.

You might see a higher dividend per share but with the lower number of shares your $ dividend is less (assuming everything else remains constant)

po-ta-toe, po-tah-to
to-ma-toe, to-mah-to

You can not beat a good debate on semantics.

Best Wishes
Paper Tiger

[winner69]

po-ta-to, po-tah-to
to-ma-to, to-mah-to

You can not beat a good debate on semantics.

Best Wishes
Paper Tiger

That's why they call it financial engineering - one thinks they getting more but actually getting less in the hand (all other things remaining constant of course)

And by the way po-ta-to is spelt potatoe according to guy named Dan

[percy]

po-ta-toe, po-tah-to
to-ma-toe, to-mah-to

You can not beat a good debate on semantics.

Best Wishes
Paper Tiger

Yet it sounded so simple when explained to me by a Dr. of Economics in 1991.!
W69.It may pay you to ring Jeff.If he is still not taking your calls, try the CFO,Simon Owen.

[winner69]

Percy, no need to ring Simon - would only waste his time as he'd agree with me as he a gun accountant.

You are right and I have never disagreed - proposed capital management initiatives will increase EPS, will increase ROE and will increase dividend per share. Other metrics will look better as well. No argument.

But NPAT will be reduced by the amount of interest on the bonds (after tax) and in theory the total value of dividends will reduce (assuming all other things remain constant)

But all other things don't remain constant which means we will never really know what impact the initiative will have anyway. Just like we will never really never know whether the Seniors acquisition was EPS accretive or not.

The tiger said lets call the whole thing off (think that meant cool it) - so seeing i might get the last word in I will

[winner69]

Back to reality

A close at 132 today - good sign that this was the high for the day which bodes well for tomorrow

Getting closer to the AGM - hopefully guidance will be tightened up and even increased slightly. Something like $54m to $57m sounds a lot better than the current guidance.

Likely? Why not? The economy is bubbling along nicely with business and consumer spend pretty strong. That should be helping the Heartland loan book grow.

No need to worry about problems in rural yet - if it all does turn to custard the impact won't be felt until FY17 anyway. By then the share price probably in excess of 170 so still plenty of upside.

[percy]

Percy, no need to ring Simon - would only waste his time as he'd agree with me as he a gun accountant.

You are right and I have never disagreed - proposed capital management initiatives will increase EPS, will increase ROE and will increase dividend per share. Other metrics will look better as well. No argument.

But NPAT will be reduced by the amount of interest on the bonds (after tax) and in theory the total value of dividends will reduce (assuming all other things remain constant)

But all other things don't remain constant which means we will never really know what impact the initiative will have anyway. Just like we will never really never know whether the Seniors acquisition was EPS accretive or not.

The tiger said lets call the whole thing off (think that meant cool it) - so seeing i might get the last word in I will

Goodness help us all.
That post could only have been written by an economist.!!!..lol.

[winner69]

Goodness help us all.
That post could only have been written by an economist.!!!..lol.

Most of it was your words anyway - what you learnt from your Dr of Economics in 1991.

But I will take your comments as a compliment anyway

[winner69]

Heartland says "Key drivers of growth for Heartland are GDP and employment"

A couple of recent Cameron Bagrie updates via twitte

@ANZ_cambagrie: ANZ job ads for NZ up 1.2% in October. Follows 2.3% lift in sept. Another sign economy picking up from sluggishness in first half of year

@ANZ_cambagrie: Our truckometer up for Oct: good sign for GDP. Heavy traffic up 0.9% follows last months 1.8. Light traffic down small but boomed last month


So all looking good on the GDP front for Fy16 Heartland growth

And don't forget that 83% of F16 interest margin growth is expected to come from business and consumers. (Low expectations from rural)

I'd say $51m to $55m F16 guidance will be tightened up and at the ASm it will become $54m to $57m

No wonder the share price is rising nicely

[Beagle]

My view is the Heartland lending to the dairy sector would be at a higher risk end of the market compared to the big 5(when considering client financial health & reason for the loan) .So if the big 5 may have 5-10% dairy lending impaired I would expect 2-3(maybe higher) times this % impairment with the Heartland loan book.My understanding is the Heartland loan book is more likely for stock etc rather than over land.

This is how I also see it. Reserve bank are forecasting a potential 18% average sector credit losses in a protracted downturn for dairy, (dairy stay's under $5 kilo for four years). This would translate to the potential for approx. $37m in losses at face value for HNZ ($207m x 18%) if things go really bad for the sector, (nobody can be sure whether they will or won't), based on average loan to valuation ratio's for the sector but seeing as it would appear HNZ's loans are at the higher end of the LVR spectrum in a worse case dairy situation losses for HNZ could be higher, exacerbated by sharp potential continuing declines in dairy farm values. That said spread the loss recognition over a number of years and its certainly manageable but nonetheless I think cautious people might like to consider this apparent headwind in their thinking. Optimists will be hoping for a recovery in dairy prices next year, as I am because its good for the economy as a whole as well as our hard working dairy farmers. Nonetheless I think its useful to have an peek into the abyss and an estimation of how bad the sector losses could be in a worst case scenario and the Reserve Bank obviously also thinks so too.

[winner69]

Roger says " I think its useful to have an peek into the abyss ......."

I agree. Investors need to look and consider both the good and the bad and even the ugly - and weigh up for themselves what each means

(Hope one of those >$10m dairy loans don't fall into the abyss)

[stoploss]

Roger says " I think its useful to have an peek into the abyss ......."

I agree. Investors need to look and consider both the good and the bad and even the ugly - and weigh up for themselves what each means

(Hope one of those >$10m dairy loans don't fall into the abyss)

Any idea how many of their loans are to A2 farmers ...they're going great guns ....

[nextbigthing]

$1.60 by Christmas was the word on the street when it was 2 months until Christmas, and the shareprice was approx $1.25.

35c appreciation in 60 days, close to half a cent per day.

Now it's hovering around $1.30 with close to only 30 days until Christmas, that's a 30c appreciation in 30 days, almost one cent per day!

Ie the rate of appreciation of the HNZ shareprice has doubled in this time, from 0.5c to 1c per day.

What a great opportunity!

[kiora]

This is how I also see it. Reserve bank are forecasting a potential 18% average sector credit losses in a protracted downturn for dairy, (dairy stay's under $5 kilo for four years). This would translate to the potential for approx. $37m in losses at face value for HNZ ($207m x 18%) if things go really bad for the sector, (nobody can be sure whether they will or won't), based on average loan to valuation ratio's for the sector but seeing as it would appear HNZ's loans are at the higher end of the LVR spectrum in a worse case dairy situation losses for HNZ could be higher, exacerbated by sharp potential continuing declines in dairy farm values. That said spread the loss recognition over a number of years and its certainly manageable but nonetheless I think cautious people might like to consider this apparent headwind in their thinking. Optimists will be hoping for a recovery in dairy prices next year, as I am because its good for the economy as a whole as well as our hard working dairy farmers. Nonetheless I think its useful to have an peek into the abyss and an estimation of how bad the sector losses could be in a worst case scenario and the Reserve Bank obviously also thinks so too.

Anecdotal evidence would suggest it will be worst case scenario

[Fisherking]

For what it's worth, I've been trying to purchase this stock for around 8 days now by placing orders each night a few cents below the current asking price. 8 days in and i'm still waiting.

Very strong demand, think i'm going to have to bite the bullet.

[janner]

For what it's worth, I've been trying to purchase this stock for around 8 days now by placing orders each night a few cents below the current asking price. 8 days in and i'm still waiting.

Very strong demand, think i'm going to have to bite the bullet.

DYOR..

If you think it is worth buying... BUY !!!..

Applies to all of your purchases..

And sales.. !!!.

[tim23]

For what it's worth, I've been trying to purchase this stock for around 8 days now by placing orders each night a few cents below the current asking price. 8 days in and i'm still waiting.

Very strong demand, think i'm going to have to bite the bullet.

Assuming you want to own the stock as an investment then simply pay the market price if you are looking to speculate try the ASX mining sector and throw a dart!

[tim23]

Fisherking - Assuming you want to own the stock as an investment then simply pay the market price if you are looking to speculate try the ASX mining sector and throw a dart!

[trader_jackson]

For what it's worth, I've been trying to purchase this stock for around 8 days now by placing orders each night a few cents below the current asking price. 8 days in and i'm still waiting.

Very strong demand, think i'm going to have to bite the bullet.

Sometimes you have to pay a premium for a premium stock...

I'm certainly not expecting to it go down, aussie banking sector has recovered strongly this week, CBA almost over $80 mark again with ANZ etc doing well... keep trying to 'pick it' doesn't usually work. I brought in August at $1.12, and although at the time it went all the way down into the mid $1.0x's, and a friend brought in at $1.09 a couple of days after me, I am still over the moon with my $1.12 buy which included a 'bonus' 4.5c dividend reinvested at $1.11... Its looking pretty good now and the only thing I would have done different was buy more!

[Baa_Baa]

Sometimes you have to pay a premium for a premium stock...

Sometime maybe, but if you're patient you can most times buy premium at discount prices. That time might be over for HNZ in the meantime after recent price weakness and increasing price strength. The question is really whether you're prepared to time your buys (and sells) or whether you just want to be in right now regardless of the SP.

[Snow Leopard]

I see two problems hanging around waiting for the price to come to you:

1/ It may never happen.
2/ If it does happen you may end up with a partially filled order on which you have to pay the minimum brokerage - so what you going to do then?

Personally I buy if I believe there is sufficient depth on the sell side, at or below the price I am willing to pay, that I can get at least $10,000 straight away when the order goes in.
And even that does not always work. I have had the market move sufficiently that I have ended up on the buy side with some bot feeding me shares in $80 lots and then your inbox ends up stuffed with buy-notice emails.

So whatever your reasoning if the current price is right go buy them.

Best Wishes
Paper Tiger

Disc: This my opinion for any share not specifically HNZ

[Snow Leopard]

So at 30-Jun-15 HNZ had $2,862M07 of receivables and they said that 7.6% of that was dairy related.
Now 7.6% could be as much as 7.6499999999999999999999999999% really
so that could be as much as
$218M95
of dairy loans [or $217.52 if you want to use the 7.6% as is].

Now the reserve bank estimates in their most severe scenario from the recent Financial Stability Report that losses associated with those loans would be 14% of the value of said loans which is:
$30M65

Some on this channel have mentioned an 18% loss or an opinion that it will be worse for HNZ, so with that much more severe 18% we would have:
$39M41.

So just for fun let us assume that HNZ in FY15 impaired that $39M41 of dairy in addition to the $775K of dairy that they actually did.
[Note: total across the board impairment expense was $12M11 for FY15].

Profit would not have been flash at:
$8M75.

Assuming that all loans were through the bank bit then Tier 1 capital would have dropped to
$301M

and the capital adequacy ratio to
11.5% (still 1% above the 10.5% buffer limit).

But in reality, impairment is based on the reality of what is actually happening on the ground and there is more to HNZ than just dairy.

The future looks interesting :scared:: full of swings and roundabouts, snakes and ladders, abysses and whatever the opposite of abysses are :mellow:.


And on a related note: The 61% LVR ratio, does anybody actually know how much the value part has changed since June?


E&OE - I have been known to get things wrong.

Best Wishes
Paper Tiger

PS If you need some bedtime reading, look out for banks first quarter disclosure statement, coming soon.

[winner69]

So at 30-Jun-15 HNZ had $2,862M07 of receivables and they said that 7.6% of that was dairy related.
Now 7.6% could be as much as 7.6499999999999999999999999999% really
so that could be as much as
$218M95
of dairy loans [or $217.52 if you want to use the 7.6% as is].

Now the reserve bank estimates in their most severe scenario from the recent Financial Stability Report that losses associated with those loans would be 14% of the value of said loans which is:
$30M65

Some on this channel have mentioned an 18% loss or an opinion that it will be worse for HNZ, so with that much more severe 18% we would have:
$39M41.

So just for fun let us assume that HNZ in FY15 impaired that $39M41 of dairy in addition to the $775K of dairy that they actually did.
[Note: total across the board impairment expense was $12M11 for FY15].

Profit would not have been flash at:
$8M75.

Assuming that all loans were through the bank bit then Tier 1 capital would have dropped to
$301M

and the capital adequacy ratio to
11.5% (still 1% above the 10.5% buffer limit).

But in reality, impairment is based on the reality of what is actually happening on the ground and there is more to HNZ than just dairy.

The future looks interesting :scared:: full of swings and roundabouts, snakes and ladders, abysses and whatever the opposite of abysses are :mellow:.


And on a related note: The 61% LVR ratio, does anybody actually know how much the value part has changed since June?


E&OE - I have been known to get things wrong.

Best Wishes
Paper Tiger

PS If you need some bedtime reading, look out for banks first quarter disclosure statement, coming soon.

The immediate reaction would ouch and shar price might fall to say $1

But then relsaliation would hit home and the experts would say at least Heartland have bitten the bullet and wiped he slate clean.

That's great. Market is forward looking and with the dairy loans being non-recurring forecasted profits going forward will be $60m ....and the share price will rocket to $1.50 plus. That's how things work when the bad is non-recurring and forgotten.

(Ps for PT: after the horrendous write off equity rucked eh ,,,,so ongoing ROE will sour wot it. Another objective met)6

[iceman]

Maybe having cornerstone shareholders like Heartland and Trade Me will prove to be a great combination for Harmoney. This sure is an impressive start http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11549647

[Beagle]

http://www.nzherald.co.nz/banking/news/article.cfm?c_id=126&objectid=11549521

Hopes rise for dairy recovery next year. Not sure what they're basing that hope on but I thought shareholders might enjoy the read.

[winner69]

Full moon this week (in bth hemispheres) --- Heartland share price $1.35 plus, maybe $1.40

[winner69]

Sharechat (owns Sharetrader) just emailed me touting Heartlands on line call a/c at 3.6%

Good focused marketing

[Beagle]

Sharechat (owns Sharetrader) just emailed me touting Heartlands on line call a/c at 3.6%

Good focused marketing

Yep, had the same e.mail about 10 times now...IIRC I think it started off with 3.6% and no tricks or no traps, something like that, now no strings attached...maybe one or two of the main trading banks with their serious saver type products might have had a little word in HNZ's ear about the use of the word tricks ? Whatever the case may be, yes its a great call account rate.

[winner69]

Heartland says "Key drivers of growth for Heartland are GDP and employment

More good news today on that front


@ANZ_cambagrie: NZ migration booming. 6,200 in the month of October, 62k in the yr. That's a lot of demand for houses. Visitor arrivals up 9% on last year

Wow - HNZ shareprice heading to 140 in next day or 2

[Beagle]

Heartland says "Key drivers of growth for Heartland are GDP and employment

More good news today on that front


@ANZ_cambagrie: NZ migration booming. 6,200 in the month of October, 62k in the yr. That's a lot of demand for houses. Visitor arrivals up 9% on last year

Wow - HNZ shareprice heading to 140 in next day or 2

And more good news mate.
http://www.sharechat.co.nz/article/b9c4afd0/dairy-futures-signal-6-gain-at-next-globaldairytrade-auction-omf-says.html?utm_medium=email&utm_campaign=Dairy+futures+signal+6+gain+at+next+G lobalDairyTrade+auction+OMF+says&utm_content=Dairy+futures+signal+6+gain+at+next+Gl obalDairyTrade+auction+OMF+says+CID_f2004b165ca6bd c531dab050bfe7cdca&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticleb9c4afd0dairy-futures-signal-6-gain-at-next-globaldairytrade-auction-omf-sayshtml

Hopefully this is the start of a renewed upward trend and the worst for the industry is already behind them.

[winner69]

And more good news mate.
http://www.sharechat.co.nz/article/b9c4afd0/dairy-futures-signal-6-gain-at-next-globaldairytrade-auction-omf-says.html?utm_medium=email&utm_campaign=Dairy+futures+signal+6+gain+at+next+G lobalDairyTrade+auction+OMF+says&utm_content=Dairy+futures+signal+6+gain+at+next+Gl obalDairyTrade+auction+OMF+says+CID_f2004b165ca6bd c531dab050bfe7cdca&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticleb9c4afd0dairy-futures-signal-6-gain-at-next-globaldairytrade-auction-omf-sayshtml

Hopefully this is the start of a renewed upward trend and the worst for the industry is already behind them.

All the stars are aligning eh Roger

And don't forget the full moon in 2 days time -- HNZ at 140 by then

At this rate I could get ahead of Percy in the stock picking comp

[Joshuatree]

Maybe having cornerstone shareholders like Heartland and Trade Me will prove to be a great combination for Harmoney. This sure is an impressive start http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11549647

"HARMONEY CLAIMS GLOBAL SUCCESS IN LOANS BUSINESS" Thanks iceman

HNZ is the only green stock on my portfolio today so far.

Abyss ("the regions of hell conceived as bottomless pit")a bit exaggerated methinks unless you meant like an Airbus (newer better ,faster, competitive) Roger.;)

[winner69]

UDC reports bumper profit - up 11%

Apparently H2 was very good - same period as Heartland H1

Business lending on a roll

Heartland earnings upgrade at AGM on cards


http://www.stuff.co.nz/business/industries/74385604/udc-finance-reports-bumper-profit

[winner69]

Mind you UDC boss Percival was on radio and commented that lending was slowing in some sectors but they were gaining share

Maybe things not that rosy for Heartland after all?

[nextbigthing]

Mind you UDC boss Percival was on radio and commented that lending was slowing in some sectors but they were gaining share

Maybe things not that rosy for Heartland after all?

They're gaining in dairying as HNZ quietly winds down its riskier loans.

[winner69]

HNZ top of the leaders board on the NZX - up 3 centsc- yippee

[winner69]

Read an interesting article in a Journal of Portfolio Management about share buybacks.

Was saying that while EPS increases in many cases the P/E ratio falls to some extent.


Means the EPS increase may not fully translate into a higher share price, especially when the buyback is debt funded - higher leverage means higher risk when generally leads to lower P/Es

Be interesting to see what eventuates next year if the capital return goes ahead.

[winner69]

See why the AGM was delayed. A few loose ends to tie up and somebody had to write the 28 page document.

Hope you genuine shareholders have read every word of it.

[winner69]

Looks like the Board of the Continuing Company is only going to have 1 female (Nicola)

At least the pictures of the staff had a few females in them.

Diversity obviously still not taken seriously at Heartland. Shame

[winner69]

At least the $11.8m in first quarter is higher than last years $11.0m ....but it was really $12.8m (that 28 page book was expensive)

So 16% up - at this rate the $55m is minimum expectation for FY15. The $52m is bull**** but Jeff has to play his games and tease the market

Plenty of stuff in bottom drawer for a rainy day eh Percy

Might even be $60m ..... Things are on a roll