HGH - Heartland Group Holdings

[winner69]

I think you guys are being pretty miserable and unfair to Snoops - please treat him with a more civility and respect please.

[Snow Leopard]

Not only do I get 3,317 shiny new shares today
I also have my $10,157.18 refund sitting in the account this evening.

At $1.62 HBL is overpriced

Best Wishes
Paper Tiger

[tim23]

Overpriced why? I just bought some more today to round up to nearest 5000

[Beagle]

Nobody could have any argument with the speed with which the shares were issued or the speed of the refund, sterling effort by Link share registry.

[percy]

Nobody could have any argument with the speed with which the shares were issued or the speed of the refund, sterling effort by Link share registry.

Agreed........................

[Snow Leopard]

Overpriced why? I just bought some more today to round up to nearest 5000

I know of only one valuation that is higher than the current share price but the average is less.
My attempt is also less than the current SP and that is the most important one for me.

So, why bother to round up the number of shares you own?

Best Wishes
Paper Tiger

[Beagle]

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

HBL trades cum a 3.5 cent interim dividend. Stock's theoretical ex divvy price is therefore $1.58.5 and analysts average valuation is $1.58.

Trades on FY18 forward PE of 12.6. Seems fair value and a fair hold to me. Wake me up if it gets seriously overvalued or undervalued by.... I dunno, lets say 20% :)

[King1212]

I think you guys are being pretty miserable and unfair to Snoops - please treat him with a more civility and respect please.

His own personal opinions that lose his respect

[sb9]

I think you guys are being pretty miserable and unfair to Snoops - please treat him with a more civility and respect please.

Agree 100%..

[Baa_Baa]

I think you guys are being pretty miserable and unfair to Snoops - please treat him with a more civility and respect please.

I agree as well, miserable and unfair. 👎🏻

[Brain]

I agree also. I for one appreciate the effort that Snoops puts in his posts and his willingness to share his analysis. I fear that a pack mentality is developing here. Share trader would be the worse off without his input.

[ScrappyO]

[QUOTE=Paper Tiger;659275]Not only do I get 3,317 shiny new shares today
I also have my $10,157.18 refund sitting in the account this evening.

That was quick...haven't received mine yet

[Snoopy]

Sounds to me you are all over the place.




LOL 20% either way of 'fair value' is giving yourself a lot of leeway Snoopy.


It might be helpful if some people put the same amount of energy they do into their 'enthusiasm' into understanding what the statistical term 'average' means. The basic idea is that you take a set of values that are 'all over the place' and come up with a number somewhere in the middle. A business cycle average is not a prediction of where the share price is headed in the short term. A business cycle average is not even a predictive hint about what you might do in every particular situation.

I don't think it is anything profound to say that if a share price is going up then the chances are that, in the short term, it will continue to go up. I think it is equally unprofound to suggest that eventually the upward trend will come to an end. If you believe in the concept of a business cycle, (and for Heartland at least I accept there are those that don't and think that these people believe Heartland share price will continue to go up indefinitely), then how can you, as an investor, best use the concept of 'average fair valuation'? I would suggest that 'on average' shareholders should be looking to reduce their HBL position with the share price sits above 'business cycle fair value' and increase their position when the share price sits below 'business cycle fair value'. Notwithstanding the suggestion that when it comes to share price valuations caused as a result of the recent capital raising it might pay, in the short term at least, to do the opposite.

SNOOPY

[Snoopy]

So lets lot at how 20% each way becomes 50%.
$1,00 share.Snoopy valuation plus or minus 20%.Plus 20% = $1.20.Minus 20% = 80cents.
I note $1.20 is 50% higher than 80 cents.


Your maths looks spot on to me Percy. Now what point are you trying to make?

SNOOPY

[Beagle]

Snoopy I think the market overall is fully valued. Yes you could make the case that the current FY17 PE is a little higher than average but FY18's forecast PE of 12.5 is about right in my view for this stock.
Maybe people are simply happy to wait for a year for earnings growth to return the PE to its average range for this share and in the meantime enjoy a 7.5% gross dividend yield.
If all the stock did was flat line for a year and people enjoyed the pretty decent dividend yield I can't seer any harm in that strategy and probably as good as any other in a fully priced market.
Yes people will probably only get average returns holding but no harm in that mate.

[percy]

Can I translate this into words that everyone can understand?

The party is over.

Heartland: Sell, sell, sell!

SNOOPY

Post # 8439...11-01-2017
Share price closed at $1.51 on that day.
Today the share price is $1.61 after a very successful SPP.
Sorry but I find it hard to respect posters whose research is poor,missing the point,misguided,often full of mistakes, and ends up being just wrong.

HBL closed at $1.64 on 16/03/2017

[couta1]

Post # 8439...11-01-2017
Share price closed at $1.51 on that day.
Today the share price is $1.61 after a very successful SPP. No money to be made here or over at A2, according to Snoopy, yeah right.

[winner69]

Is HBL over valued / undervalued / about right - I have no idea

What I do know is that currently HBL has never been so highly rated by the market as it is at the moment.

Chart is shareprice compared to Book Value. Currently Price/Book multiple is about 1.55. The Price/Book multiple is one of the preferred valuation methids used by analysts (Craigs for one seem to like it). The more bue showing the more highly rated HBL is

[Arbroath]

At $1.62 I'm starting to feel Heartland is fully valued. Top end of NPAT for FY17 is $60m which is a PE of 13.8. Some earnings growth in FY18, say 6%, gets that PE back to 13.0. I'm not saying things will turn sour but they have enjoyed several fairly benign years economically and theyve been managed well but the current price has no margin for an economic slowdown if it were to occur i.e. risk adjusted across the cycle its starting to feel a bit overdone.

I'm not selling but I am watching more closely as Heartland is no longer cheap like it was a couple of years ago....

[percy]

Is HBL over valued / undervalued / about right - I have no idea

What I do know that currently HBL has never been so highly rated by the market as it is at the moment.

Chart is shareprice compared to Book Value. Currently Price/Book is about 1.55. The Price/Book multiple is one of the preferred valuation methids used by analysts (Craigs for one seem to like it). The more bue showing the more highly rated HBL is

HBL valuation.
Current share price [$1.62] would be at the very top of my current valuation.
The PE is high at 14.19,yet the yield is also high at 5.25% .
I have been trying to understand the current strength of HBL's share price.
I think the market is now comfortable that HBL has runs on the board.
They are a success story,and this has seen the PE expand.
They have [well] positioned themselves in the online digital delivery of product.This sector will enjoy huge growth.Far outgrowing banks with bricks and mortar, costly to run, branches.
Should interest rates rise all banks do better.
I also think the market appreciates the added security that HBL have, by reporting quarterly to the Reserve Bank of NZ.
The speed they have used their excess capital,and have had to raise more, tells me they are enjoying a very high substainable growth rate.
I note on the charts HBL have set an all time high.This is positive.I am not sure whether the support level on the chart is $1.60 or $1.55.
Although I am overweighted with HBL I will only be selling a few, should I want some cash for another share.I have discontinued DRP.

[Beagle]

HBL was cheaper on PE terms a couple of years ago because people perceived the risks to be higher. Dairy and many related industries for example were up to their eyeballs in it.
Now the risks are widely perceived to be much lower and growth opportunities higher the market quite correctly and quite efficiently has re-priced the risk and PE accordingly.

[trader_jackson]

Hmm - extrapolations are always right, until they are wrong. And they always are.

Don't want to rain into the parade ... and while I agree that HBL (as well as some of the Ossie banks) look currently still reasonably priced (i.e. in my view more worth than what the shares currently cost) ... there are as well some risks hanging around.

The (though moderate) exposure to the dairy industry didn't go away overnight, Harmony does not always get the best press, and not sure how long their growth curve continues ... and haven't heard for some time how the reverse mortgage business is doing.

Consensus forecast is currently $1.30 ($1.25 ... $1.35) and while analysts have a track record in underestimating HBL's future share price, do I think that they are closer to the mark than some of the predictions in this thread.

(edit)
Discl: holding HBL (and ANZ) and NOT expecting a (huge) capital gain, but holding them for a dividend much better than bonds or bank accounts can deliver these days;

Posted on 15 March 2016, nearly exactly 1 year ago when HBL's share price was $1.23.

Analysts appear to be wildly wrong once again...

HBL finished at $1.64... with buyers lining up at $1.64 (and nobody keen to sell till another cent up)

I thought HBL was meant to go down after the shares were allotted? ;)

Likely some of that $40 odd million that was oversubscribed is helping support the price, and the market is happy to pay a quality price for a quality company.
In my view, I believe it is more of a question of when (rather than if) a profit upgrade is coming.

[BlackPeter]

Posted on 15 March 2016, nearly exactly 1 year ago when HBL's share price was $1.23.

Analysts appear to be wildly wrong once again...

HBL finished at $1.64... with buyers lining up at $1.64 (and nobody keen to sell till another cent up)

I thought HBL was meant to go down after the shares were allotted? ;)

Likely some of that $40 odd million that was oversubscribed is helping support the price, and the market is happy to pay a quality price for a quality company.
In my view, I believe it is more of a question of when (rather than if) a profit upgrade is coming.

There are situations in which I can live with conservative estimates ... ;) It just meant that I was monitoring this holding at times a bit closer than I otherwise might have done.

Discl: (Still) holding;

[trader_jackson]

There are situations in which I can live with conservative estimates ... ;) It just meant that I was monitoring this holding at times a bit closer than I otherwise might have done.

Discl: (Still) holding;

Just to clarify, it wasn't a dig at you in anyway, just a good comparative post, and to show how 'different' things are just 1 year on :t_up:

[kizame]

Everyone wants HBL shareprice to trend higher, so it has done so, nice and slowly, So why now are some saying it's overvalued,what do you want?
If you look at ANZ WBC they have a pe of 16,so why shouldn't HBL be a little closer to them in value, considering it's growing faster.
I'm still thinking it's meandering it's way to 1.80, lookout for those poor shareholders owning this overvalued pup then,I couldn't think of anything worse.

[percy]

Everyone wants HBL shareprice to trend higher, so it has done so, nice and slowly, So why now are some saying it's overvalued,what do you want?
If you look at ANZ WBC they have a pe of 16,so why shouldn't HBL be a little closer to them in value, considering it's growing faster.
I'm still thinking it's meandering it's way to 1.80, lookout for those poor shareholders owning this overvalued pup then,I couldn't think of anything worse.

$2.00....????????????????????????????...

And yes the recent sp strength has most probably taken a lot us long term holders by surprise.
But we will quickly get used to it....lol.

[Joshuatree]

Maybe a bit of psychology involved wherein everyone wants to take the divvy esp the "gift" div from the new shares before they selldown /reset their portfolio sizing.

[Jantar]

Maybe a bit of psychology involved wherein everyone wants to take the divvy esp the "gift" div from the new shares before they selldown /reset their portfolio sizing. That is what I am hoping then I'll top up with a few more.

[Beagle]

Why its worth more.
1. We cannot ignore the fact that HBL has grown its EPS faster in recent years than the Aussie banks.
2. This trend is set to continue, see below therefore a PE premium is warranted compared to its peer group.
3. The following are the forecast PE's for its peer group for FY17, FY18 and FY19 followed by average analyst expected EPS growth in percentage terms bolded from FY17 to FY19 All data off average analysis forecast off 4 traders
Bendigo BEN 13.2, 13.1, 13.3, EPS growth expected -1%
NAB 13.6, 13.4, 13 4%
WBC 14.5, 14, 13.6 6%
ANZ 13.4, 13.2 12.5 7%
Bank of Queensland BOQ 12.9, 12.6 12.3 4.5%
HBL 13.8 12.6 11.9 14%

The average FY19 PE which takes into account average forecasted growth to FY19 is 12.77

4. Even if you make the case, (which I don't) that HBL will only enjoy two more years of abnormal growth before reverting to the very modest rates the Australian banks are "enjoying" for HBL to be trading at the average of its peer group the SP is likely to outperform its peer group by 12.77 / 11.9 = 7.3% over the next two years.

5. Even now based on average estimated 2017 earnings the peer group is trading at an average PE of 13.56 and HBL at 13.8 represents only a tiny premium which taking into account its historical growth outperformance and projected stronger growth and I think the current market PE premium is not properly recognizing this superior growth.

6. I think given the distinct possibility that HBL's growth will continue to outperform its peers post FY19 I think that a minimum further 7.3% rerating will happen over the foreseeable future, probably this year.

7. Relative to its peer group I therefore value HBL at 1.64 + 7.3% = $1.76.

8. I think you can easily make the case that relative to its peer group given its considerably stronger historical and projected growth a PE premium of 1 on FY17 projected earnings is warranted.
Average FY 17 PE for Aussie banks excl HBL is 13.52.
HBL's current PE 13.8 HBL should be trading on a FY17 PE premium of at least 1 = 14.52 14.52 / 13.8 = 5.2% increase from here = $1.73

9. Investment case summary: I therefore think fair value for HBL is between $1.73 and $1.76 on an ex dividend basis and note it currently trades on a theoretical ex dividend price of $1.60.5 ($1.64- 0.035) so we have another ~ 10% rerating to go and then from there the price should continue to drift up in line with the 14% earnings growth to FY 19. My 2 year target price is therefore 1.76 x 1.14 = $2.01 and in the meantime based on 8.5 cps in annual fully imputed dividends we will be enjoying a gross dividend yield of 7.36% (8.5 / 160.5) / 0.72.
Disc: Hold and fully subscribed to dividend reinvestment plan.

[Snow Leopard]

Welcome to the Heartland Bank B***s*** Bubble.

I am probably going to reverse my decision to take the DRP


Best Wishes
Paper Tiger

[JeremyALD]

200K share sale tomorrow. Could put some pressure on the upward SP? Hopefully not a director!

[Beagle]

Welcome to the Heartland Bank B***s*** Bubble.

I am probably going to reverse my decision to take the DRP


Best Wishes
Paper Tiger

I see you didn't have HBL as one of your picks in the 2017 share trader competition either. How are your alternative picks going for you in this year's competition PT ?

[iceman]

Why its worth more.
1. We cannot ignore the fact that HBL has grown its EPS faster in recent years than the Aussie banks.
2. This trend is set to continue, see below therefore a PE premium is warranted compared to its peer group.
3. The following are the forecast PE's for its peer group for FY17, FY18 and FY19 followed by average analyst expected EPS growth in percentage terms bolded from FY17 to FY19 All data off average analysis forecast off 4 traders
Bendigo BEN 13.2, 13.1, 13.3, EPS growth expected -1%
NAB 13.6, 13.4, 13 4%
WBC 14.5, 14, 13.6 6%
ANZ 13.4, 13.2 12.5 7%
Bank of Queensland BOQ 12.9, 12.6 12.3 4.5%
HBL 13.8 12.6 11.9 14%

The average FY19 PE which takes into account average forecasted growth to FY19 is 12.77

4. Even if you make the case, (which I don't) that HBL will only enjoy two more years of abnormal growth before reverting to the very modest rates the Australian banks are "enjoying" for HBL to be trading at the average of its peer group the SP is likely to outperform its peer group by 12.77 / 11.9 = 7.3% over the next two years.

5. Even now based on average estimated 2017 earnings the peer group is trading at an average PE of 13.56 and HBL at 13.8 represents only a tiny premium which taking into account its historical growth outperformance and projected stronger growth and I think the current market PE premium is not properly recognizing this superior growth.

6. I think given the distinct possibility that HBL's growth will continue to outperform its peers post FY19 I think that a minimum further 7.3% rerating will happen over the foreseeable future, probably this year.

7. Relative to its peer group I therefore value HBL at 1.64 + 7.3% = $1.76.

8. I think you can easily make the case that relative to its peer group given its considerably stronger historical and projected growth a PE premium of 1 on FY17 projected earnings is warranted.
Average FY 17 PE for Aussie banks excl HBL is 13.52.
HBL's current PE 13.8 HBL should be trading on a FY17 PE premium of at least 1 = 14.52 14.52 / 13.8 = 5.2% increase from here = $1.73

9. Investment case summary: I therefore think fair value for HBL is between $1.73 and $1.76 on an ex dividend basis and note it currently trades on a theoretical ex dividend price of $1.60.5 ($1.64- 0.035) so we have another ~ 10% rerating to go and then from there the price should continue to drift up in line with the 14% earnings growth to FY 19. My 2 year target price is therefore 1.76 x 1.14 = $2.01 and in the meantime based on 8.5 cps in annual fully imputed dividends we will be enjoying a gross dividend yield of 7.36% (8.5 / 160.5) / 0.72.
Disc: Hold and fully subscribed to dividend reinvestment plan.

Phew. Makes me confident to continue holding, accumulating and taking DRP like I have been since it was called Building Society Holdings :-)
Where I think the SP will be in a few months has little bearing on my investment in HBL, just like it hasn't for all these years. We've had long period of flatlines, some drops but overall a steady significant uptrend longer term. Right now I can not see any signs of that slowing for the foreseeable future. My view is that HBL is a good steady long term hold. Not interested in trading it.

But this is good work Roger. Thanks.

[Beagle]

Phew. Makes me confident to continue holding, accumulating and taking DRP like I have been since it was called Building Society Holdings :-)
Where I think the SP will be in a few months has little bearing on my investment in HBL, just like it hasn't for all these years. We've had long period of flatlines, some drops but overall a steady significant uptrend longer term. Right now I can not see any signs of that slowing for the foreseeable future. My view is that HBL is a good steady long term hold. Not interested in trading it.

But this is good work Roger. Thanks.

You're most welcome mate. My ancient steam powered abacus nearly overheated working that out and to be honest I was also quite relived with my own findings and am now very content to hold for the foreseeable future. I realized we were long overdue for a good thorough comparative PE analysis and the old saying that readily sprang to mind was "if you want a job done, do it yourself" :)
Goes without saying others will have their own theories of what its theoretically worth and without in any way knocking others valuation methodologies I prefer to back my own with a good hard comparative peer group analysis. I really think HBL is probably worth slightly more than a PE premium of 1 compared to its peer group, (its historical and projected growth is quite significantly higher), but I prefer to take a fairly conservative view at this stage because its a relatively young company. Lets get some more runs on the board over the next few years and we might see even further outperformance in the years ahead !

[winner69]

Good analysis Roger but comparing multiples v Australian banks needs to take into account the 'The Trans Tasman Discount' for want of a better description

Like AIR on a PE of 6.8 v QAN (a much inferior proposition) on a PE of 8.4
Like FBU on a PE of 13.6 and Boral BLD on a PE of 17.9

I would say that the 'Trans Tasman Discount' needs to be say 2 multiples. .....but as they are such a superior bank with world class management lets give them a bonus of 1 and say HBL PE should be 1 less than its 'peer group' as you call it and not at a premium

What does that do to your target - I'd work it out but but you didn't show an eps figure anywhere.






Hope this doesn't get me banished from this thread ha ha

[Beagle]

Good analysis Roger but comparing multiples v Australian banks needs to take into account the 'The Trans Tasman Discount' for want of a better description

Like AIR on a PE of 6.8 v QAN (a much inferior proposition) on a PE of 8.4
Like FBU on a PE of 13.6 and Boral BLD on a PE of 17.9

I would say that the 'Trans Tasman Discount' needs to be say 2 multiples. .....but as they are such a superior bank with world class management lets give them a bonus of 1 and say HBL PE should be 1 less than its 'peer group' as you call it and not at a premium

What does that do to your target - I'd work it out but but you didn't show an eps figure anywhere.

Hope this doesn't get me banished from this thread ha ha

I'm not "buying" the Trans Tasman multiple discount theory mate and I think N.Z. analysts coverage of AIR is at best very average so I prefer to do my own and listen to Mod.
I think FBU's discount is warranted because its simply a company that somehow always should have done better but never does, a perennial disappointer.
AIR still good sound value and continue to hold, better value that QAN which is only fair value.

[winner69]

I'm not "buying" the Trans Tasman multiple discount theory mate and I think N.Z. analysts coverage of AIR is at best very average so I prefer to do my own and listen to Mod.
I think FBU's discount is warranted because its simply a company that somehow always should have done better but never does, a perennial disappointer.
AIR still good sound value and continue to hold, better value that QAN which is only fair value.

Fair enough, just different opinios ..... but over many years NZX multiples generally have tended to be lower thn NZX ones ....but luckily these days the old this time it's different is working out.

So the old Efficient Market Hypothesis you mentioned earlier doesn't apply to AIR then?

[Baa_Baa]

Very interesting reading, it's like Nov-Dec 2014 all over again when the rampers fired into overdrive and the lemmings piled into HBL, but the lemmings didn't hear about rampers' sell-downs until a few months after they exited.

What followed was an extended period of down-ramping, justified by all sorts of reasoning which is now pronounced as defunct, but could only have left the lemmings who held wondering about their circumstances, many of whom will have sold.

I know the behoved don't intend to ramp the SP per se, but we have seen before that the buying announcements and their excitement is forecast inline with, or in front of, the SP rises. Because the lemmings lap it up.

Yet as soon as the SP weakness emerges, which it inevitably does, the same rampers are gone-burger, in a heartbeat, but their exit is not announced until the ramper is well gone and the hapless lemmings are left holding wondering WTF happened and when will it recover.

So far that hasn't mattered too much as the lemmings who held have made their money back, but the rampers and subsequent down-rampers have made a lot more.

Those with the insights and the expertise to assess and trade the market are to be admired and considered, but taking their advice based on what and more importantly when they post, is folly.

DYOR.
BAA

[Beagle]

Fair enough, just different opinios ..... but over many years NZX multiples generally have tended to be lower thn NZX ones ....but luckily these days the old this time it's different is working out.

So the old Efficient Market Hypothesis you mentioned earlier doesn't apply to AIR then?

LOL probably a better place to discuss is the AIR thread mate but in summary QAN currently doing very well indeed in this sustained low oil price environment with its current business model, less capital intensive older fleet, higher gearing and union wage freeze for a number of years due to union agreements regarding restructuring after their $2.8billion loss. Going forward their business model becomes less robust if oil heads back to $70-80 barrel and once their wage freezes come off but seeing as we seem to be in a sustained period of benign oil prices Australian analysts appear to be enjoying a plentiful supply of happy pills whereas all N.Z. analysts seem to focus on is the new competition that's arrived for AIR. Over time I think we'll see AIR's more modern fuel efficient fleet and lower gearing pay off in terms of resilience if there's any further headwinds for the industry. I expect over time their PE's will align more closely....but I have been thinking that for a while now and it hasn't happened yet so predictions about the future are fraught with risk that's for sure mate :)

Returning to HBL its interesting to note that their peer group are on average expecting 2% per annum EPS growth for the next two years whereas HBL is expecting 7% per annum.
Taking into account there projections are also backed by years of similar historical growth differences normally I would ascribe a PE premium of 5 to a stock growing consistently 5% faster than a direct competitor. Ben graham would go even further !
Benjamin Graham's model of 8.5 PE for a no growth company + 2g suggests where g = 2 for the Aussie banks gives a fair PE of 12.5 for HBL's peer group.
On the other hand his model of 8.5 + 2g where g = 7 suggests HBL's fair PE should be 22.5 :D. But what would Benjamin Grahame know...
22.5 x historical EPS of 11 cps = $2.47 so HBL could be said to be worth as much as nearly $2.50 fully accounting for its substantially superior historical and projected growth rates compared to its peers ! $2.50 theoretical value is almost sure to ruffle some feathers, get some fur flying and maybe rub some wool up the wrong way judging by the post directly above :D
Disc: Just good banter, not intended to be investment advice for anyone else.

[tim23]

I just happen to like my shares in 5000 multiples I don't use the DRP QUOTE=Paper Tiger;659289]I know of only one valuation that is higher than the current share price but the average is less.
My attempt is also less than the current SP and that is the most important one for me.

So, why bother to round up the number of shares you own?

Best Wishes
Paper Tiger[/QUOTE]

[winner69]

roger from above -

.......so HBL could be said to be worth as much as nearly $2.50 fully accounting for its substantially superior historical and projected growth rates compared to its peers !


Jeez Roger - Heartland worth $2.50 - why didn't you point that out before I got sucked into punting on Push

Going from $1.50 to $2,50 for Heartland is about as good as going from $2.00 to $3.50 for push ........esp as one is likely to happen and one is looking very unlikely.

[winner69]

I see you didn't have HBL as one of your picks in the 2017 share trader competition either. How are your alternative picks going for you in this year's competition PT ?

Many haven't included HBL in Stocktastic - even some of Heartlands greatest cheerleaders on this thread .....so it doesn't really mean much

[iceman]

Jeez Roger - Heartland worth $2.50 - why didn't you point that out before I got sucked into punting on Push

Going from $1.50 to $2,50 for Heartland is about as good as going from $2.00 to $3.50 for push ........esp as one is likely to happen and one is looking very unlikely.

Which is which winner ??? Need to know as I have significant holdings in both !

[Baa_Baa]

Many haven't included HBL in Stocktastic - even some of Heartlands greatest cheerleaders on this thread .....so it doesn't really mean much

HBL was the 2nd highest ranked 2017 stock pick!




Stock


# Picks


% Picked

Rank



THL


54


25%


1




HBL


51


23%


2

[Joshuatree]

Very interesting reading, it's like Nov-Dec 2014 all over again when the rampers fired into overdrive and the lemmings piled into HBL, but the lemmings didn't hear about rampers' sell-downs until a few months after they exited.

What followed was an extended period of down-ramping, justified by all sorts of reasoning which is now pronounced as defunct, but could only have left the lemmings who held wondering about their circumstances, many of whom will have sold.

I know the behoved don't intend to ramp the SP per se, but we have seen before that the buying announcements and their excitement is forecast inline with, or in front of, the SP rises. Because the lemmings lap it up.

Yet as soon as the SP weakness emerges, which it inevitably does, the same rampers are gone-burger, in a heartbeat, but their exit is not announced until the ramper is well gone and the hapless lemmings are left holding wondering WTF happened and when will it recover.

So far that hasn't mattered too much as the lemmings who held have made their money back, but the rampers and subsequent down-rampers have made a lot more.

Those with the insights and the expertise to assess and trade the market are to be admired and considered, but taking their advice based on what and more importantly when they post, is folly.

DYOR.
BAA

Thanks for that BAA; folly indeed.There are always those that seek to deceive and enrich themselves at others expense; again and again; thankfully only a few on here; but they are everywhere where the scent of $$ is.You can never be really sure re anyones motive and whether its altruistic or speaking with forked tongues.
A good reminder.

[Beagle]

Jeez Roger - Heartland worth $2.50 - why didn't you point that out before I got sucked into punting on Push

Going from $1.50 to $2,50 for Heartland is about as good as going from $2.00 to $3.50 for push ........esp as one is likely to happen and one is looking very unlikely.

Not so sure Ben Graham's approach is the right one these days but the comparative PE analysis is sound as far as I am concerned so I am more than happy with my work yesterday to validate its value based on hard evidence (a fair value of $1.73 - $1.76) Not sure how others are coming up with their values as for some strange reason they don't want to say...maybe they're relying on analysts fair value, (about $1.58) who got it "so right" last year with their 12 month price target of $1.30 didn't they ! We might have to push that Push target out to next year mate, it'll get there though :)


Many haven't included HBL in Stocktastic - even some of Heartlands greatest cheerleaders on this thread .....so it doesn't really mean much

I didn't either but I did put my cheerleaders outfit, (special $2.50 valuation) on especially for you yesterday :D

[ziggy415]

Geez Roger, wasn't snoopy,s sell down price 1.74.....amazing how instep you two are

[Arbroath]

Not so sure Ben Graham's approach is the right one these days but the comparative PE analysis is sound as far as I am concerned so I am more than happy with my work yesterday to validate its value based on hard evidence (a fair value of $1.73 - $1.76) Not sure how others are coming up with their values as for some strange reason they don't want to say...maybe they're relying on analysts fair value, (about $1.58) who got it "so right" last year with their 12 month price target of $1.30 didn't they ! We might have to push that Push target out to next year mate, it'll get there though :)

I didn't either but I did put my cheerleaders outfit, (special $2.50 valuation) on especially for you yesterday :D

I think the equation for Heartland is fairly simple as it is a financial (bank) stock. Currently it is trading at 1.7x book value and there have been many good points made about why its multiple has expanded as it tidied up its legacy loan book and has created a much more solid business. That is why its gone from $0.50-60 to $1.60+ over the past 3-4 years. However, for me 1.8-2.0x book is the maximum value for a business like this risk adjusted across the cycle (Heartland has not been tested on a new down cycle yet) so that giv es a maximum value for me of $1.70-1.89 based on current book value so quite similar to the values you've been getting Roger. Obviously if they can keep executing well and if the economic cycle is prolonged the share price can run further but I will likely sell out between $1.70-1.80 due to valuation. I say this in the full knowledge that my holding will not move the market (60k). No agenda's from me - just a disciplined approach to valuation accepting that at the higher end of the cycle I will likely leave some $$ on the table for others and good luck to them.

[winner69]

roger earlier

Not so sure Ben Graham's approach is the right one ....

Thing with Ben's formula is that if a stock trades at Intrinsic Value it's PEG > 2 and some investors don't like PEGs that high (overvalued they say)

Think Ben did his sums when market was mainly old fashioned industrials where 5% growth was pretty good

[Snoopy]

Not so sure Ben Graham's approach is the right one these days but the comparative PE analysis is sound as far as I am concerned



I think the equation for Heartland is fairly simple as it is a financial (bank) stock.

When I look for comparatives, one of the first things I apply is the 'duck test'. Put succinctly, for identification purposes, , if it looks like a duck and quacks like a duck, the chances are it is a duck. When I apply the 'duck test' to Heartland 'Bank' something interesting happens.

Q1/ Can you go into a Heartland bank branch and deposit a bundle of cash?
A1/ No

Q2/ Can you go into a Heartland bank branch and withdarw a bundle of cash?
A2/ No

Q3/ Can you go into a Heartland bank branch and obtain some overseas currency for your overseas trip?
A3/ No

Q4/ Can you go into a Heartland bank and get a proper mortgage (not one of those reverse ones)?
A4/ No

My conclusion: Heartland Bank fails the 'duck test' in comparison with the other banks that Roger used as comparatives.

I guess the killer philosophical question on my mind is this:

"If a striped suited 'Beagle Boy' goes into a Heartland Bank and commands the staff to put all of the till proceeds in his swag bag, then the said Beagle Boy leaves with a limp empty sack (because Heartland don't deal with cash anymore), can he be arrested for bank robbery?"

SNOOPY

[NZSilver]

Good company, had a good run though. I'm taking some profits, in the future it will likely go higher but I think there will also be an opportunity to buy lower. Market as a whole is running hot at the moment - an overall correction will have the biggest impact on HBL SP rather than the financials of the company itself

[Bjauck]

...

Those with the insights and the expertise to assess and trade the market are to be admired and considered, but taking their advice based on what and more importantly when they post, is folly.

DYOR.
BAA Well said. Treat on-line forum with caution.


When I look for comparatives, one of the first things I apply is the 'duck test'. Put succinctly, for identification purposes, , if it looks like a duck and quacks like a duck, the chances are it is a duck. When I apply the 'duck test' to Heartland 'Bank' something interesting happens.... It is good to make sure you compare like with like. I have shares in a big Aussie bank and in HBL. One of the reasons I bought a shareholding in HBL was for diversification - that it was a different type of bird from the big Aussies! Perhaps (hopefully) it is more of a nimble Welcome Swallow?

[iceman]

When I look for comparatives, one of the first things I apply is the 'duck test'. Put succinctly, for identification purposes, , if it looks like a duck and quacks like a duck, the chances are it is a duck. When I apply the 'duck test' to Heartland 'Bank' something interesting happens.

Q1/ Can you go into a Heartland bank branch and deposit a bundle of cash?
A1/ No

Q2/ Can you go into a Heartland bank branch and withdarw a bundle of cash?
A2/ No

Q3/ Can you go into a Heartland bank branch and obtain some overseas currency for your overseas trip?
A3/ No

Q4/ Can you go into a Heartland bank and get a proper mortgage (not one of those reverse ones)?
A4/ No

My conclusion: Heartland Bank fails the 'duck test' in comparison with the other banks that Roger used as comparatives.

I guess the killer philosophical question on my mind is this:

"If a striped suited 'Beagle Boy' goes into a Heartland Bank and commands the staff to put all of the till proceeds in his swag bag, then the said Beagle Boy leaves with a limp empty sack (because Heartland don't deal with cash anymore), can he be arrested for bank robbery?"

SNOOPY

And that is exactly what I like about Heartland, they are doing things differently in niche markets rather than taking on the big 4 at their own game that they know and do very well

[Jantar]

.......

Q4/ Can you go into a Heartland bank and get a proper mortgage (not one of those reverse ones)?
A4/ No.....
I think the answer to this one should be "Yes". You will pay a bit more for it, but they will do mortgages.

On a side note, my main bank is SBS, and they would also get a "No" to those first 3 questions. So I guess, that on your duck test, for the last 17 years I haven't banked with a bank.

[Beagle]

When I look for comparatives, one of the first things I apply is the 'duck test'. Put succinctly, for identification purposes, , if it looks like a duck and quacks like a duck, the chances are it is a duck. When I apply the 'duck test' to Heartland 'Bank' something interesting happens.

Q1/ Can you go into a Heartland bank branch and deposit a bundle of cash?
A1/ No

Q2/ Can you go into a Heartland bank branch and withdarw a bundle of cash?
A2/ No

Q3/ Can you go into a Heartland bank branch and obtain some overseas currency for your overseas trip?
A3/ No

Q4/ Can you go into a Heartland bank and get a proper mortgage (not one of those reverse ones)?
A4/ No

My conclusion: Heartland Bank fails the 'duck test' in comparison with the other banks that Roger used as comparatives.

I guess the killer philosophical question on my mind is this:

"If a striped suited 'Beagle Boy' goes into a Heartland Bank and commands the staff to put all of the till proceeds in his swag bag, then the said Beagle Boy leaves with a limp empty sack (because Heartland don't deal with cash anymore), can he be arrested for bank robbery?"

SNOOPY

Any self respecting Beagle would be barking mad :) to do such a thing.
I'm with Iceman on this. Just because they do things differently and don't want the overheads of an extensive branch network and certain types of low margin lending doesn't mean they won't quack loudly when it comes reporting time :)
The other point we haven't even really touched on is who wants to own Aussie banks when you can't claim their franking credits ? Any sensible hound knows if you've got to let the taxman have two helpings of food before you get to your food bowl you won't be as well fed as you would off HBL divvies.

[winner69]

Snoops you left out Q5

Q5/ Can you rely upon a mobile device to do simple banking transaction with Heartland
A5/ NO

Unlike other banks .... and this one prides itself in being digital

[percy]

A very strong week for HBL.
Today's close was $1.66, with the VWAP being $1.6539, on 812,247 shares traded ,for a total value of $1,343,341.

[winner69]

Blackpeter said we probably had capitulation over on WHS thread

Hope HBL not heading to a blow off top

[percy]

Blackpeter said we probably had capitulation over on WHS thread

Hope HBL not heading to a blow off top

So what if it does?
However looking at the chart, this new high signals the breakout is on the upside.
In the meantime, I am now looking forward to the fully imputated divie,as will your bowling club mates.Did they decide to buy on their own,or did you do the decent thing and bring HBL to their attention?.

[Food4Thought]

A very strong week for HBL.
Today's close was $1.66, with the VWAP being $1.6539, on 812,247 shares traded ,for a total value of $1,343,341.

:D < that is all

[Snoopy]

Snoopy wrote:
"If a striped suited 'Beagle Boy' goes into a Heartland Bank and commands the staff to put all of the till proceeds in his swag bag, then the said Beagle Boy leaves with a limp empty sack (because Heartland don't deal with cash anymore), can he be arrested for bank robbery?"

Any self respecting Beagle would be barking mad :) to do such a thing.


For those too young to get the reference: a 'Beagle Boy' ain't no hound. A Beagle Boy is from the dark side of Disney:

https://en.wikipedia.org/wiki/Beagle_Boys



I'm with Iceman on this. Just because they do things differently and don't want the overheads of an extensive branch network and certain types of low margin lending doesn't mean they won't quack loudly when it comes reporting time :)


Heartland may be getting better while the bigger banks stand still. In absolute terms though, HBL is still a lower margin business, with a lower return on equity, than the bigger banks.



The other point we haven't even really touched on is who wants to own Aussie banks when you can't claim their franking credits ? Any sensible hound knows if you've got to let the taxman have two helpings of food before you get to your food bowl you won't be as well fed as you would off HBL divvies.


Well this hound, in the case of ANZ, went to the trouble of working out the comparative yield, rather than assuming full imputation credits would always skew the value equation in Heartland's favour:

1/ Data from my post 432 on the ANZ thread feeding the 'fair value' at 6.5% yield calculation including NZ impuation credits, (not fully imputed for NZ sharehodlers, but NZ shareholders do get some) ignoring franking credits gives a 'business cycle fair value price' for ANZ shares on the NZX of $NZ24.67.

2/ Data from my post 8633 on this Heartland thread feeding the 'fair value' at 7.5% yield calculation, including NZ impuation credits, give a 'business cycle fair value' price for Heartland shares on the NZX of $NZ1.42.

Based on today's closing price of $1.66, Heartland is now 17% overvalued (on a whole of business cycle basis).

Based on today's closing price of $34.90, ANZ is now 41% overvalued (on a whole of business cycle basis).

At first glance, this comparison supports Roger's point about the greater value of impuation credits offering a better deal for tax resident New Zealanders, skewing the value comparison Heartland's way. But ANZ value is not driven by NZ investors. This is why I redid my data from an 'Australian perspective' (counting Australian franking credits, disregarding imputation credits) in post 443 on the ANZ thread. This gave ANZ fair value at $A31.74 or $NZ34.88 (with $NZ1- = $A0.91). By this measure ANZ is pretty much fair value right now in $NZ terms.

In my view, ANZ is still the better investment proposition for those buying at today's prices. However, because I always like to buy at 'below fair value', I wouldn't be buying either HBL or ANZ at today's prices!

SNOOPY

diacl: hold ANZ

[Beagle]

Standby for financial engineering Snoopy. Tier 1 capital raise probably a necessary precursor to a Tier 2 capital raise of maybe $50 - $75m followed by a share buyback.
That'll boost their return on equity. All time new highs...quite content to let my profits run as I'm sure many others are.

Participants in the SPP plan are now up a neat 20 cps within a couple of days of the shares being issued. Who said there's no such thing as a free investment lunch :)

[Beagle]

Geez Roger, wasn't snoopy,s sell down price 1.74.....amazing how instep you two are

I won't be selling at $1.74 mate. I see fair value as at least $1.76 but as my slightly tongue in cheek post about it potentially being worth as much as $2.50 suggested, I do think HBL's significantly superior track record of earnings growth and projected earnings growth as well as full imputation credits on dividends are significant matters which make this company very attractive indeed relative to Australian bank stocks.

[Snoopy]

I think the answer to this one should be "Yes". You will pay a bit more for it, but they will do mortgages.


Last I read all of the Heartland 'normal' mortgages had been syndicated out to Kiwibank. However, I will be happy to be corrected on this point if I am wrong.

I believe these 'syndicated Kiwibank mortgages' are different to the on line offerings of 'premium priced' mortgages that Heartland are threatening to introduce on their digital platform, for those too scared to speak to a real banker at another bank!. But 'on line' means you don't have to visist a Heartland bank to get this kind of mortgage.

SNOOPY

[Snoopy]

Standby for financial engineering Snoopy. Tier 1 capital raise probably a necessary precursor to a Tier 2 capital raise of maybe $50 - $75m followed by a share buyback.
That'll boost their return on equity. All time new highs...quite content to let my profits run as I'm sure many others are.

Participants in the SPP plan are now up a neat 20 cps within a couple of days of the shares being issued. Who said there's no such thing as a free investment lunch :)

It could happen Roger. Mind you, I read one article that says ANZ now has too much capital and we ANZ shareholders can expect a buy back there too. But at this point I prefer to work with what I definitely know, so let's wait and see.

SNOOPY

[Jantar]

Last I read all of the Heartland 'normal' mortgages had been syndicated out to Kiwibank. However, I will be happy to be corrected on this point if I am wrong. ...You may well be right. Yet I am sure I read somewhere in the AR that they were carrying some mortgages.

[ziggy415]

I won't be selling at $1.74 mate. I see fair value as at least $1.76 but as my slightly tongue in cheek post about it potentially being worth as much as $2.50 suggested, I do think HBL's significantly superior track record of earnings growth and projected earnings growth as well as full imputation credits on dividends are significant matters which make this company very attractive indeed relative to Australian bank stocks.
All good....I do wonder where and why the large buy orders came from late on a Friday night to push up the sp. ...is there some news around the corner but also wonder where imputation credits come from and how long can they last......p.s. I do like snoopy posts even tho it's way over my head most of the time (but don't tell him that)just our little secret

[trader_jackson]

All good....I do wonder where and why the large buy orders came from late on a Friday night to push up the sp. ...is there some news around the corner but also wonder where imputation credits come from and how long can they last......p.s. I do like snoopy posts even tho it's way over my head most of the time (but don't tell him that)just our little secret

Insto's who missed out but want in on the action? ;)

[Snoopy]

Why its worth more.

1. We cannot ignore the fact that HBL has grown its EPS faster in recent years than the Aussie banks.
2. This trend is set to continue, see below therefore a PE premium is warranted compared to its peer group.
3. The following are the forecast PE's for its peer group for FY17, FY18 and FY19 followed by average analyst expected EPS growth in percentage terms bolded from FY17 to FY19 All data off average analysis forecast off 4 traders
Bendigo BEN 13.2, 13.1, 13.3, EPS growth expected -1%
[B]NAB 13.6, 13.4, , EPS growth expected 13 4%
WBC 14.5, 14, 13.6, EPS growth expected 6%
ANZ 13.4, 13.2 12.5, EPS growth expected 7%
Bank of Queensland BOQ 12.9, 12.6 12.3 4.5%
HBL 13.8 12.6 11.9 , EPS growth expected 14%

The average FY19 PE which takes into account average forecasted growth to FY19 is 12.77


Good work here by Roger, but time to add a bit more information for those highlighted banks that trade in New Zealand



BankFitch Credit Rating (NZ Operations)Approx Probability of Default Over 5 years


NAB, trading as BNZAA-One in 300


Westpac New Zealand LimitedAA-One in 300


ANZ Bank New Zealand LimitedAA-One in 300


Heartland BankBBBOne in 30



I think this exposes the myth that what we are looking at here is Heartland up against a 'peer group'.



4. Even if you make the case, (which I don't) that HBL will only enjoy two more years of abnormal growth before reverting to the very modest rates the Australian banks are "enjoying" for HBL to be trading at the average of its peer group the SP is likely to outperform its peer group by 12.77 / 11.9 = 7.3% over the next two years.


What you have calculated here Roger is what will happen if Heartland lives up to the consensus of what a broad group of analysts think will happen. However, these expectations say nothing about 'execution risk'. The probability of success of the respective business plans comes very muuch to the fore in what is likely to happen. And most analysts with their glib forecasts do not consider this.



5. Even now based on average estimated 2017 earnings the peer group is trading at an average PE of 13.56 and HBL at 13.8 represents only a tiny premium which taking into account its historical growth outperformance and projected stronger growth and I think the current market PE premium is not properly recognizing this superior growth.

6. I think given the distinct possibility that HBL's growth will continue to outperform its peers post FY19 I think that a minimum further 7.3% rerating will happen over the foreseeable future, probably this year.

7. Relative to its peer group I therefore value HBL at 1.64 + 7.3% = $1.76.


Much of the historical outperformance comes from Heartland deftly disposing of what seemed to be an absolute basket case of land and property loans at the time. Given these are now largely disposed of, it doesn't seem right to assume that historical growth from this source will continue and so influence the future ghrowth rate going forwards. I don't think any industry forecaster , let alone Heartland have stated, that they will outperform their peers post FY2019. Note I am not saying this isn't possible, or it won't happen. But I would be cautious of using invented hyperbole to justify your value of Heartland shares post FY2019.



8. I think you can easily make the case that relative to its peer group given its considerably stronger historical and projected growth a PE premium of 1 on FY17 projected earnings is warranted.
Average FY 17 PE for Aussie banks excl HBL is 13.52.
HBL's current PE 13.8 HBL should be trading on a FY17 PE premium of at least 1 = 14.52 14.52 / 13.8 = 5.2% increase from here = $1.73


The problem we have valuing Heartland is that most of the real peer group was destroyed in the great finance sector collapse in NZ. I suspect that if you are looking over the ditch, the best comparatives are other finance companies that, like Heartland, do not pass the duck test. The closest I have found to Heartland is the unlisted soon to be former subsidiary of the ANZ bank, UDC Finance, in New Zealand. In NTA terms in what we have to assume was a well thought out disposal process, it sold very recently to the Chinese at a much smaller premium to NTA than Heartland is trading at now.



9. Investment case summary: I therefore think fair value for HBL is between $1.73 and $1.76 on an ex dividend basis and note it currently trades on a theoretical ex dividend price of $1.60.5 ($1.64- 0.035) so we have another ~ 10% rerating to go and then from there the price should continue to drift up in line with the 14% earnings growth to FY 19. My 2 year target price is therefore 1.76 x 1.14 = $2.01 and in the meantime based on 8.5 cps in annual fully imputed dividends we will be enjoying a gross dividend yield of 7.36% (8.5 / 160.5) / 0.72.
Disc: Hold and fully subscribed to dividend reinvestment plan.

I think at the very least in your valuation, you need to make an adjustment for business execution risk. In my own analysis I did this my requiring a gross return of 7.5% on the projected dividend flow, verses 6.5% for the big banks. I am not sure this is the best way to do it. But it is the best that I have come up with, so far.

SNOOPY

[trader_jackson]

Good work here by Roger, but time to add a bit more information for those highlighted banks that trade in New Zealand



Bank
Fitch Credit Rating (NZ Operations)
Approx Probability of Default Over 5 years


NAB, trading as BNZ
AA-
One in 300


Westpac New Zealand Limited
AA-
One in 300


ANZ Bank New Zealand Limited
AA-
One in 300


Heartland Bank
BBB
One in 30



I think this exposes the myth that what we are looking at here is Heartland up against a 'peer group'.









SNOOPY

You bring up an important point Snoopy, hard to believe heartland bank still has such a credit rating, I would have thought that, these days, it would be much higher (and I don't think I am alone in this thinking).. you would have also thought with all the talk of credit tightening on houses and apartments (that HBL is not exposed to anywhere near as much), both here and in Australia, that the big banks would have some pressure on their ratings... just my thoughts anyway.

[winner69]

You bring up an important point Snoopy, hard to believe heartland bank still has such a credit rating, I would have thought that, these days, it would be much higher (and I don't think I am alone in this thinking).. you would have also thought with all the talk of credit tightening on houses and apartments (that HBL is not exposed to anywhere near as much), both here and in Australia, that the big banks would have some pressure on their ratings... just my thoughts anyway.

t_j -- here's the rationale for a BBB rating. Is worth a read to clarify your thinking
https://www.heartland.co.nz/Uploads/Documents%20and%20Forms/20161021-HBL-final%20report%20published.pdf

Heartland have a higher risk appetite relative to peers ....and pay too much out in dividends

To answer why the rating is not higher maybe the paragraph 'Rating's Sensitivities' will explain why (and note the limited upside bit)

[Snoopy]

You bring up an important point Snoopy, hard to believe Heartland bank still has such a credit rating, I would have thought that, these days, it would be much higher (and I don't think I am alone in this thinking).. you would have also thought with all the talk of credit tightening on houses and apartments (that HBL is not exposed to anywhere near as much), both here and in Australia, that the big banks would have some pressure on their ratings... just my thoughts anyway.


The credit risks I quoted refer to the NZ operations of the big 3 opposition Banks. Whatever happens to the Australian Property market is irrelevant to the RBNZ, even if it is very relevant to NZ shareholders of ANZ, WBC and NAB!

Heartland is much more exposed, in percentage of portfolio terms, than any of those comparative banks to what happens in rural NZ. This is a big risk albeit different to the housing market risk which I acknowledge is an issue for those other banks. I also think that the Seniors Reverse mortgage market could be badly hit in any housing market downturn. It is easy to borrow money against an asset that is seen to be rising rapidly in value. If that asset is falling in value the psychology of taking out a loan against that asset is very different.

Risks and rewards are here, but they are different, and not necessarily favourable for Heartland.

SNOOPY

[Beagle]

Good work here by Roger, but time to add a bit more information for those highlighted banks that trade in New Zealand



BankFitch Credit Rating (NZ Operations)Approx Probability of Default Over 5 years


NAB, trading as BNZAA-One in 300


Westpac New Zealand LimitedAA-One in 300


ANZ Bank New Zealand LimitedAA-One in 300


Heartland BankBBBOne in 30



I think this exposes the myth that what we are looking at here is Heartland up against a 'peer group'.
They are the peer group Snoopy whether you like to admit it or not other banks are into unsecured lending in a huge way too. The difference in credit ratings is something you make a valid point about but a 1:30 chance of failure over the next five years means that HBL as a far as I am concerned should carry a 3.33% risk premium amortized over 5 years = .67% risk premium per annum so in my efficient market hypothesis they should trade at approx. a 0.85 PE discount (12.15 / 13 gives the appropriate PE discount. Yes there's execution risk but I believe we are seeing good traction in their new initiatives so there's also execution risk that they'll outperform with their new lending initiatives. We could pontificate endlessly on possible outcomes post FY19, (too far in the future to reliably estimate), and as to reasons why their EPS growth has outperformed its peer group in the past but the fact remains in recent years and projected for this year and the next two their EPS growth is significantly superior to the other banks so one can very easily make the case that they are executing extremely well and deserve the benefit of the doubt regarding execution risk going forward. If one accepts this argument then they deserve a significant PE premium for their superior growth rate, far more of a premium than the discount their lower credit rating implies.

What you have calculated here Roger is what will happen if Heartland lives up to the consensus of what a broad group of analysts think will happen. However, these expectations say nothing about 'execution risk'. The probability of success of the respective business plans comes very muuch to the fore in what is likely to happen. And most analysts with their glib forecasts do not consider this.
See above

Much of the historical outperformance comes from Heartland deftly disposing of what seemed to be an absolute basket case of land and property loans at the time. Given these are now largely disposed of, it doesn't seem right to assume that historical growth from this source will continue and so influence the future ghrowth rate going forwards. I don't think any industry forecaster , let alone Heartland have stated, that they will outperform their peers post FY2019. Note I am not saying this isn't possible, or it won't happen. But I would be cautious of using invented hyperbole to justify your value of Heartland shares post FY2019.Nobody is forecasting further out than FY19 but its worth noting that HBL seems quite progressive on the digital front and that's the way the world is shifting.

The problem we have valuing Heartland is that most of the real peer group was destroyed in the great finance sector collapse in NZ. I suspect that if you are looking over the ditch, the best comparatives are other finance companies that, like Heartland, do not pass the duck test. The closest I have found to Heartland is the unlisted soon to be former subsidiary of the ANZ bank, UDC Finance, in New Zealand. In NTA terms in what we have to assume was a well thought out disposal process, it sold very recently to the Chinese at a much smaller premium to NTA than Heartland is trading at now.[COLOR="#0000CD"Its a pure finance company that loses the ANZ's A- credit rating and may well move to sub investment grade. This is sure to have impacted the price.[/COLOR]

I think at the very least in your valuation, you need to make an adjustment for business execution risk. In my own analysis I did this my requiring a gross return of 7.5% on the projected dividend flow, verses 6.5% for the big banks. I am not sure this is the best way to do it. But it is the best that I have come up with, so far.

SNOOPYNow that dairy has recovered I am happy with their risk profile. I prefer to back N.Z. companies wherever possible...lets be honest the ANZ haven't exactly covered themselves in glory with some of their corporate basket case lending in recent years. Plenty of losses yet to be booked on N.Z. corporate lending from some very poor historical committee decisions. You'd be hoping their lending committees in both Australia and New Zealand have had a thorough "refresh" Don't want too many more Dick Smith's, Pumpkin Patch and their ilk do we ! I suspect there might be one or two people on this forum very pleased to see me backing HBL boots and all :)
I think the other thing Snoopy is if one wants to invest in this sector you have to find a better alternative than HBL and I for one do not believe you've made a convincing case with ANZ. Technically breaking through to a new all time high there is nothing to suggest this stock won't travel higher still.

[Beagle]

Roger, please clear some messages from your inbox so you can be messaged

Done that mate, fire away :)

[JeremyALD]

I honestly don't see the point in the back and forth with Snoopy. As long as I've followed the thread Snoopy has been saying HBL is a poor investment and the view has been well heard. If you don't like HBL Snoopy why keep posting about it? Clearly your view is not going to change and we'll all just have to wait and see whilst HBL is busy executing their plan and growing dividends successively as they have done for the past five years.

Just recently you agued with me when I said the SPP is a bargain. Well guess what it was. On the 5K in the SPP I made over 10% with little to no risk.

Also of course it has a lower credit ranking and is higher risk. The bank is 10x smaller than the big 4 banks. That comes with greater risk, but also greater growth opportunities. ANZ is already dominating market share in NZ, has increased funding costs and little room to grow unless they're willing to give up margins. A lot of the other big four are in similar positions. Their lending growth is also going to slow in NZ now that house prices are starting to stablise. There's plenty to like about HBL at the moment given they play a different game and position themselves nicely.

[Beagle]

I honestly don't see the point in the back and forth with Snoopy. As long as I've followed the thread Snoopy has been saying HBL is a poor investment and the view has been well heard. If you don't like HBL Snoopy why keep posting about it? Clearly your view is not going to change and we'll all just have to wait and see whilst HBL is busy executing their plan and growing dividends successively as they have done for the past five years.

Just recently you agued with me when I said the SPP is a bargain. Well guess what it was. On the 5K in the SPP I made over 10% with little to no risk.

Also of course it has a lower credit ranking and is higher risk. The bank is 10x smaller than the big 4 banks. That comes with greater risk, but also greater growth opportunities. ANZ is already dominating market share in NZ, has increased funding costs and little room to grow unless they're willing to give up margins. A lot of the other big four are in similar positions. Their lending growth is also going to slow in NZ now that house prices are starting to stablise. There's plenty to like about HBL at the moment given they play a different game and position themselves nicely.

I agree. Snooper my friend, its time to turn your talents to finding opportunities. I brought up ANZ's chart last night. In late 2013 they were $39 a share and are presently just under $35 Kiwi a share.
During that same period of time HBL was ~ 80 cents a share and they have more than doubled and from a TA perspective look like going higher still. Fact is my hound dog friend you have been consistently catching the wrong scent with this one so its probably time to go hunting elsewhere. I stand by the work I did on comparative value and think HBL fair value is at least $1.73-$1.76 and that assumes they only grow at the same rate as their peer group post 2019, (which I think is a VERY conservative assumption) so I won't be selling even at the top end of where I presently see fair value. HBL may get a credit rating upgrade in the next couple of years. Of course there's business execution risks, they exist for all business's including ANZ but risk and reward go hand in hand, should that be paw in paw:)).

[trader_jackson]

Would be nice to see HBL upgraded :t_up:

For what it is worth, I do appreciate Snoopy's posts, even if I don't necessarily 'agree' with them

[Snoopy]

I honestly don't see the point in the back and forth with Snoopy. As long as I've followed the thread Snoopy has been saying HBL is a poor investment and the view has been well heard. If you don't like HBL Snoopy why keep posting about it? Clearly your view is not going to change and we'll all just have to wait and see whilst HBL is busy executing their plan and growing dividends successively as they have done for the past five years.


Any company with a projected positive cashflow and profit is a good investment at the right price. I agree with 'the enthusiasts' that potentially Heartland is a good investment. I disagree at the price the 'good' adjective kicks in. As new data comes in I can re-evaluate my position as to what investment point I mark as 'good' for Heartland. So I express a new opinion. I try not to repeat myself, but sometimes when opponents roll out the same old arguments the counterpoint is the same old rebuttal. My position has changed. A few years ago I was very doubtful at 80c. Now I think paying $1.14 for a Heartland share would be a good price to pay. The 'runs on the board' by Heartland management over the years have changed my opinion.

In my case, I have been invested in ANZ and WBC for years. Although ANZ and WBC are not strictly comparable in my view, are at least in the finance sector. So 'good' for me has to be better than those two in a longer term sustainable way. Hence my fixation with the ANZ and ANZ subsidiary UDC comparisons.



Just recently you argued with me when I said the SPP is a bargain. Well guess what it was. On the 5K in the SPP I made over 10% with little to no risk.


It comes down to a question of price (what you pay) to value (what you get). Clearly you have paid less for those shares you acquired in the SPP, compared to what you would have paid had you acquired those shares on market at today's market price. However, my argument is that in the medium term you may have overpaid in both cases.



Also of course it has a lower credit ranking and is higher risk. The bank is 10x smaller than the big 4 banks. That comes with greater risk, but also greater growth opportunities. ANZ is already dominating market share in NZ, has increased funding costs and little room to grow unless they're willing to give up margins. A lot of the other big four are in similar positions. Their lending growth is also going to slow in NZ now that house prices are starting to stablise. There's plenty to like about HBL at the moment given they play a different game and position themselves nicely.


What investors have a choice of buying shares in is the wider ANZ group, not 'ANZ New Zealand branch'. ANZ has had their own little growth foray into wider Asia that the new CEO has pared back (at the retail leve at least). I agree that Heartland has more growth potential, even than the wider ANZ group. This is why I assumed no growth for ANZ, and growth in proportion to the increase in share capital in the case of Heartland. ANZ still won my 'head to head' dividend return comparison, despite the higher growth I was attributing to Heartland.

SNOOPY

[Jantar]

.... I stand by the work I did on comparative value and think HBL fair value is at least $1.73-$1.76 and that assumes they only grow at the same rate as their peer group post 2019, (which I think is a VERY conservative assumption) so I won't be selling even at the top end of where I presently see fair value. .....
Interesting. I guess all investors have different criteria by which they assign fair value. I considered Snoopy's method to be good for a cyclical stock, but didn't consider long term trends. My own valuation puts HBL currently at $1.64, with a 10% annual growth. I consider any share to be a buy at 10% less than current valuation and a sell at 15% above current valuation. Anything in-between is a hold.

I guess I won't be selling any time soon either.

[trader_jackson]

Interesting. I guess all investors have different criteria by which they assign fair value. I considered Snoopy's method to be good for a cyclical stock, but didn't consider long term trends. My own valuation puts HBL currently at $1.64, with a 10% annual growth. I consider any share to be a buy at 10% less than current valuation and a sell at 15% above current valuation. Anything in-between is a hold.

I guess I won't be selling any time soon either.

You must be conservative... 10% annual growth? is that all? ;)

[winner69]

Would be nice to see HBL upgraded :t_up:

For what it is worth, I do appreciate Snoopy's posts, even if I don't necessarily 'agree' with them


....its been 'upgraded' a fair bit over the past few months

[Jantar]

You must be conservative... 10% annual growth? is that all? ;) Yes, I may need to update that estimate. Thanks for pointing it out. :)

[Snoopy]

I agree. Snooper my friend, its time to turn your talents to finding opportunities. I brought up ANZ's chart last night. In late 2013 they were $39 a share and are presently just under $35 Kiwi a share.
During that same period of time HBL was ~ 80 cents a share and they have more than doubled and from a TA perspective look like going higher still.


Fair call that I shoudl have been more 'on the ball' with ANZ back in 2013. Suffice to say I have put a lot of effort into trying to understand banks better since then. But back in 2013, ANZ was a star that could do no wrong, so "I didn't need to pay as much attention to it" ;-P. Much like Heartland enthusiasts don't have to pay much attention to their Heartland investment today. TA is really just another way of saying "let the good times roll", and party on. I prefer to go with a more data driven forecasting approach. Granted I will miss any 'surprising turnarounds' by doing things this way. But I am prepared to forgo such wins, just as I forgo buying Lotto tickets.

SNOOPY

[trader_jackson]

Strong finish last week, strong start today... $1.68 currently I believe, $1.70 by the open tomorrow? ;)

[Beagle]

Strong finish last week, strong start today... $1.68 currently I believe, $1.70 by the open tomorrow? ;)

Seems to me that still trading cum a fully imputed 3.5 cent dividend up to and including this Wednesday nobody with any meaningful volume seems to want to sell. Seems they broadly agree with this hounds assessment of fair value. Wouldn't surprise me at all to see $1.70 today, ($1.69 when I looked a minute ago). Hold.

[winner69]

Seems to me that still trading cum a fully imputed 3.5 cent dividend up to and including this Wednesday nobody with any meaningful volume seems to want to sell. Seems they broadly agree with this hounds assessment of fair value. Wouldn't surprise me at all to see $1.70 today, ($1.69 when I looked a minute ago). Hold.

In these euphoric times and the market loving Heartland why not $1.75 today and $1.80 by end of week and $2.00 by Easter

After all Percy says the breakout is on the upside

[Beagle]

In these euphoric times and the market loving Heartland why not $1.75 today and $1.80 by end of week and $2.00 by Easter

After all Percy says the breakout is on the upside

:lol: Lets not get too carried away :lol:..but I suppose you never know do you. Seems to have been frequently stronger in the afternoon's lately which suggests demand coming from Australian or Asian investors.

[percy]

SNOOPY.
Could we please have another of your wonderfull SELL HBL posts.
I love them.
Each one sees the sp react upwards immediately.
You are making me a very wealthy man.
Snoopy thank you.
The beers are on me next time we meet.

[Ggcc]

I love how it is increasing as well, but this cannot continue forever. At some stage the risk will outweigh the reward. Unless this is a takeover haha. I will continue to hold

[SCOTTY]

Even @ 168c still a solid gross 7.11% yield (5.06% fully imputed) :)

[Beagle]

Even @ 168c still a solid gross 7.11% yield (5.06% fully imputed) :)

Agree or perhaps more technically correctly at the theoretical ex divvy price on Thursday (8.5 / 0.72) / 164.5 = 7.18% gross and that's only for the year ahead and of course we know that dividends grow with earnings :)

[janner]

Seems to me that still trading cum a fully imputed 3.5 cent dividend up to and including this Wednesday nobody with any meaningful volume seems to want to sell. Seems they broadly agree with this hounds assessment of fair value. Wouldn't surprise me at all to see $1.70 today, ($1.69 when I looked a minute ago). Hold.

Go on celebrate .. You can now afford that side order of fries..

[Beagle]

Go on celebrate .. You can now afford that side order of fries..

Saturday was cheat day and I did exactly that and neither of the grandkids could eat all their fries...how sad never mind, so I fixed that too :)

[winner69]

This is just such a beutiful chart I needed to update - certainly exciting

Never before have I seen a bank rerated so fast and by so much by the market as now - awesome

[janner]

This is just such a beutiful chart I needed to update - certainly exciting

Never before have I seen a bank rerated so fast and by so much by the market as now - awesome

Too good to be true perhaps.. Expect a pull back..

Happy holder.

[Beagle]

Too good to be true perhaps.. Expect a pull back..

Happy holder.

Still below fair value on a comparative basis with its peer group so I am expecting only a temporary pullback of 3.5 cents per share when it goes ex dividend on Thursday.

I suspect Percy has a few more than me and is probably enjoying Lobster for dinner some evenings with his chips :)

[see weed]

In these euphoric times and the market loving Heartland why not $1.75 today and $1.80 by end of week and $2.00 by Easter

After all Percy says the breakout is on the upside
Don't get too excited....My first HLG post? Thinking of selling some on ex div day over here.

[winner69]

That fall from 169 to 166 today - just 'profit taking' as they say in in the trade

A good sign I reckon

[Baa_Baa]

That fall from 169 to 166 today - just 'profit taking' as they say in in the trade

A good sign I reckon

Flat for the day not a bad thing, found a short term new top at 169, you reckon? Some poor punters down 1-3 cents already, but just a temporary blip on the way to the moon, as they say in the trade.

Stunning chart, nice breakout through previous highs at 160, probably want to back test that solid support, then moon-ward again eh. No worries, dead cert for sure.

[Snoopy]

Interesting. I guess all investors have different criteria by which they assign fair value. I considered Snoopy's method to be good for a cyclical stock, but didn't consider long term trends.


Actually, my laziness at just using unadjusted 'dividend per share' figures, while the number of shares continues to increase does build a growth rate into my Dividend Capitalization Modelling. To work out what that is, I have constructed a table below.



I have chosen to use the last three years of operation as indicative, as these years include the full contribution of the Reverse Mortgage Portfolio, a critical component of Heartland going forwards.




YearDividends Paid 'per share' (dps)No. Shares EOFY2017 {A}No. Shares EOFY {B}{A} - {B} {C}
Actual Dividend [dps x {B}]Modelled Dividend Growth [dps x {C}]


FY2015 3.5cps + 3.0cps512.902m (f)469.480m43.422m
$30.516m$2.822m


FY20164.5cps + 3.5cps512.902m (f)476.469m36.433m
$38.118m$2.915m


FY2017(f)5.0cps + 3.5cps(f)512.902m (f)512.902m (f)0m
$43.597m$0m


Three Year Total$112.231m
$5.737m



(f) indicates forecast result.

Now we can calculate the incremental profit growth percentage:

$5.732m / $112.233m = 5.112%

All this modelled growth happened over a three year period, with two incremental years from the base year. The average annual growth rate, lets call it 'g', must multiply together to obtain the 5.112% total.

g x g = 1.05112

Solving for 'g' yields an annual growth rate of 2.524%

The extra earnings that I have modelled are because I am assuming that it would have been possible to earn more in the past if the share capital of today had been available 'back then'. It is implicit in what I have done that I am assuming constant 'earnings per share' on this theoretically enlarged capital base. It may not have been possible to achieve this constant 'eps growth' had the extra capital been available at the time. Any theoretical extra growth could have been more or less. But becasue this whole incremental growth modelling is only a 'what if' exercise, I will stick with the constant 'eps' estimate, andthe derived annual growth rate of 2.524% that I calculated.

SNOOPY

[Snow Leopard]

Year
Dividends Paid 'per share' (dps)
No. Shares EOFY2017 {A}
No. Shares EOFY {B}
{A} - {B} {C}


FY2015
3.5cps + 3.0cps
512.902m (f)
469.480m
43.422m


FY2016
4.5cps + 3.5cps
512.902m (f)
476.469m
36.433m


FY2017(f)
5.0cps + 3.5cps(f)
512.902m (f)
512.902m (f)
0m


Ahem





(f) indicates forecast result.

SNOOPY

Can you make it very clear when you get to the definitive final version of this post. I would hate to spend time pointing out all the errors in any of your Works In Progress.

Best Wishes
Paper Tiger

Disc: current HBL share price definitely over-values the company.

[winner69]

Flat for the day not a bad thing, found a short term new top at 169, you reckon? Some poor punters down 1-3 cents already, but just a temporary blip on the way to the moon, as they say in the trade.

Stunning chart, nice breakout through previous highs at 160, probably want to back test that solid support, then moon-ward again eh. No worries, dead cert for sure.

Yep - no worries eh

[Joshuatree]

;)You've sold at the top w69; thats assuming you owned any?

[SCOTTY]

Ho hum. Wake me up in 2 years time :)

[winner69]

Don't forget HBL goes ex div Thursday - a couple of days to buy in / get more and get the dividend

Way things are going be back to 170 by end of week even after going ex

[Joshuatree]

Doubt it myself but who knows. I think a large number of investors may sell some ex div so if that happens could be a drag until the vol clears. a few weeks back was it you w69 who would have been happy to sell the company for $2 to an overseas buyer?:scared::mad ;:;)

For those few that always get confused; ex thursday means if you want the div, buy by the end of WEDNESDAY trading.

[winner69]

When the share price hits $1.93 Heartland will have a market cap of $1 billion - WOW that be a milestone - not long to go

[sb9]

When the share price hits $1.93 Heartland will have a market cap of $1 billion - WOW that be a milestone - not long to go

Zee winner...I'm worried for you looking at the time your post, you must be super exuberant with HBL that it keeps you awake at eery hours in the morning :p

[winner69]

Zee winner...I'm worried for you looking at the time your post, you must be super exuberant with HBL that it keeps you awake at eery hours in the morning :p

No, early morning flights to Australia causes disruption in this household.

But times are pretty exciting with Heartland at the moment

[kizame]

Would still like to see them make a decent sized aquisition,but what? and how? They are so tight Ar..d (good for us) that may not happen until a recession.

[percy]

Would still like to see them make a decent sized aquisition,but what? and how? They are so tight Ar..d (good for us) that may not happen until a recession.

Maybe they will,but in the meantime their organic growth is excellent.
And from what I hear, is set to continue,as the momentum builds.

[trader_jackson]

Zee winner...I'm worried for you looking at the time your post, you must be super exuberant with HBL that it keeps you awake at eery hours in the morning :p

I'm not surprised, it is hard not to get excited about the ever increasing opportunities Heartland has!:t_up:;)

[Snoopy]

Financial YearNumber of New Shares Issued during FYTotal Shares on the Books EOFYNet Money Raised from Shares Issued During FY


201288.704 m388.704m$54.946m


20130 m388.704m$0m


201475,562 m463.266m$64.774m


20156,624 m469.980m$9.163m


20166,579 m476.469m$6.798m


201713.659+ m499.165+ m$20.0m +


Total Cash Raised$155.681m +



For those who need some more convincing about what I am saying, the table above lays out the 'new capital' that has been poured into Heartland from its formation. Some years the new capital injection was modest, via the dividend reinvestment plan. Most years the capital required was significant. In only one year was no new capital needed. By showing the whole picture, I am hoping to put the bed the idea that, for the ambitions that Heartland has, Heartland has 'excess capital'.

In all years since Heartland has become a bank (FY2013 onwards), Heartland has satisfied Reserve Bank requirements for capital. But having a buffer on the minimum capital required, and having enough capital to allow Heartland to realise their business ambitions are different things. Some of this 'new capital' is being put toward the digital strategy. The effectiveness of this deployment while promising is yet to be seen! Because of the nature of the growing Reverse Mortgage business this is likely to be cashflow negative until a steady stream of these loans starts to mature. So yet more capital will be required for a while. None of this is meant to be a criticisim of Heartland's strategy going forwards. I am merely pointing out the cashflow implications for the near and medium term.

Any readers still believe that Heartland has 'plenty of capital' and won't be requiring more?


We are getting to the end of FY2017 capital raising now, with just the DRP for the current dividend to go. But with the (surprising) 'increase in new capital' asked for from existing shareholders, and last years placement put to bed, here is my best update of the capital raised subsequent to Heartland being formed. This time I will leave out FY2012, because that capital raising was all about shoring up the company's position 'at birth', and was not part of any future growth initiatives. For comparison, I have added a column showing the dividends declared during the year, before any net cash reduction as a result of the dividend reinvestment plan.



Financial YearNew Shares Issued during FYTotal Shares on the Books EOFYNet Money Raised During FY
Dividends PaidROE


20130 m388.704m$0m$13.951m7.2%


201475,562 m463.266m$64.774m$19.930m8.0%


20156,624 m469.980m$9.163m$30.188m9.9%


20166,579 m476.469m$6.798m$37.690m10.7%


201730.973m+512.902+ m$45.277m+$39.485m (f)tbc


Total Cash Raised$126.012m +


Total Cash Returned$141.244m



(f) indicates forecast result.

This shows that the sum of those shareholders who have taken up their dividends as DRP shares and contributed to the cash issues from FY2013 to FY2017 inclusive, the total sum contributed amounts to 89% of the dividends paid out. That figure is sure to rise to over 90% once the DRP contributions from this months dividend are added. This is not an unexpected position for a 'growth' company. But the question is, what return on equity do shareholders receive on these new/reinvested funds?

Unfortunately this is difficult to figure out. Heartland provides a 'segmented result analysis'. But the segments keep changing. This from p45 of AR2016:

-------

Segmental analysis

Operating segments

The banking group operates predominantly within New Zealand and comprises the following main operating segments: Households, Business, Rural

During the period ended 30 June 2016, the following changes were made to the banking group's operating segments:

- a business unit previously reported in the Household division was moved to the Business division.
- lending through Harmoney, which was previously reported in the Business division, was moved to the Household division.
- the non-core property segment was moved into the Business division.

---------

Such trifling details that obscure how the new investments are doing are of little concern to the Heartland faithful. But they are a big concern to a potential investor, outside the tent, like I am. We can however work out the overall return on shareholder equity in the whole company. See the last column in the above table. The ROE figures are improving, but they are consistently below average for NZX companies in general and certainly below average for banks. And remember, I am talking about a five year period that has generally been favourable for banks and finance companies. What will happen when a 'below average' Heartland faces some headwinds?

To summarize what we have here in Heartland is a company that is very hungry for cash, and consistently invests this cash in below average business units. How can this be a recipe for long term shareholder wealth? I suppose one day all this business reinvestment might pay off and my lack of faith in Heartland will make me look like a fool. But right now, there isn't shred of data that shows that Heartland can outperform any other bank in the medium to long term. I think investment in banks can prove rewarding. But I prefer to invest in banks that are at the top of the class, not down there at the bottom!

SNOOPY

[Beagle]

SNOOPY.
Could we please have another of your wonderfull SELL HBL posts.
I love them.
Each one sees the sp react upwards immediately.
You are making me a very wealthy man.
Snoopy thank you.
The beers are on me next time we meet.
He's at it again, we must be due for another SP rise :D

[percy]

He's at it again, we must be due for another SP rise :D

I think so.!!...lol.

[Food4Thought]

Snoopy is a wise marketing genius in disguise under the name of a wonderful cartoon character or like a financial detective with a play on words.


He's at it again, we must be due for another SP rise :D


Iwaitfortherise

[Snoopy]

To work out what that is, I have constructed a table below.


One of the best ways to look for growth rates is look at the rate of growth in dividend payment. A dividend is the amount of cash that management will pay out, taking into account earnings that must be retained for a company's on-going growth. I have represented this in the table below (condensed to the bare bones from a previous post).





YearActual Dividend


FY2015$30.516m


FY2016$38.118m


FY2017(f)$43.597m




The actual dividend increase over the three years total (two years incremental period) is projected as:

$43.597m/$30.516m = +42.87%

Another way to express this is by way of compounding single year growth

g^2 = 1.4287 => g = 1.195 => 19.5% compounding annual growth.

Note that this figure is very different to my modelled growth rate below:



Now we can calculate the incremental profit growth percentage:

$5.732m / $112.233m = 5.112%

The average annual growth rate, lets call it 'g',

Solving for 'g' yields an annual growth rate of 2.524%


So how do I explain modelling a dividend growth rate of 2.524%, when the actual dividend growth rate was 19.5% over the study period? The answer is that the 19.5% figure assumes that all of that growth is 'real absolute growth'. My modelling is assuming a much more modest business cycle picture, which nevertheless is underpinned by a long term rising growth rate of 2.524%. Or put another way, the 19.5% of annual dividend growth observed is made up of 2.5 percentage points of 'real underlying growth' and 17% of 'business cycle growth'.

Now I know that this interepretation of the dividend growth will outrage the enthusiasts. One problem is that 'modern Heartland' (including Seniors) has only been operatiing since the FY2015 financial year. Trying to extrapolate what might happen over a full business cycle is fraught with difficulties. So I may yet have to eat my hat over these figures. But I put it to 'the enthusiasts' that the data to support the alternative view (that all growth is real growth) is very questionable. My reasons fro saying that are articulated in my post 9131 'Hunger for New Capital Increased'. When modelling a situation like this, with lack of clear evidence either way, I tend to go for the conservative assumption.

So to summarize, the investment case for Heartland depends on your beliefs

Scenario Case 1/ (Conservative: Generally Cyclical share with small underlying growth): If I invest according to the conservative assumption and I drastically underestimate the growth, then I get the growth for free.

Scenario Case 2/ (Go Go Growth: All growth is real and it will continue at current rates for many years) If I invest according to this scenario and growth falters, then I face a 'cut in dividend', a concommitant cut in 'company market valuation 'and another cut because of 'market multiple deflation'. This three way hit could be pretty ugly.

I do not find the evidence for Scenario Case 2 to be convincing. My investment target range assuming Scenario 1 is below $1.42 (refer to my post 8635 on this thread). So I will not be investing in HBL at this time.

SNOOPY

[percy]

Not a holder Winner69, but I am becoming very uneasy about Heartland. What do you think of this observation?

I am presently visiting the Kapiti Coast and have read today's edition of the Dominion and the local rag the Kapiti Observer, both dated Wednesday 20th July.

On page B7 of the Dominion is an ad for PGG Wrightson Finance, an organization which seems inevitably destined to become part of Heartland. They are advertising a 12 month secured term deposit offering 7.5% per annum. This is despite the small print in the ad that notes any such investment will become a deposit with Heartland that will consequently be unsecured in a couple of months time (no mention of that last clause in the ad of course).

Then on p13 of the Kapiti Observer, a real 'heartland' publication (sic), Heartland are offering a 12 month term deposit rate of 6.25% per annum. This seems to be quite a big gap for what is ostensibly the same investment, even allowing for the fact the 'small print' shows that the PGG Wrightson Finance 7.5% rate is for investments of $100,000 plus.

The headline on the Heartland ad states 'We invest in Wellington'. Immediately I am thinking, no you don't! You are primarily the old Southern Cross and CBS Canterbury Building Societies, investing in the heart of the South Island. Oh and you are also Marac investing in the manufacturing heart of Wellington (yeah right, let me know if you can't count any manufacturer's left in Wellington on one hand!)

I can't help the impression that Heartland is really old rope painted and tarted up as a new frilly bow knot. The marketing budget is being spent to allow the paying of lower interest rates to depositors than a BBB- credit rated organization might otherwise offer. Pull the wrong string and the whole lot might unravel. I really, really hope that I am wrong.

I would like to see Heartland succeed. I think NZ inc. needs it! But is a 'Salt of the Earth' name and a hyped marketing budget really the key to the path of success?

SNOOPY

discl: Hold PGW, who are in the process of divesting PGG Wrightson Finance.

Snoopy's first post on this thread.
Post # 30..... 20-07-2011.
No comment.

[Snow Leopard]

Why I have had to put Snoopy on the Ignore List:


https://www.youtube.com/watch?v=lF5lCsCxZjQ

Best Wishes
Paper Tiger

[GTM 3442]

Snoopy's first post on this thread.
Post # 30..... 20-07-2011.
No comment.

Please comment. You may burst otherwise, and you would be missed.

[percy]

No, no no say it ain't so!

As a PGW shareholder I am feeling doubly shafted at selling the PGG Finance loans to Heartland at book value, then having to buy at 10% stake in Heartland at a big premium to market value.

You guys can speculate all you like about fair value for the Heartland-Not-Bank. PGW Chairman Sir John Anderson told we PGW shareholders that 'fair value' is 'book value' for non-bank financiers these days, if you are lucky. And the more cheap Heartland shares are sold, the lower the overall per share book value for PGW shareholders. Overall I have a schizoid reaction to what is going on.

From an industry observer perspective, we need Heartland to succeed. I wish all shareholders good luck.. You Heartland investors are heros, pushing back from the financial sector collapse to create a base for a new golden dawn of finance funding. This will see the true heartland of New Zealand captaining the economic recovery going forwards.

From a PGW shareholder perspective, I hope Heartland goes down. If that were to happen, PGW could unload $50m in loans for the Heartland receivers to deal with, the contractual defacto fall back position of the debt sales agreement. You existing Heartland shareholders are leeches on the financial fabric of New Zealand, frightening sound businesses to sell their loan books to you, even as you cream the stolen profits. I would like nothing better for today to be seen as a false dawn in the finance sector, with the heavy trampling boot of back banking debt facilities weighing on you before crushing you into the ground. You parasites! I hope you all do your dough.

SNOOPY

Snoopy's second post on this thread post #81 ...30-8-2011 is another classic.
Loved the " you existing Heartland shareholders are leeches.""You parasites".
Wonderful stuff.

[JeremyALD]

Snoopy's second post on this thread post #81 ...30-8-2011 is another classic.
Loved the " you existing Heartland shareholders are leeches.""You parasites".
Wonderful stuff.

I really don't understand the obsession!

[winner69]

Snoopy's second post on this thread post #81 ...30-8-2011 is another classic.
Loved the " you existing Heartland shareholders are leeches.""You parasites".
Wonderful stuff.

Please cool it percy - you not being nice at all

Just put him on ignore if he upsets you so much

[percy]

Please cool it percy - you not being nice at all

Just put him on ignore if he upsets you so much

Obessive foolish laughable posts do not upset me.

[winner69]

Foolish laughable posts do not upset me.

So why make mock of snoops - not very civil of you

We've all (including yourself) have made posts that years on seem stupid

[percy]

So why make mock of snoops - not very civil of you

We've all (including yourself) have made posts that years on seem stupid

After nearly 6 years his posts on this thread have become tiresome.!
Yes we have all posted the odd stupid post,but not hundreds of them..

[winner69]

After nearly 6 years his posts on this thread have become tiresome.!
Yes we have all posted the odd stupid post,but not hundreds of them..

No comment from me about repetitive tiresome posts - probably get me banned

Back on topic - dairy prices up overnight, that's generally a good sign for Heartland's share price.

[Joshuatree]

- probably get me banned


Repetition:t_up:

[Snoopy]

Snoopy's first post on this thread.
Post # 30..... 20-07-2011.

Snoopy wrote:

-----

On page B7 of the Dominion is an ad for PGG Wrightson Finance, an organization which seems inevitably destined to become part of Heartland. They are advertising a 12 month secured term deposit offering 7.5% per annum. This is despite the small print in the ad that notes any such investment will become a deposit with Heartland that will consequently be unsecured in a couple of months time (no mention of that last clause in the ad of course).

Then on p13 of the Kapiti Observer, a real 'heartland' publication (sic), Heartland are offering a 12 month term deposit rate of 6.25% per annum. This seems to be quite a big gap for what is ostensibly the same investment, even allowing for the fact the 'small print' shows that the PGG Wrightson Finance 7.5% rate is for investments of $100,000 plus.

<snip>

I can't help the impression that Heartland is really old rope painted and tarted up as a new frilly bow knot. The marketing budget is being spent to allow the paying of lower interest rates to depositors than a BBB- credit rated organization might otherwise offer. Pull the wrong string and the whole lot might unravel. I really, really hope that I am wrong.

I would like to see Heartland succeed. I think NZ inc. needs it! But is a 'Salt of the Earth' name and a hyped marketing budget really the key to the path of success?

-------

No comment.

I do remember writing that Percy. Despite the sceptical tone, the post does show how on the ball I was. I definitely got in first with noticing how good Heartland's interest margins were, well before Heartland themselves started pointing out their high interest margins relative to other banks. Of Course, Heartland wasn't even a bank back then.

The transition to becoming a 'bank' (albeit one that doesn't pass the duck test) has previously been acknowledged as done for marketing reasons as much as anything else. Yet well before that I linked 'hyped marketing' as the key to the path of success. That post of mine was absolutely spot on with the key points. So prescient, I almost can't believe it! That post might as well have been written by a sceptical Geoff Greenslade alter ego!

Did you see that film 'Avatar' Percy where they put the humans in a deep sleep and transferred their consciousness to another being? I wonder if when I go 'shuteye', Geoff Greenslade gets up and does his Heartland stuff? The when Greenslade goes to bed, here I am typing away on Sharetrader! Maybe I am the alter ego Greenslade typing away in a parallel existance, so prescient are my posts. What do you reckon Percy? Could it be true ;-P

SNOOPY

[percy]

I do remember writing that Percy. Despite the sceptical tone, the post does show how on the ball I was. I definitely got in first with noticing how good Heartland's interest margins were, well before Heartland themselves started p[ointing out their high interest margins relative to other banks. Of Course Heartland wasn't even a bank then
"Old rope painted and tarted up as a new frilly bow knot."
"Pull the wrong string and the whole lot might might unravel."
"I really ,really hope I am wrong."
Yes you were wrong, and have continued to be wrong for nearly 6 years.

[h2so4]

"Old rope painted and tarted up as a new frilly bow knot."
"Pull the wrong string and the whole lot might might unravel."
"I really ,really hope I am wrong."
Yes you were wrong, and have continued to be wrong for nearly 6 years.

Yes critical at best insulting at worst.
Where does this stuff come from.

[Joshuatree]

Lovely chart.In 2012 s/p was re 50c now $1.63 despite there being some dilution along the way.
What does it mean s/p dropping 3c today despite still being cum 3.5c div until close of trade today.?.Dont like that.

[percy]

Lovely chart.In 2012 s/p was re 50c now $1.63 despite there being some dilution along the way.
What does it mean s/p dropping 3c today despite still being cum 3.5c div until close of trade today.?.Dont like that.

Following US market where banks got crushed.

[kizame]

Lovely chart.In 2012 s/p was re 50c now $1.63 despite there being some dilution along the way.
What does it mean s/p dropping 3c today despite still being cum 3.5c div until close of trade today.?.Dont like that.

Don't worry about it,you mention that chart,so what does that 3c mean,absolutely nothing,carry on as usual.

[Joshuatree]

Thanks percy, ive slipped re keeping my eye on the macro lately.

[Joshuatree]

Don't worry about it,you mention that chart,so what does it mean,absolutely nothing,carry on as usual.

I used to think like that kizame but now find charts an invaluable aid re the health of a stock and esp when to buy and when to sell. Another tool to go with fundamentals etc , helps me make the right decisions way better.

[kizame]

I used to think like that kizame but now find charts an invaluable aid re the health of a stock and esp when to buy and when to sell. Another tool to go with fundamentals etc , helps me make the right decisions way better.

Charts yep,thats why I sold yesterday,but I will be back in as soon as I'm happy with the entry. Thought you were a long term holder like Percy.

[bottomfeeder]

Ooohhh to get 6.25% for twelve months. Enough to sell all of my Warehouse shares.

[couta1]

I used to think like that kizame but now find charts an invaluable aid re the health of a stock and esp when to buy and when to sell. Another tool to go with fundamentals etc , helps me make the right decisions way better. Charts are a valuable aid for entry and exit from stocks but just like the SP, they often do not indicate the health of a stock at all. Good companies are just getting on with business as usual, look at a few companies like RYM/SPK/AIA/SUM/AIR and this one, and tell me anything has changed over the last fortnight other than the SP.

[Joshuatree]

I try to remember to watch the M/A's weekly or on any change,they are invaluable health signals and indicators re the direction of ones stock along with vol, stoch stats etc. I liken it to checking ones dipstick and fluid levels in ones car(if its not electric and not late model:).

[winner69]

I for one was treated 'unfairly' (probably should have got a few more)

http://www.sharechat.co.nz/article/04adec97/nzsa-slams-heartland-bank-s-capital-raising-as-unfair-to-retail-shareholders.html?utm_medium=email&utm_campaign=NZSA%20slams%20Heartland%20Banks%20ca pital%20raising%20as%20unfair%20to%20retail%20shar eholders&utm_content=NZSA%20slams%20Heartland%20Banks%20cap ital%20raising%20as%20unfair%20to%20retail%20share holders+CID_b69e0e0a67e97813a5e663d7ee036a0f&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticle04adec97nzsa-slams-heartland-bank-s-capital-raising-as-unfair-to-retail-shareholdershtml

Just shows that rhetoric means squat all - retail shareholders are a bit of a nuisance factor eh

[percy]

I for one was treated 'unfairly' (probably should have got a few more)

http://www.sharechat.co.nz/article/04adec97/nzsa-slams-heartland-bank-s-capital-raising-as-unfair-to-retail-shareholders.html?utm_medium=email&utm_campaign=NZSA%20slams%20Heartland%20Banks%20ca pital%20raising%20as%20unfair%20to%20retail%20shar eholders&utm_content=NZSA%20slams%20Heartland%20Banks%20cap ital%20raising%20as%20unfair%20to%20retail%20share holders+CID_b69e0e0a67e97813a5e663d7ee036a0f&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticle04adec97nzsa-slams-heartland-bank-s-capital-raising-as-unfair-to-retail-shareholdershtml

Just shows that rhetoric means squat all - retail shareholders are a bit of a nuisance factor eh

Good to see NZSA being proactive.
Lets hope companies listen to them.

[BlackPeter]

Good to see NZSA being proactive.
Lets hope companies listen to them.

... and don't forget - if you want to support the good work of the NZSA - join them! They are a still quite small group of shareholders (some 1300 from memory) but they do fight for the interests of all shareholders. They need any support they can get.

https://www.nzshareholders.co.nz/members.cfm

Discl: NZSA member;

[Joshuatree]

Charts yep,thats why I sold yesterday,but I will be back in as soon as I'm happy with the entry. Thought you were a long term holder like Percy.

Mmmh your'e a riddle wrapped up in an enigma kizame:confused::D. Int in what you saw in the chart that motivated you to sell?

[percy]

Following US market where banks got crushed.

HBL finished the day down 1 cent or -0.99%,while ANZ [-94cents] and Westpac [-$1.02] were both down 2.72%.
HBL was hardly affected by the US banks.
HBL went ex divie last night, the sp price is being adjusted accordingly from $1.65 to $1.615,for the 3.5cent divie.
Perhaps we should now expect some weakness in the share price.?
I am still undecided whether the support level on the chart is $1.55 or $1.60.At this stage I am thinking $1.60,but then I am an optimist.Be happy with either.!

[ziggy415]

Anybody had the excess from spp returned yet

[iceman]

Anybody had the excess from spp returned yet

It was deposited into my bank acc on 15 March !!

[ziggy415]

It was deposited into my bank acc on 15 March !!
Thanks....have to get my accountant on to it.....once she,s done the dishes

[ace5715]

Remember if you paid the money from a different account than the designated account for dividends etc the refund is paid back to your designated account not the account the original money came from.

[janner]

Remember if you paid the money from a different account than the designated account for dividends etc the refund is paid back to your designated account not the account the original money came from.

Still waiting also.. Monies paid from designated dividend account..

Could it be that I take the DRP therefore they have not used that account for deposits ???

Will give them a call.

[AndyLP]

Also still waiting..

[winner69]

Also still waiting..


Hope you get it back one day.

Those that followed the instructions in the email and did it on the on-line form where you put your bank account number don't seem to have had any issues.

Money out quickly and surplus returned quickly - very efficient as you would expect from a bank with a digital focus

[janner]

Hope you get it back one day.

Those that followed the instructions in the email and did it on the on-line form where you put your bank account number don't seem to have had any issues.

Money out quickly and surplus returned quickly - very efficient as you would expect from a bank with a digital focus

Was done online and the money was very efficiently withdrawn.

However.. Still a happy holder.

[BlackPeter]

Here is the recent media release from the NZSA on the Heartland Capital rising:

http://www.nzshareholders.co.nz/pdf/correspondence/HBL%20Release%20Final.pdf


Midgley said that ordinary shareholders will be wondering how many of the shares taken up by institutional
shareholders have already been on-sold for a quick profit given the 20 cents rise in the share price since
the placement. “Long term, loyal retail shareholders have been badly treated by this rushed board
decision”


I do agree with their views.

... and remember: if you want to support the great work of the NZSA - join them!

https://www.nzshareholders.co.nz/members.cfm

[iceman]

Here is the recent media release from the NZSA on the Heartland Capital rising:

http://www.nzshareholders.co.nz/pdf/correspondence/HBL%20Release%20Final.pdf

I do agree with their views.

... and remember: if you want to support the great work of the NZSA - join them!

https://www.nzshareholders.co.nz/members.cfm

I am glad they are taking this up with Heartland although they are not alone in this. But it would be good if NZSA can advocate on behalf of us retail shareholders (mum & dad). Agree with BP they're doing a good job and recommend people join and support them. Very reasonable membership fee

[Joshuatree]

I for one am happy with things. The s/p is holding really well after the run up and going Ex with no huge vol of shares going through ATPIT. Much ado about not much imo. atpit.

[Snoopy]

An update from last years equivalent reporting period, HY2015.

The underlying debt of the company according to the HY2016 statement of financial position is:

$43.377m + $1.095m = $44.472m

To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:

$3,344.498m - ($2,928.621m +$12.439m + $269.769m) = $133.669m

We are then asked to remove the intangible assets from the equation as well:

$133.669m - $54.314m = $79.355m

Now we have the information needed to calculate the underlying company debt net of all their lending activities:

$44.472m/$79.355m= 56.0% < 90%

This compares unfavourably with the comparatuve half year period figure of 27.7%, but favourably with the more recent 58.4% figure from FY2015 date (30th June 2015)

Result: PASS TEST

An update from last years equivalent reporting period, HY2016.

The underlying debt of the company according to the HY2017 statement of financial position is:

$39.138m + $5.986m = $45.116m

To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:

$3,820.147m - ($3,394.800m +$6.827m + $298.519m) = $119.991m

We are then asked to remove the intangible assets from the equation as well:

$119.991m - $65.584mm = $54.407m

Now we have the information needed to calculate the underlying company debt net of all their lending activities:

$45.116m/$54.407m= 82.9% < 90%

This compares unfavourably with the comparatuve half year period figure of 56.0%, and even less favourably with the more recent 37.4% figure from FY2016 date (30th June 2016). The rapid deterioration in this statistic means we shoudl keep watching it. But being comfotably within covenant boundaries, there is no casue for medium term concern.

Result: PASS TEST

SNOOPY

[Snoopy]

Updating for the half year result HY2016. The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs

EBIT (high estimate) = $134.340m-$37.039m= $97.301m

Interest expense is listed as $62.868m.

So (EBIT)/(Interest Expense)= ($97.301m)/($62.869m)= 1.55 > 1.20

Result: PASS TEST, an improvement from the HY2015 (1.51) position. And also an improvement on the full year position as of 6 months ago FY2015 (1.52)


Updating for the half year result HY2017. The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs

EBIT (high estimate) = $135.789m-$35.966m= $99.823m

Interest expense is listed as $56.828m.

So (EBIT)/(Interest Expense)= ($99.823m)/($56.828m)= 1.79 > 1.20

Result: PASS TEST, an improvement from the HY2016 (1.55) position. And also an improvement on the full year position as of 6 months ago FY2016 (1.65)

SNOOPY

[Snoopy]

Updating this number for the half year HY2016

Equity Ratio = (Total Equity)/(Total Assets)

Using numbers from the Heartland HYR2016

= $485.688m/$3,344.498m = 14.5%

This is a decrease on the HY2015 position (14.6%). But it is also an increase on the FY2015 position of 6 months ago (14.3%). An indication perhaps of a slightly more conservative funding bias, considering company equity supporting company loans?


Updating this number for the half year HY2017

Equity Ratio = (Total Equity)/(Total Assets)

Using numbers from the Heartland HYR2017

= $528.002m/$3,820.147m = 13.8%

This is a decrease on the HY2016 position (14.5%), and also an decrease on the FY2016 position of 6 months ago (14.1%). This decrease is despite $20m in new capital being raised from institutions during the half year. So Heartland are driving their loan book forwards, and making full use of that new capital.

SNOOPY

[BlackPeter]

I for one am happy with things. The s/p is holding really well after the run up and going Ex with no huge vol of shares going through ATPIT. Much ado about not much imo. atpit.

Well, you seem to be easy to please. They could have achieved the same capital rising without donating the discount of $20 million worth of shares to unrelated institutional investors. As a HBL shareholder I would have preferred to have this money in my pocket (and getting e.g. 2/3 rds instead of just 1/3rd of my allocation.

I would have liked to see our board to work for us instead of for "institutional investors", but each to their own. I guess somebody must speak for the poor "institutionals", do they?

[Joshuatree]

Our board has been brilliant imo and run this company nearly faultlessly hence the current s/p strength atpit. Its a fact of business/investing life that The big boys have much more clout and much bigger pockets and so they should be rewarded accordingly imo compared to us tiny tiddlers. Its a balancing act trying to keep everyone happy and it makes sense to keep the Instos on side. All atpit; if a big dump happens it wouldn't look good but i think the HBL s/p would recover fairly quickly.

[mfd]

Well, you seem to be easy to please. They could have achieved the same capital rising without donating the discount of $20 million worth of shares to unrelated institutional investors. As a HBL shareholder I would have preferred to have this money in my pocket (and getting e.g. 2/3 rds instead of just 1/3rd of my allocation.

I would have liked to see our board to work for us instead of for "institutional investors", but each to their own. I guess somebody must speak for the poor "institutionals", do they?

Speaking as a (very) small time shareholder I'm happy with how things have gone. I got as many shares as I wanted (although I had to temporarily stump up extra cash), and we ended up with a significantly better discount than the initial institutional round.

I can see why you might be upset as a larger holder with a smaller allocation proportional to your holding, but it's actually worked out quite nicely for me. With hindsight it's easy to say the money could have come from the spp, but I'm not sure that was obvious from the outset. Would have been embarrassing to fall short of the target, surely?

[winner69]

Well, you seem to be easy to please. They could have achieved the same capital rising without donating the discount of $20 million worth of shares to unrelated institutional investors. As a HBL shareholder I would have preferred to have this money in my pocket (and getting e.g. 2/3 rds instead of just 1/3rd of my allocation.

I would have liked to see our board to work for us instead of for "institutional investors", but each to their own. I guess somebody must speak for the poor "institutionals", do they?

BP - One of those 'institutional investors' was a Director (or at least his trustee Company) - took nearly 10% of the 'discounted' shares in the December raising.

But then if you a big shareholder you sort of get first dibs

[Food4Thought]

Hi HBL shareholders

FYI - Last couple hours to get your DRP information in if you want your divi reinvested.

Happy weekend:t_up:

[BlackPeter]

BP - One of those 'institutional investors' was a Director (or at least his trustee Company) - took nearly 10% of the 'discounted' shares in the December raising.

But then if you a big shareholder you sort of get first dibs

I guess this clearly shows that it was a good deal for the institutional investors ;)

[iceman]

Speaking as a (very) small time shareholder I'm happy with how things have gone. I got as many shares as I wanted (although I had to temporarily stump up extra cash), and we ended up with a significantly better discount than the initial institutional round.

I can see why you might be upset as a larger holder with a smaller allocation proportional to your holding, but it's actually worked out quite nicely for me. With hindsight it's easy to say the money could have come from the spp, but I'm not sure that was obvious from the outset. Would have been embarrassing to fall short of the target, surely?

It isn't really about whether you, BlackPeter or I are happy with what we personally got. I am quite satisfied as I got pretty much what I expected and MarketLink Services did it very efficiently for me with money being returned very quickly. I am also very happy with the Board and Management of HBL and a very happy long term SH.

I look at the NZSA action not as being against HBL at all, simply using it as an example of how they believe these capital raisings could be done differently and more fairly to smaller SH. I agree with them. I hope HBL management take the NZSA'a criticism/discussion well and discuss with them how they could learn from this and do it better in the future. Hopefully that would also be noticed by other companies planning future capital raising

[percy]

NZX make the rules,so it would appear to me, NZSA should be talking to them.

[Baa_Baa]

NZX make the rules,so it would appear to me, NZSA should be talking to them.

Yes, heaven forbid NZSA would have the temerity to talk to the company about considering the impacts on their members. Take it to the NZX, they'll do the right thing by the minions. Yeah right!

[percy]

Yes, heaven forbid NZSA would have the temerity to talk to the company about considering the impacts on their members. Take it to the NZX, they'll do the right thing by the minions. Yeah right!

Yeah right.
Most probably just following ASX on SPPs.

[Snoopy]

Under Note 4 of HY2016 the 'impaired asset expense' has increased to $5.610m (HY2016, ended 31st December 2015) up from from $5.102m in the corresponding prior period (HY2015). Bad debts for the full year to 30th June 2015 (FY2015) added to $12.105m. By simple subtraction the bad debt expense for the period 1st January 2015 to 30th June 2015 ( 2HY2015 ) was $12.105m - $5.102m = $7.003m.

This means that what we are seeing is 20% fall in bad debts declared over the six months to December 2015, compared to the immediately preceeding 6 month period.


Under Note 4 of HY2017 the 'impaired asset expense' has increased to $6.892m (HY2017, ended 31st December 2016) up from from $5.610m in the corresponding prior period (HY2016). Bad debts for the full year to 30th June 2016 (FY2016) added to $13.501m. By simple subtraction the bad debt expense for the period 1st January 2016 to 30th June 2016 ( 2HY2016 ) was

$13.501m - $6.892m = $6.609m.

This means that what we are seeing is a 4.3% rise in bad debts expense declared over the six months to December 2016, compared to the immediately preceeding 6 month period.

SNOOPY

[JeremyALD]

I don't see why people are complaining. Everyone who participated made $500 in a 3 minute process. Yes some people held more shares beforehand, but they still did well too.

[kizame]

I don't see why people are complaining. Everyone who participated made $500 in a 3 minute process. Yes some people held more shares beforehand, but they still did well too.

Yep It is what it is ,lets move on and look at the coming 6 mnths and yr end result.
And it was a positive experience after all.

[SCOTTY]

Yep It is what it is ,lets move on and look at the coming 6 mnths and yr end result.
And it was a positive experience after all.

But not fair and equitable :(

[kizame]

Ok but heres a thing,I applied for the full 15,000 worth like so many,got my 3,317 and guess what,at todays price still in profit by quite a margin.
To be fair,that was a pretty decent discount they were issued at,and the shareprice has held up really well post dividend,it is because of management that the company is held in such high regard and of course the dividend yield.
be happy.

[Beagle]

I don't see why people are complaining. Everyone who participated made $500 in a 3 minute process. Yes some people held more shares beforehand, but they still did well too.

Couldn't agree more. For those applying for $15,000 worth it was actually just over $600 profit taking into account the SP gain since then and the dividend. SPP plans have been around for a very long time now.

[Baa_Baa]

Under Note 4 of HY2017 the 'impaired asset expense' has increased to $6.892m (HY2017, ended 31st December 2016) up from from $5.610m in the corresponding prior period (HY2016). Bad debts for the full year to 30th June 2016 (FY2016) added to $13.501m. By simple subtraction the bad debt expense for the period 1st January 2016 to 30th June 2016 ( 2HY2016 ) was

$13.501m - $6.892m = $6.609m.

This means that what we are seeing is a 4.3% rise in bad debts expense declared over the six months to December 2016, compared to the immediately preceeding 6 month period.

SNOOPY

One wonders how much of that is due to extending loans to the desperate D, E, & F rated borrowers on the Harmoney platform? Mind you that debt should be covered by the investment punters loses, so probably no effect on HBL per se. So which 'books' are those bad debts originating from and is that extraordinary, mainstream or below the bad debts of the majors? No point in highlighting it if the % of bad debts is in line with industry norms, but if not, then it is material if HBL are exposed to abnormal bad debts.

[Baa_Baa]

Couldn't agree more. For those applying for $15,000 worth it was actually just over $600 profit taking into account the SP gain since then and the dividend. SPP plans have been around for a very long time now.

Punters need to move on, the SPP is done and dusted. Nice gains for anyone who participated, while some of the larger punters took a dilution effect, big deal. It's done, over, kaput.

[SCOTTY]

Punters need to move on, the SPP is done and dusted. Nice gains for anyone who participated, while some of the larger punters took a dilution effect, big deal. It's done, over, kaput.
This has nothing to do with punters or punting. It is the principle of pro rata distribution which is being abused here.

[iceman]

But not fair and equitable :(

Scotty I know you, me, Percy and many more have been onboard HBL for a long time and 100% support management. But like you said, this SPP is not not "fair and equitable".Sadly I think too many don't understand what we are talking about :-(
Worst of all, my mate Roger doesn't seem to get it because he doesn't mind because he made a couple of hundies .... Sad

[ziggy415]

And I still haven't, the got my money back........getting little concerned now

[Bjauck]

Brian Gaynor criticises the disdain of NZ companies for their small shareholders and suggests it as one of the reasons why NZers prefer residential property investment. FBU comes in for the biggest criticism perhaps. The HBL SPP is cited as an example of the cavalier attitude despite enthusiastic smaller shareholders. No doubt these criticisms will fall on deaf ears?

Brian Gaynor: Small investors treated as second class
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11824823

[Bjauck]

And I still haven't, the got my money back........getting little concerned now Have you checked the banking details you have on file with Link share registry.

[winner69]

There did seem to be undue haste to push through a piddly $20m capital raise in December, just before a quarter / half year end.

I wonder about the timing.

[janner]

And I still haven't, the got my money back........getting little concerned now

Had e-mail from LINK concerning my contact with them.. " It is in the post "..

They have been writing cheques.. Even though they have all my details.... Should be there Monday.

[AndyLP]

And I still haven't, the got my money back........getting little concerned now

Eventually got mine as a cheque in the post. Not sure why they didn't send it back directly to my account!

[janner]

Eventually got mine as a cheque in the post. Not sure why they didn't send it back directly to my account!

As Del Boy would say.. A nice little earner ..

[percy]

There did seem to be undue haste to push through a piddly $20m capital raise in December, just before a quarter / half year end.

I wonder about the timing.

Has been puzzling me too.
Going from "too much" capital earlier in the year to a "hastie" placement ?
I wonder whether they put off a capital raise as thought they may buy UDC, and would have to raise a great deal of capital,and then Spotcap and Fuelled opportunities came along and they did them,and then worried at their capital ratio,and had to act quickly.?
Whatever it did not fit in their usual strategy of being "well positioned."

[BlackPeter]

And I still haven't, the got my money back........getting little concerned now

ziggy, if I would be in your shoes I would call Link and ask. I only can imagine two reasons for the missing money - either they have no account details registered for you and sent you a cheque (which might take ages to arrive thanks to NZ Posts outstanding services, and it might go to an old address or whatever), or they have the wrong account details and somebody else is now enjoying your money. Whatever it is - contact them and I am sure they will sort it out for you.

Just one additional hint - they didn't put the money into the account where they took it from, but into the account where you normally would find your dividend payments (unless you still get them by cheque). Have you checked there?

[winner69]

Has been puzzling me too.
Going from "too much" capital earlier in the year to a "hastie" placement ?
I wonder whether they put off a capital raise as thought they may buy UDC, and would have to raise a great deal of capital,and then Spotcap and Fuelled opportunities came along and they did them,and then worried at their capital ratio,and had to act quickly.?
Whatever it did not fit in their usual strategy of being "well positioned."

Still would have had $50m odd in cash at that time .....so it looks like some key ratios needed fixing before quarter end

Methinks more capital raisings (prob bonds) on way as they say 'optimise' the balance sheet - some just call it fionancial engineering.

[kizame]

ziggy, if I would be in your shoes I would call Link and ask. I only can imagine two reasons for the missing money - either they have no account details registered for you and sent you a cheque (which might take ages to arrive thanks to NZ Posts outstanding services, and it might go to an old address or whatever), or they have the wrong account details and somebody else is now enjoying your money. Whatever it is - contact them and I am sure they will sort it out for you.

Just one additional hint - they didn't put the money into the account where they took it from, but into the account where you normally would find your dividend payments (unless you still get them by cheque). Have you checked there?

"Someone else enjoying your money" Omg perish the thought.

The funny thing is,if you sent the funds electronically you gave the bank account the funds were to be withdrawn from,so why would they not put the money back there? rather than place it in your dividend account.
In my case it was with ANZ Securites account,rather than the ANZ account the funds originated from.

[percy]

Still would have had $50m odd in cash at that time .....so it looks like some key ratios needed fixing before quarter end

Methinks more capital raisings (prob bonds) on way as they say 'optimise' the balance sheet - some just call it fionancial engineering.

I thought they would have done a good size bond issue by now.
Would make sense.

[ziggy415]

And I still haven't, the got my money back........getting little concerned now
Just got the mail....I've now got a cheques to deposit.......bit of a pain realy

[artemis]

Just got the mail....I've now got a cheques to deposit.......bit of a pain realy

You can change this on Link to bank account.

[Snoopy]

Tier 1 or Tier 2 capital adequacy is noted under section 19A (Capital Ratios) in the Heartland HY2016 report.

$2,928.621m of loans are outstanding. 20% of that figure is:

0.2 x $2,928.621m = $585.7m

Heartland has total equity of $485.688m. But from note 19A, only $427.084m is Tier 1 capital. The difference is because intangible assets, deferred tax assets, hedging reserve effects and defined benefit superannuation fund assets on the books must be adjusted for.

On top of the Tier 1 assets, there is a subordinated bond of $1.455m

Nevertheless, however the total tier capital is added together, it is still below the "20% of loan" target no matter what the tier classification of capital buffering any potential problems with the loans.

Result: FAIL TEST

PS I do note that while other posters have protested at my 20% of equity to back up the loan measuring stick in the past, it is not too far away from the 17% which by implication is judged acceptable by management under the watchful eye of Reserve Bank chairman Graeme Wheeler.

Using current period Tier 1 capital and loan book figures:

$427.084m/$2,928.621m = 14.6%

So it seems Heartland's position has deteriorated significantly, compared to when it qualified as a bank.

The reserve bank further qualifies their views that a company of Heartlands credit rating still has a 1 in 30 chance of going broke in any year. I prefer to think in business cycles and 30 years will contain around five of those. So you could restate the Reserve Bank's view as saying that HNZ has a one in five chance of going broke at the bottom of the business cycle. For me that investment risk is too high. So I am sticking to my 20% equity requirement, even if the Reserve Bank will settle for less.


Note that in comparison to last year, I have revised my standard so that Heartland should carry 17% of sharehiolder equity in relation to the value of its loan book. This change of standard is in recognition of Heartland now being able to be thought of as a 'middle tier' finance player, insyead the smaller rather more risky player that it started out as.

Tier 1 or Tier 2 capital adequacy is noted under section 19A (Capital Ratios) in the Heartland HY2017 report.

$3,334.800m of loans are outstanding. 17% of that figure is:

0.17 x $3,334.800m = $575.4m

Heartland has total equity of $528.002m. But from note 18A, only $457.631m is Tier 1 capital. The difference is because intangible assets, deferred tax assets, hedging reserve effects and defined benefit superannuation fund assets on the books must be adjusted for.

On top of the Tier 1 assets, there is Tier 2 Capital: a subordinated bond of $0.970m, offset by a $2.095m 'Foreign Currency Translation Reserve' adjustment. Somewhat bizarrely, this results in a negative Tier 2 equity balance of $1,125m being declared on the books.

Nevertheless, however the total tier capital is added together, it is still below my "17% of loan" target no matter what the tier classification of capital buffering any potential problems with the loans.

Result: FAIL TEST

Note: Post balance date, Heartland has raised an additional $20m capital from shareholders which will go some way to fixing this issue. If the loan book has not enlarged further since balance date, this would result in a loan book to total equity ratio of:

($528.002m + $20m) / $3,334.800m =16.4%

This brings the 'Total Tier Capital' to loan book ratio back to the level it was at FY2016 balance date (30/06/2016). If this is the level of capital that Heartland are comfortable with and the loan book continues to grow, then logic would suggest further capital raising initiatives could be required by Heartland in the near future.

In fact, a new offer of approximately A$15m of Tier 2 regulatory capital to wholesale investors in Australia, has already been signalled in p13 of the half year results presentation.

SNOOPY

[kiwico]

Some of the discussion on this thread is about how much of a bank HBL is. The RBNZ has HBL as a registered bank and so HBL is subject to different regulation than a Non Bank Deposit Taker. But HBL was born out of NBDTs (finance companies, building societies, credit unions and the like) so is it still run as one?.

Secondhand car retailers like this bunch (http://www.alexandermotors.co.nz/) promote finance for those with bad credit and beneficiaries and bankrupts, with HBL one of two the lenders listed on their finance page (http://www.alexandermotors.co.nz/finance-information).

Being involved with activities and customers like this to me places HBL more in the NBDT / finance company area even if they are registered bank (the duck test again).

I hold but only as a small part of my portfolio because we know what happened to finance companies and the like the last time the economy slowed down. :(

[iceman]

At first glance it looks like a nice steady as she goes report. A modest growth in vehicle lending, good growth in small business, particularly good growth for reverse mortgages in Australia but more modest in NZ.
Certainly looks like the “Open for Business” strategy is delivering with growth of $ 16m or just over 140% (from a low base though).

Costs down and ROE continues to increase, now up to 11.6%. Still forecasting close to $60M for the FY. Looks fairly good to me.

Anyone found anything negative in the report ?

[BlackPeter]

At first glance it looks like a nice steady as she goes report. A modest growth in vehicle lending, good growth in small business, particularly good growth for reverse mortgages in Australia but more modest in NZ.
Certainly looks like the “Open for Business” strategy is delivering with growth of $ 16m or just over 140% (from a low base though).

Costs down and ROE continues to increase, now up to 11.6%. Still forecasting close to $60M for the FY. Looks fairly good to me.

Anyone found anything negative in the report ?

Just a couple of observations:


I guess it would be interesting to find out why the increased write off of impaired vehicle loans ... 2016 was not a particular bad year for car owners - was it?

One thing I missed ... it would have been nice if they would have at least retrospectively explained the need to rush the latest CR ... and maybe some acknowledgement of the discussion about the fairness of the method they choose

I note they talk in the outlook about "not taking in account the impact of any capital management initiative" ... is this the pointer to the next capital rise?


Otherwise ... the purpose of reports is not to convey news ;); This one is not different.

[Beagle]

Some of the discussion on this thread is about how much of a bank HBL is. The RBNZ has HBL as a registered bank and so HBL is subject to different regulation than a Non Bank Deposit Taker. But HBL was born out of NBDTs (finance companies, building societies, credit unions and the like) so is it still run as one?.

Secondhand car retailers like this bunch (http://www.alexandermotors.co.nz/) promote finance for those with bad credit and beneficiaries and bankrupts, with HBL one of two the lenders listed on their finance page (http://www.alexandermotors.co.nz/finance-information).

Being involved with activities and customers like this to me places HBL more in the NBDT / finance company area even if they are registered bank (the duck test again).

I hold but only as a small part of my portfolio because we know what happened to finance companies and the like the last time the economy slowed down. :(

Yes many lost skin in the finance company collapses but I am sure you will have noted that car dealers like that have a wide range of finance companies with whom they work.
I note Geneva finance are one of the companies they use and I think you will find that people with bad and poor credit records are referred to one of the, (putting this as kindly as I can), third or fourth tier lenders.

Iceman - Mate I can't see any issues but I am sure the other hound will find something to pontificate about at quite some length and "intrigue" us with.

[Snoopy]

The following information for FY2016 is derived from note 20 in AR2016 on 'Liquidity Risk'.

1/ Contractual information is extracted from the table titled 'Contractual Liquidity Profile of Financial Assets and Liabilities.
2/ Expected information is calculated by multiplying the 'Contracted' risk by the Expected Behaviour Multiple.
3/ The Expected Behaviour Multiple is dervied from Heartlands own results, back in the day they printed both 'Contracted' and 'Expected' behaviour.



Loan MaturityExpected Behaviour MultipleFY2016 Financial Receivables Maturity: Contracted/ Expected


On Demand100% $84.154m / $84.154m


0-6 months132% $743.389m / $961.274m


6-12 months132% $484.420m / $639.962m



Note that in the above table, a 'loan maturity' represents an expected inflow of cash from a Heartland bank perspective.



Deposit MaturityExpected Behaviour MultipleFY2016 Financial Liabilities Maturity: Contracted/ Expected


On Demand3.01% $718.587m / $21.630m


0-6 months32.4% $892.944m / $289.314m


6-12 months36.4% $837.844m / $304.975m



Note that in the above table, a 'financial liability (debenture) maturity' represents an expected outflow of cash from a Heartland bank perspective.

If we now take the expected cash inflows and subtract from those the expected cash outflows we can examine the expected net cashflow from a 'one year in advance' perspective.



Deposit MaturityFY2016: 'Expected' combined Loan and Deposit Cashflow


On Demand $62.524m


0-6 months $691.960m


6-12 months $334.987m


Total $1,089.471m




Time to update the "Liquidity Buffer ratio" for FY2016.

When dear old Colin told us all those years ago that a certain finance company was 'solid as' with reference to investing debenture money, the end result was that this cash became tied up in illiquid property developments. So although the company had enough money to pay out their debenture holders 'on paper' and appeared to be operating profitably, the debenture holders could not get their cash back. The 'Meads Test' (as christened by Snoopy) is one method of finding out if a finance sector company really is 'solid as'. The basic date I need to check this out has already been calculated (see above). So let's get going.

To check out the balance between monies borrowed and monies lent and matching up those maturity dates using a one year time horizon. The equation we are looking to satisfy is:

(Total Current Money to Draw On)/(Expected Net Current Loans Outstanding) > 10%

On the numerator of the equation, we have borrowings.

HNZ BORROWINGS



1/ Term deposits lodged with Heartland.$2,282.876m


2/ Bank Borrowings$429.304m


3/ Securitized Borrowings total$284.429m


4/ Subordinated Bonds$3.378m


Total Borrowings of (see note 13)$2,999.987m



Note 13 does not contain a clear breakdown of current and longer-term borrowing amounts and their maturity dates.

Banking facilities are provided by CBA Australia but for both Australia and New Zealand. These facilities are, I believe, in relation to the Australian part of the 'Seniors Reverse Mortgage Portfolio'. These banking facilities are secured over the homes on which the reverse mortgages have been taken out. These CBA loans have a maturity date of 30th September 2019. That means they are classed as ‘long term’ for accounting purposes. Heartland can’t rely on CBA Australia as a source of short-term funds.

The information given in note 13 on the securitized borrowing facilities is as follows:



Total FY2016Total FY2015Facility Maturity Date FY2016


Securitized bank facilities total all in relation to the Heartland ABCP Trust 1 $350.000m $350.000m1st February 2017 (*)


less Current level of drawings against this facility$284.429m$258.630m


equals Borrowing Headroom$65.571m {A}$91.370m



(*) I do not expect any problem in rolling this facility over for another year.


HNZ LENDINGS vs HNZ DEBENTURES

Customers owe HNZ 'Finance Receivables' of $3,113,957,000. There is no breakdown in AR2016 (note 11) as to what loans are current or longer terms. However, if we look at note 20, we can derive the expected maturity profile of total finance receivables due over the next twelve months.



On Demand0-6 Months6-12 MonthsTotal


Expected Receivables Due$84.154m + $961.274m + $639.962m = $1,685.390m


less Expected Deposits for Repayment$21.630m + $289.314m + $304.975m = $615.919m


equals Net Expected Cash Into Business$62.524m$671.960m$334.987m$1,069.471m {B}



If more money is coming in from customer loans being repaid, than is having to be repaid to the debenture holders, then this is a good thing for debenture holder liquidity. That is the case here.

Summing up:

(Total Current Money to Draw On)/(Expected Net Current Loans Outstanding)
= $65.571m / $1,069.471m
= 6.1% < 10%

=> Fail Short term liquidity test

On the surface this is an odd result. The expected cashflow outstanding is hugely positive, much greater than the pcp. So how can I fail Heartland on this liquidity test? One answer is that getting more net money in than in previous years could mean that Heartland might have difficulty applying that money into new loans.



FY2016FY2015


Amount lent to Customers (Receivables)$3,113.957m (+8.8%)$2,862.070m


Total Borrowings$2,999.987m (+6.2%)$2,825.245m


Amount borrowed from Customers (Debentures and Deposits)$2,282.876m (+8.8%)$2,097.458m



Securitized borrowing facilities have gone up by $25.799m over the same annual comparative period, while the $350m borrowing ceiling remains the same. So Heartland have upped their current period risk profile yet again by having a smaller declared available loan buffer to cover any mismatch between maturing borrowings and maturing receivables.

SNOOPY

[Snoopy]

Thus the net expected maturity of receivables is:

$1,685.390m - $625.919m = $1,059.471m

If more money is coming in from customer loans being repaid, than is having to be repaid to the debenture holders, then this is a good thing for debenture holder liquidity. That is the case here.

Summing up:

(Total Current Money to Draw On)/(Expected Net Current Loans Outstanding)
= $65.571m / $1,059.471m
= 6.2% < 10%

=> Fail Short term liquidity test



The above conclusion, at first glance doesn't make sense. Here we have a mismatch with over a billion dollars worth more of loans maturing than maturing deposits to be paid out. That sounds really good, and is a record surplus from a security of deposits viewpoint. So how can I turn around and fail Heartland on this liquidity test?

Two comments:

1/ The total ability of Heartland to borrow is not declared in the Annual Report. Yes $65.571m can be borrwed from the banking syndicate in Australia. But there is no mention of what the equivalent figure is in New Zealand. This undeclared parent bank borrowing ability will very likely see Heartland pass this liquidity test. It is just on the publicly declared part of their ability to borrow that Heartland fails.
2/ I pulled this liquidity test from a time where the GFC had just happened. This meant that the real risk at the time was with debenture depositors not getting their money back becasue of liquidity issues. This kind of risk with supposedly reputable finance companies stunned me at the time. But I wonder if there is a converse kind of liquyidity risk for on the loan book now? Could it be that Heartland might have a problem lending out their depositors money?

SNOOPY

[Snow Leopard]

The above conclusion, at first glance doesn't make sense. Here we have a mismatch with over a billion dollars worth more of loans maturing than maturing deposits to be paid out. That sounds really good, and is a record surplus from a security of deposits viewpoint. So how can I turn around and fail Heartland on this liquidity test?

Two comments:

1/ The total ability of Heartland to borrow is not declared in the Annual Report. Yes $65.571m can be borrwed from the banking syndicate in Australia. But there is no mention of what the equivalent figure is in New Zealand. This undeclared parent bank borrowing ability will very likely see Heartland pass this liquidity test. It is just on the publicly declared part of their ability to borrow that Heartland fails.
2/ I pulled this liquidity test from a time where the GFC had just happened. This meant that the real risk at the time was with debenture depositors not getting their money back becasue of liquidity issues. This kind of risk with supposedly reputable finance companies stunned me at the time. But I wonder if there is a converse kind of liquyidity risk for on the loan book now? Could it be that Heartland might have a problem lending out their depositors money?

SNOOPY

The simple answer is 'Garbage In, Garbage Out' or to put it a little more kindly:
Have you considered the possibilities that you are using the wrong inputs, failing to understand the original test and are so negatively biased towards Heartland that you can not see the facts for the fiction?

So why not sit down with a bowl of your favourite dog-food and Peanuts.
https://s-media-cache-ak0.pinimg.com/736x/1e/7c/ba/1e7cba28f25210164154825f3d16c176.jpg
Best Wishes
Paper Tiger

[percy]

The simple answer is 'Garbage In, Garbage Out' or to put it a little more kindly:
Have you considered the possibilities that you are using the wrong inputs, failing to understand the original test and are so negatively biased towards Heartland that you can not see the facts for the fiction?

So why not sit down with a bowl of your favourite dog-food and Peanuts.
https://s-media-cache-ak0.pinimg.com/736x/1e/7c/ba/1e7cba28f25210164154825f3d16c176.jpg
Best Wishes
Paper Tiger

You should be congratulated for even reading his posts.
I can no longer bring myself to read them.

[Snoopy]

Have you considered the possibilities that you are using the wrong inputs,


The problem with looking at 'future liquidity' (note 20, AR2016) over twelve months is that you are looking at a highly movable future. The bare information in the annual report is all based on 'current contractual obligations'. This kind of information is independently verifiable by auditors. But the reality of changes that can happen after the auditors have given the accounts the 'big tick' is that:

1/ Over the shorter term (up to a year) there is a propensity for those borrowers from Heartland to repay their 'account receivable' early.
2/ The source of short term debenture funding is normally much better than contractually indicated, because, on average, depositors tend to roll over their debentures once the official debenture contract period ends.

This means that none of the information presented in the liquidity section of the Annual Report is very useful in predicting the future liquidity of Heartland Bank. However, Heartland Bank themselves use this information only as an input values that they assign to a probabilistic client behaviour model. This model uses past customer behaviour to assess the likely real impacts of cashflows from the contracted cashflows. From FY2015 onwards, the information that Heartland use in their modelling has stopped being declared to shareholders. So I cannot be sure that my own modelling along these principles is in accordance with what Heartland managment are doing now. I am, however, confident that I am making the best use of information that is available to me. Conseqently I believe my data inputs on the most likely way loans will be cashed in and also funded are likewise the best available.

So to answer the question succinctly, yes I am concifident that I am using the right inputs.



failing to understand the original test?


I am less confident on this point. I may have misunderstood the original test. The exact wording, which was part of a wholesale banking agreement covering PGW Finance (now part of Heartland) was as follows:

----

[Liquidity Buffer Ratio (including Bank Lines)] > or = 10%

----

This was written in the period immediate post GFC where the main concern was a finance company not having enough liquidity to pay their depositors back. If you don't have enough 'account receivable money' to pay your depositors back, one solution is to take out a short term bank loan to do it. This is why I assume short term bank lines are included as a repayment resource. But we don't know what the parent Bank Lines available to Heartland amount to in total. We do know what bank lines are available to Heartland in Australia. We do know that having bank lines available costs money. We do know that Heartland until FY2016, have gradually been reducing the quantum of bank line funding available in Australia. So I have thought that Heartland could be reducing their bank borrowing headroom in NZ as well (although I admit I might be wrong to think that).

The point is that up to now, none of this has mattered. The bank line funding in Australia on its own has been sufficient to covering any likely funding gap for the whole group (even though technically it can't be unpicked from the Australian home assets it is funding). But for the first time at EOFY2016, this has now changed. This is nothing to worry about in itself. As Roger has pointed out in the post below:

a/ Problem: Want for depositors money?
a/ Solution: Offer depositors a more attractive interest rate to attract more funds.

b/ Problem: Not enough short term loans on the books to utilise all depositors funds?
b/ Solution: Offer loans on more attractive terms.

So, in summary there is a 'work around' available for whatever liquidity problem looks to be appearing on the horizon. The interesting thing about Heartland's position at the end of FY2016 is that the potential problem on the horizon was a 'type b' problem. I don't think that Heartland has had this 'type b' problem before.

Heartland can easily make more loans to solve their 'type b' problem. The question is, what is the quality of those new loans?

For an answer, look at the impaired asset expense, note 4 in HYR2017, just published.



FY2106FY2015Change YOY


Total Impaired Asset Expense$6.892m$5.610m+22.9%



In reality I don't see a liquidity problem for Heartland in FY2017. But, as you can see, 'solving the liquidity problem' can have 'overflow effects', not entirely good, into other areas of the accounts, as BlackPeter has already noted.

SNOOPY

[Beagle]

The simple answer is 'Garbage In, Garbage Out' or to put it a little more kindly:
Have you considered the possibilities that you are using the wrong inputs, failing to understand the original test and are so negatively biased towards Heartland that you can not see the facts for the fiction?

So why not sit down with a bowl of your favourite dog-food and Peanuts.
https://s-media-cache-ak0.pinimg.com/736x/1e/7c/ba/1e7cba28f25210164154825f3d16c176.jpg
Best Wishes
Paper Tiger

:lol: Classic post Paper Tiger :lol: I wonder if its ever crossed Snoopy's mind that if they need more deposit money they simply put their deposit rates up a bit ! This is not rocket science Snoopy...perhaps you'd like to borrow this hounds slightly less rusty steam powered abacus for a few days.

[Felonius]

Percy & Tiger. Why so rude to Snoopy ?

Thanks to you Percy I am a shareholder in HBL. Determining whether it was / is a good investment is beyond me and without your excellent record & advice I would not have considered buying in. Could it be that Snoopy is generously trying to prevent us losing money on a risky investment ?


I can only assume that you have spent time reading his arguments carefully, understand the issues that he is attempting to discuss, and are quite sure that what he is saying does not make sense.

I spend little time reading Snoopy's posts. To my simple mind his views & spreadsheets appear carefully considered & well expressed. Agreed, he does seem somewhat fixated on Heartland Bank and I don't know whether it's warranted or not, but please try to be more kind (or respectful).

[percy]

Felonius.
You must do your own research if you want to be a successful investor.I have found the more research I do the better the results I get.I have done a great deal of research on HBL.Attended AGMs,special meetings,presentations and phoning the company to learn more.I have read a large number of analysts' reasearch papers.
You should never rely on me or any other poster.
To find out the reasons for my rudeness to Snoopy,go back to the start of this thread and read his posts.Then you can decide for yourself whether I should ignore him or not.If you can not understand his posts,you are not alone. Neither can I.The ones I did bother to read. turned out to be wrong.
I would point out replying to his posts takes a lot of time.It is a waste of my time,so I can no longer be bothered.That is why I take my hat off to Paper Tiger.

[Snow Leopard]

Percy & Tiger. Why so rude to Snoopy ?

Thanks to you Percy I am a shareholder in HBL. Determining whether it was / is a good investment is beyond me and without your excellent record & advice I would not have considered buying in. Could it be that Snoopy is generously trying to prevent us losing money on a risky investment ?


I can only assume that you have spent time reading his arguments carefully, understand the issues that he is attempting to discuss, and are quite sure that what he is saying does not make sense.

I spend little time reading Snoopy's posts. To my simple mind his views & spreadsheets appear carefully considered & well expressed. Agreed, he does seem somewhat fixated on Heartland Bank and I don't know whether it's warranted or not, but please try to be more kind (or respectful).

Felonius >> felon >> convicted of a serious crime >> robbed a bank :eek2: & got caught :t_down:?


Here is the Tiger take on the important question that Snoopy is trying to answer.

If has a result of some people actually believing Snoopy's posts that Heartland always was, currently is and always will be a failing bank, that 10% of the money on loan to Heartland is [attempted to be] withdrawn at the earliest contractual moment can Heartland actually pay them.

The answer to that would appear to be (from reading the accounts) a pretty definite YES.

Best Wishes
Paper Tiger

[Snoopy]

I can only assume that you have spent time reading his arguments carefully, understand the issues that he is attempting to discuss, and are quite sure that what he is saying does not make sense.


Sometimes when you have a significant stake (for you) in a company and someone else comes forward with views that indicate your investment might not be as rock solid as you think, you can take these alternative views as a personal attck on your position. And sometimes if you don't like the message, there is a tendency to attack the messanger.

PT is known for his great knowledge and Percy for his wonderful enthusiasm. Investments need champions with knowledge and enthusiasm. But any investment also has a flipside, at least from a value perspective. When I express a flipside, it is important to detail where such a view has come from, so as a reader you can decide whether to accept, reject or choose what shade of grey you apply to that view. I choose to express my views, and share the building blocks that form those, and let readers draw their own conclusions. I can assure any readers that if there are any holes in my arguments, then someone like PT (and there are others on this forum too) are smart enough to find them.

As for the personal attack and ridicule game, I don't play that.

SNOOPY

[kizame]

Even though for the most part I don't understand your posts as they are a bit too technical for me,and I may not agree with your views,never the less you have put some fire into the HBL thread.
A big positive is that more people read the thread and can draw their own conclusions. Keep it up.

[Snoopy]

This is the most imprtant calculation that most nvestors in finance companies never do. I have rechristened it the 'Meads Test'. The Meads Test is way to find out if dear old Colin says a profitable finance company is 'solid as', whether that company will run out of cash when it comes time to repay your debenture. "Liquidity Buffer Ratio" sounds a bit pompous, so I will adopt the term 'Meads Test' in the future, as I think most investors will relate to that term better.

We are looking at the balance between monies borrowed and monies lent and matching up those maturity dates using a one year time horizon. The equation we are looking to satisfy is:

(Total Current Money to Draw On)/(Expected Net Current Loans Outstanding) > 10%

Heartland provides a nice projection of forward cashflows in note 14 of IRFY2016. But these are contacted cashflows. In practice depositors roll over their Heartland debentures. And when customers repay a Heartland loan, they often take out another loan. So what we as investors need to concentrate on is the expected behaviour of those that take out loans from Heartland and those that loan money to Heartland. Expected behaviour is not written in stone. But we can make an educated guess at this by looking at what happened in prior periods where both 'contracated' behaviour and 'expected' behaviour was tabulated. "Adjustment factors" in the table below:



HY2016 Loan Maturity (Financial Receivables)ContractedCE FactorExpected


On Demand$31.879m1.000$31.879m


0-6 months$618,779m1.32$816.778m


6-12 months$277.017m1.32$345.662m





HY2016 Deposit Maturity (Financial Liabilities)ContractedCE FactorExpected


On Demand$728.056m0.0301$21.914m


0-6 months$1,360.508m0.324$440.805m


6-12 months$498.705m0.364$181.529m



Now I have generated the expected cashflow data over the ensuing twelve months, I can proceeed to make some 'Meads Test' calculations.



The 'Meads Test' is way to find out if dear old Colin says a profitable finance company is 'solid as', whether that company will run out of cash when it comes time to repay your debenture. "Liquidity Buffer Ratio" sounds a bit pompous, so I have adopted the term 'Meads Test'. I think most investors will relate to that term better.

We are looking at the balance between monies borrowed and monies lent and matching up those maturity dates using a one year time horizon. The equation we are looking to satisfy is:

(Total Current Money to Draw On)/(Expected Net Current Loans Outstanding) > 10%

Heartland provides a nice projection of forward cashflows in note 14 of IRFY2017. But these are contracted cashflows. In practice depositors roll over their Heartland debentures. And when customers repay a Heartland loan, they often take out another loan. So what we as investors need to concentrate on is the expected behaviour of those that take out loans from Heartland and those that loan money to Heartland. Expected behaviour is not written in stone. But we can make an educated guess at this by looking at what happened in prior periods where both 'contracted' behaviour and 'expected' behaviour were tabulated. "Adjustment factors" in the table below:



HY2017 Loan Maturity (Financial Receivables)ContractedCE FactorExpected


On Demand$69.655m1.000$69.655m


0-6 months$802.074m1.32$1,058.738m


6-12 months$538.448m1.32$710.751m





HY2017 Deposit Maturity (Financial Liabilites)ContractedCE FactorExpected


On Demand$754.583m0.0301$22.713m


0-6 months$1,047.186m0.324$339.288m


6-12 months$889.191m0.364$323.666m



Now I have generated the expected cashflow data over the ensuing twelve months, I can proceeed to make some 'Meads Test' calculations.

SNOOPY

[RGR367]

Even though for the most part I don't understand your posts as they are a bit too technical for me,and I may not agree with your views,never the less you have put some fire into the HBL thread.
A big positive is that more people read the thread and can draw their own conclusions. Keep it up.

Ditto. Just keep on it Snoopy. You're not without readers and/or followers :p As HBL is one of those stocks I picked just by reading on what was said on this forum, I would run this stock based on what my gut say is the overall consensus. Maybe not the right way of doing it but heck, I'm almost on a low 6 digit paper profit on it already. Besides, I found it here so I'll leave this one stock's fate in here. The gambler's gut in me would know when the time comes to fold, quit the deal and count the money of course. But eventually, maybe the Crowd is never wrong. We'll see. Thanks to everyone contributing on this thread.:t_up:

[Beagle]

A while back I posted a comparative analysis with other banks showing HBL was worth at least $1.73 - $1.76, probably more because of its superior growth rate. I backed that with real money, not theory or conjecture, (further investment) today.

[trader_jackson]

A while back I posted a comparative analysis with other banks showing HBL was worth at least $1.73 - $1.76, probably more because of its superior growth rate. I backed that with real money, not theory or conjecture, (further investment) today.

No wonder the share price is up 2 cents today to $1.64!
When can I expect to see an SSH notice? ;)

[winner69]

This guy reckons UDC under the Chinese will sort of struggle

Heartland must be looking forward to the day it's all finalised ....yes?

http://www.interest.co.nz/opinion/86699/gareth-vaughan-questions-whether-anzs-gift-horse-hna-group-will-be-good-udc-finance

[Beagle]

This guy reckons UDC under the Chinese will sort of struggle

Heartland must be looking forward to the day it's all finalised ....yes?

http://www.interest.co.nz/opinion/86699/gareth-vaughan-questions-whether-anzs-gift-horse-hna-group-will-be-good-udc-finance

HNA group have certainly been on the acquisition trail. Took a stake in Virgin airlines last year from AIR at A32 cents a share, (current SP A19.5 cps) so they've certainly done very poorly to date with that investment. Who really knows what's behind the group in terms of funding though and what are the ramifications in regard to UDC, your guess is as good as mine although its clear if they are still going to be chasing N.Z. debenture funding the dramatic anticipated reduction in their credit rating will have very serious implications for their funding costs.
HBL have their own way of doing things and it seems to be working just fine.

[Felonius]

Thank you PT & Snoopy for responding to my post.

[Beagle]

Some huge percentage moves in Bendigo bank and Bank of Queensland today on the ASX. Hmmm...might have to look into that tomorrow and do an updated comparative valuation for HBL :)

[iceman]

So here we go. HBL announces offering up to A$ 20 M of subordinate unsecured convertible notes to certain institutional investors
https://www.anzshareandbondtrading.co.nz/dynamic/announcement.aspx?id=4395112

[beetills]

In plain english to a mediocre student,what does all this mean.

[percy]

Subordinated unsecured convertible notes.
They are Tier 2 bond,a debt instrument,issued for a 10 year term.HBL can repay early,and under extreme circumstances the bond holders could convert their bonds to shares.
I have been expecting some form of bond issue for sometime.It is smaller than I would have hoped for.
However positive.

[beetills]

So i presume they lend this money out.
Does this indicate that they have more borrowers than depositors funds and if so why didn't they have a much larger bond issue.

[Under Surveillance]

Subordinated unsecured convertible notes.
They are Tier 2 bond,a debt instrument,issued for a 10 year term.HBL can repay early,and under extreme circumstances the bond holders could convert their bonds to shares.
I have been expecting some form of bond issue for sometime.It is smaller than I would have hoped for.
However positive.
The HBL notice to NZX of 1:38pm referred to A$20M. An hour later, 2:47pm, another notice referred to A$30M. Could be A$50M by market close???

[iceman]

The HBL notice to NZX of 1:38pm referred to A$20M. An hour later, 2:47pm, another notice referred to A$30M. Could be A$50M by market close???

Umm, your are right the waiver announcements talks about up to A$30M whereas the offer announcement talks about A$20M !!

[percy]

So i presume they lend this money out.
Does this indicate that they have more borrowers than depositors funds and if so why didn't they have a much larger bond issue.

Yes they will lend the money out.
They are recognised as a form of capital.
Could be called "fake" capital...lol.

[Snoopy]

Umm, your are right the waiver announcements talks about up to A$30M whereas the offer announcement talks about A$20M !!


Here is the summary of the article from 'kanganews'.

http://www.kanganews.com/news/6638-heartland-to-reopen-trans-tasman-issuance-pipeline-with-small-tier-two

"Friday, 31 March 2017 Updated"

"New Zealand’s Heartland Bank (Heartland) (BBB from Fitch Ratings, with an expected issue rating of BBB-) placed a tier-two transaction in the Australian dollar market on 31 March. The deal had indicative volume of A$20 million (US$15.3 million) and price guidance of 415 basis points over bank bills for 10-year non-call five tenor."

So it looks like $A20m, or $NZ22.2 with $NZ1- = $A0.9. Of course should the exchange rate fall to $NZ1- = $A0.66, then the size of the bond issue will be $NZ30m ;-P

However, I guess the key term is 'indicative volume'. That would indicate that Heartland might be flexible about the amount of 'tier 2' money they are prepared to accept.

SNOOPY

.

[Snoopy]

We are getting to the end of FY2017 capital raising now, with just the DRP for the current dividend to go. But with the (surprising) 'increase in new capital' asked for from existing shareholders, and last years placement put to bed, here is my best update of the capital raised subsequent to Heartland being formed. This time I will leave out FY2012, because that capital raising was all about shoring up the company's position 'at birth', and was not part of any future growth initiatives. For comparison, I have added a column showing the dividends declared during the year, before any net cash reduction as a result of the dividend reinvestment plan.



Financial YearNew Shares Issued during FYTotal Shares on the Books EOFYNet Money Raised During FY
Dividends PaidROE


20130 m388.704m$0m$13.951m7.2%


201475,562 m463.266m$64.774m$19.930m8.0%


20156,624 m469.980m$9.163m$30.188m9.9%


20166,579 m476.469m$6.798m$37.690m10.7%


201730.973m+512.902+ m$45.277m+$39.485m (f)tbc


Total Cash Raised$126.012m +


Total Cash Returned$141.244m



(f) indicates forecast result.

This shows that the sum of those shareholders who have taken up their dividends as DRP shares and contributed to the cash issues from FY2013 to FY2017 inclusive, the total sum contributed amounts to 89% of the dividends paid out. That figure is sure to rise to over 90% once the DRP contributions from this months dividend are added.

I didn't think my post would be outdated in just ten days. But with the announcement of today's (foreshadowed) capital raising in Australia for 'about $A20m', which at $NZ1= =$A0.909c is equivalent to $NZ22m, it is time to update the Heartland 'capital flow' table.



Financial YearCapital Notes Issued during FYNew Shares Issued during FYTotal Shares on the Books EOFYNet Money Raised During FY
Dividends PaidROEshareholders teat


20130 m0 m388.704m$0m$13.951m7.2%


20140 m75,562 m463.266m$64.774m$19.930m8.0%


20150 m6,624 m469.980m$9.163m$30.188m9.9%


20160 m6,579 m476.469m$6.798m$37.690m10.7%


2017$22.000m (f)30.973m+512.902+ m$45.277m+$39.485m (f)tbc


Total Cash Raised$22.000m$126.012m +


Total Cash Returned$141.244m



(f) indicates forecast result.

The picture this table draws is truly astonishing. If you add up the amount of capital that stakeholders have put into the business over the last five years, it now exceeds the total dividend flow that Heartland has paid out over that same time period!

Put another way, those mother shareholders who put their capital into Heartland probably expected this 'growing baby' to suckle at the parent shareholders' teat, while it built up its strength to prosper as a fully fledged 'grown up' Company. However, this aggressive little Heartland pup clearly did not want to make that break with Mum and Dad shareholder investor. While apparently distributing a generous flow of dividends, the aggressive Heartland jaws subsequently latched back onto those shareholder funds again by way of DRPs and cash issues. And now, from a total stakeholder perspective (including the new Aussie bondholders) those aggressive jaws have not only sucked the stakeholders dry. They have taken a solid bite out of the teat that feeds it!

Plenty here have claimed over the years that Heartland was not 'short of capital'. At one stage even Heartland themselves talked about the possibility of a capital return. However, following a 'look at what I do ' method rather than the 'look at what I say' method of investment, it is now clear what Heartland's true capital appetite was. Heartland have been very clever to raise all of this new capital at what were largely premium prices. Kudos to Heartland management for that. But those stakeholders looking for a 'solid net dividend return' may have to pause for thought.

SNOOPY

[Beagle]

Put another way, those mother shareholders who put their capital into Heartland probably expected this 'growing baby' to suckle at the parent shareholders teat, while it built up its strength to prosper as a fully fledged 'grown up' Company. However, this aggressive little Heartland pup clearly didi not want to make that break with Mum and Dad shareholder investor. While apparently distributing a generous flow of dividends, the aggressive Heartland jaws subsequently latched back onto those shareholder funds again by way of DRPs and cash issues. And now, from a total stakeholder perspective (includin the new Aussie bondholders) those aggressive jaws have not only sucked the stakeholders dry. They have taken a solid bite out of the teat that feeds it!


LOL thanks for the amusement mate. Just a free heads-up for the new financial year starting tomorrow from one hound to another. Nobody cares ! Everyone loves a winner that's growing EPS more than the other banks and so as long as that's happening there's always new teats to suckle on :) All that matters is EPS is growing and their capital adequacy ratio is fine and there liquidity is also fine because if they need more money they simply tweak their deposit rates a bit.
"Its all about growth, growth and yes...you guessed it, more growth :)

[janner]

All that matters is EPS is growing and their capital adequacy ratio is fine and there liquidity is also fine because if they need more money they simply tweak their deposit rates a bit.
"Its all about growth, growth and yes...you guessed it, more growth :)

Correct Roger. There are still very many original investors happily holding and re-investing with the DRP. Watching the value of their shares
steadily but surely increase.

Growth ??... More power to their elbow IMO..

Disc. Original holder.

[trader_jackson]

https://nzx.com/companies/HBL/announcements/299276

Nice strike price... some say it is the last time one could get HBL shares at under $1.60 ;)

[Beagle]

https://nzx.com/companies/HBL/announcements/299276

Nice strike price... some say it is the last time one could get HBL shares at under $1.60 ;)

More icing on the cake after the SPP. Sweet :)

[trader_jackson]

Interesting how many more shares have been issued pursuant to its Dividend Reinvestment Plan:

On 2 April 2015:
Number issued: 2,943,636
Issue price: $1.32

On 5 April 2016:
Number issued: 2,655,142
Issue price: $1.1980

On 7 April 2017:
Number issued: 3,334,049
Issue price: $1.5939

Quite a few more shareholders taking the dividend reinvestment it would seem, at a higher price than ever before... must show serious confidence in where holders believe the share price is heading!

[silu]

Interesting how many more shares have been issued pursuant to its Dividend Reinvestment Plan:

On 2 April 2015:
Number issued: 2,943,636
Issue price: $1.32

On 5 April 2016:
Number issued: 2,655,142
Issue price: $1.1980

On 7 April 2017:
Number issued: 3,334,049
Issue price: $1.5939

Quite a few more shareholders taking the dividend reinvestment it would seem, at a higher price than ever before... must show serious confidence in where holders believe the share price is heading!

Would be interesting to know how many of those are small time investors like me who don't care about getting a couple of hundred dollars as dividends but love getting free shares instead.

[Under Surveillance]

Interesting how many more shares have been issued pursuant to its Dividend Reinvestment Plan:

On 2 April 2015:
Number issued: 2,943,636
Issue price: $1.32

On 5 April 2016:
Number issued: 2,655,142
Issue price: $1.1980

On 7 April 2017:
Number issued: 3,334,049
Issue price: $1.5939

Quite a few more shareholders taking the dividend reinvestment it would seem, at a higher price than ever before... must show serious confidence in where holders believe the share price is heading!
Another consideration is that the latest issue involved a discount of 2.5%. The discount for one or both of the earlier two cited was 1%.

[Beagle]

$A20m as Tier 2 capital raise completed, just announced to NZX.

Cost of funds.
Margin to Aussie bank bill swap rate 4.15%
90 day Australian BBSW currently 1.785% as at 6/4/ 2017
Cost of capital funds presently 5.935%, reset quarterly
10 year term. Unsecured bonds not listed. Ranks at Tier 2 capital.
Good exchange rate to convert these capital funds to $Kiwi at present. Very competitive funding cost for Tier 2 capital raise in my opinion.

[percy]

Thank Jeff and the team,my divie is in my account.

[RTM]

Thank Jeff and the team,my divie is in my account.

Yes, mine as well. And as a bonus the share price continues to advance. Yahoo !

[percy]

Yes, mine as well. And as a bonus the share price continues to advance. Yahoo !

Love it.!!!

[Beagle]

No divvy in my account but very happy to get extra shares in lieu of dividend at $1.59 when they closed the week at $1.68 :t_up:

[winner69]

No divvy in my account but very happy to get extra shares in lieu of dividend at $1.59 when they closed the week at $1.68 :t_up:

Just like manna from heaven eh

Incredible

[pierre]

Just like manna from heaven eh

Incredible
Sure is - and getting the interim divi on the new shares purchased at $1.46 only a few weeks back just adds to the pleasure of being an HBL shareholder.

Thanks once again to Percy for putting me on to this amazing opportunity that so far has generated well over $100k in capital gain for me not to mention tens of thousands in dividends. Wouldn't have done it without you Percy - I owe you big time!
Merci beaucoup.
Pierre

[Beagle]

Just like manna from heaven eh

Incredible

And you don't have to stay in the desert for 40 years either :D
Was buying more mid last week at $1.63 as well. As pierre posted its nice to get a dividend on the new ones issued under the SPP at $1.46 too.
All adds up.

[janner]

And you don't have to stay in the desert for 40 years either :D
Was buying more mid last week at $1.63 as well. As pierre posted its nice to get a dividend on the new ones issued under the SPP at $1.46 too.
All adds up.

Been in from the beginning... Regret having sold down from being in the top 150 shareholders ( purchased in the 50/60 cents range ) as it rose unbalancing the portfolio..

However... Still have enough arriving in the DRP to keep me smiling.. Will be thinking more than thrice before any more are up for sale..

Disc. Happy long term holder...

[percy]

Sure is - and getting the interim divi on the new shares purchased at $1.46 only a few weeks back just adds to the pleasure of being an HBL shareholder.

Thanks once again to Percy for putting me on to this amazing opportunity that so far has generated well over $100k in capital gain for me not to mention tens of thousands in dividends. Wouldn't have done it without you Percy - I owe you big time!
Merci beaucoup.
Pierre

Thank you for the kind words.
I think in hindsight a number of us saw this was going to be a cracker.
Funny enough, the biggest giveaway was the sense of pride each director radiated at the agms,being a director of Heartland.There was no hidding it.It was still there at the last agm. I remember well, the then chairman Bruce Irvine, stating at an early agm, held in Ashburton, Heartland would receive their banking licence, shortly.An extrodinary statement,but offcourse he was right.At the same agm Jeff Greenslade spoke of getting their ROE up to 10% from about 3% within 3 years.And he did.!Since then Heartland have spoken in plain language ,what their objectives are.Happily for us they achieve what they set out to do.
The current share price indicates "the market" expects HBL to continue to produce "the goods."
I am sure they will.

[iceman]

Thank you for the kind words.
I think in hindsight a number of us saw this was going to be a cracker.
Funny enough, the biggest giveaway was the sense of pride each director radiated at the agms,being a director of Heartland.There was no hidding it.It was still there at the last agm. I remember well, the then chairman Bruce Irvine, stating at an early agm, held in Ashburton, Heartland would receive their banking licence, shortly.An extrodinary statement,but offcourse he was right.At the same agm Jeff Greenslade spoke of getting their ROE up to 10% from about 3% within 3 years.And he did.!Since then Heartland have spoken in plain language ,what their objectives are.Happily for us they achieve what they set out to do.
The current share price indicates "the market" expects HBL to continue to produce "the goods."
I am sure they will.

And that is exactly what it is all about and has been for many years. They know what they are doing and they deliver the goods. What more can we ask for ? Have to admit though that for the first time in all those years I took the cash instead of the DRP. Mainly to use it for SUM to re-balance my portfolio a little

[beetills]

I see aJEFF GREENSLADE has a share in NELSON PARK racing at Counties today at 2.45pm.
Wonder if its HEARTLANDS chief.

[percy]

I see aJEFF GREENSLADE has a share in NELSON PARK racing at Counties today at 2.45pm.
Wonder if its HEARTLANDS chief.

If it is I hope it runs like Heartland..................well....!

[beetills]

If it is I hope it runs like Heartland..................well....!
A bit of improvement required based on that effort,however if he/she improves like HEARTLAND has then a win shouldn't be that far away

[Beagle]

Why its worth more.
1. We cannot ignore the fact that HBL has grown its EPS faster in recent years than the Aussie banks.
2. This trend is set to continue, see below therefore a PE premium is warranted compared to its peer group.
3. The following are the forecast PE's for its peer group for FY17, FY18 and FY19 followed by average analyst expected EPS growth in percentage terms bolded from FY17 to FY19 All data off average analysis forecast off 4 traders
Bendigo BEN 13.2, 13.1, 13.3, EPS growth expected -1%
NAB 13.6, 13.4, 13 4%
WBC 14.5, 14, 13.6 6%
ANZ 13.4, 13.2 12.5 7%
Bank of Queensland BOQ 12.9, 12.6 12.3 4.5%
HBL 13.8 12.6 11.9 14%

The average FY19 PE which takes into account average forecasted growth to FY19 is 12.77

4. Even if you make the case, (which I don't) that HBL will only enjoy two more years of abnormal growth before reverting to the very modest rates the Australian banks are "enjoying" for HBL to be trading at the average of its peer group the SP is likely to outperform its peer group by 12.77 / 11.9 = 7.3% over the next two years.

5. Even now based on average estimated 2017 earnings the peer group is trading at an average PE of 13.56 and HBL at 13.8 represents only a tiny premium which taking into account its historical growth outperformance and projected stronger growth and I think the current market PE premium is not properly recognizing this superior growth.

6. I think given the distinct possibility that HBL's growth will continue to outperform its peers post FY19 I think that a minimum further 7.3% rerating will happen over the foreseeable future, probably this year.

7. Relative to its peer group I therefore value HBL at 1.64 + 7.3% = $1.76.

8. I think you can easily make the case that relative to its peer group given its considerably stronger historical and projected growth a PE premium of 1 on FY17 projected earnings is warranted.
Average FY 17 PE for Aussie banks excl HBL is 13.52.
HBL's current PE 13.8 HBL should be trading on a FY17 PE premium of at least 1 = 14.52 14.52 / 13.8 = 5.2% increase from here = $1.73

9. Investment case summary: I therefore think fair value for HBL is between $1.73 and $1.76 on an ex dividend basis and note it currently trades on a theoretical ex dividend price of $1.60.5 ($1.64- 0.035) so we have another ~ 10% rerating to go and then from there the price should continue to drift up in line with the 14% earnings growth to FY 19. My 2 year target price is therefore 1.76 x 1.14 = $2.01 and in the meantime based on 8.5 cps in annual fully imputed dividends we will be enjoying a gross dividend yield of 7.36% (8.5 / 160.5) / 0.72.
Disc: Hold and fully subscribed to dividend reinvestment plan.

Posted 16 March 2017, wherein I believe I made the case convincingly that on a relative basis fair value for HBL ex divvy was at least $1.73-1.76. Looks like coming to pass pretty soon, whereupon I'll revisit the relative value and update my assessment of fair value. In the meantime I'm a happy holder and see little merit in holding deposit money in the bank...might as well have your investment in the bank in equity !

[percy]

[QUOTE=percy;658192]On its way to $2.00 the HBL share price will be $1.96 at 4.35 pm on Thursday 21st of September this year.
Unfortunately, we may then have to until mid morning on the 31st of January 2018. for it to go through $2.00.


Above Posted 08-03-2017.
With HBL's sp at $1.70 today, it looks as though that $1.96 and $2.00 are ontrack.
Maybe sooner than later?

[winner69]

Will HBL get to 2 bucks before EBO gets to 20 bucks