HGH - Heartland Group Holdings

[King1212]

The tide is looking so good..if tomorrow break $1.85...then SP should well $2 in January 2020......the depth sellers are drying up....current SP still represent 5% return dividend....

[winner69]

The tide is looking so good..if tomorrow break $1.85...then SP should well $2 in January 2020......the depth sellers are drying up....current SP still represent 5% return dividend....

Shut up Kingie - you of all people should know better HGH does best when ignored on Sharetrader

Next we’llbe getting peer comparisons and I’ll start raving about F20 huge profits ...and then the share price will start falling

Quiet please in the front stalls

[King1212]

Ow ....I shut up then winner.....let 2020 dividend keeps coming n compounded DRP...

[iceman]

King1212. The divie is fully imputed so much higher than 5% in reality. But like winner said, let’s just keep it between ourselves 😉

[King1212]

Ok boss.....

[Beagle]

Sssshhh, lets keep this really quiet...I know nothing :)...https://www.youtube.com/watch?v=s6EaoPMANQM

[Brain]

Sssshhh, lets keep this really quiet...I know nothing :)...https://www.youtube.com/watch?v=s6EaoPMANQM

Thanks for that Beagle that sketch is an example of pure genius

[fish]

Thanks for that Beagle that sketch is an example of pure genius

After I stopped laughing at that sketch I thought why put money in deposit at the bank where after inflation and tax you may lose money whereas the only people who profit are the IRD and the bank.
Bought more Heartland today then had to explain to my Wife where our money had gone .Unlike with Basil its easier to explain than horses.

[Beagle]

Classic British humour...so good it never gets old :) My last investment of the decade was also a modest top up on HGH today.
7.5% gross yield inclusive of imputation credits plus steady growth in the years ahead.

[blockhead]

Blocky has $150k in the bank, have been saying to myself for 6 months I should have it owning the bank, perhaps I change today. Then have to provide the same explanation as Fish, he survived so I guess I might too

[Snoopy]

Blocky has $150k in the bank, have been saying to myself for 6 months I should have it owning the bank, perhaps I change today. Then have to provide the same explanation as Fish, he survived so I guess I might too

Take care Blocky. Unfortunately you can no longer buy Heartland Bank directly. You have to buy something called 'Heartland Group Holdings' (HGH) which owns Heartland Bank. And the reason for the creation of HGH? because the Australian Reverse Mortgage portfolio was going to become a problem for the NZ banking regulators, and so Heartland decided to place these loans outside the of their banking group structure.

The situation is that Reverse Mortgages over a period of 6-8 years are funded by banking arrangements in Australia and directly issued Heartland Australian bonds on 1-3 year terms. IOW there is a mismatch in the timing of funding and providing loans. This isn't a problem provided funding continues to be available and confidence in 'Seniors Australia' remains high. But confidences can change. And HGH could potentially be left in a very difficult position. Heartland management are not fools and I suspect that steps are underway behind the scenes to correct this mismatch. Yet while the mismatch exists such investments are not in any way risk free. It was a similar mismatch of funding and maturity that precipitated the demise of the once highly respected South Canterbury Finance (SCF) a decade ago. Not saying HGH will following the SCF path. But you have to be awake to that possibility when you invest in HGH.

It looks to me like HGH is currently 'priced to perfection', with nothing able to go wrong. I will leave it to you if you think that provides a good entry point.

SNOOPY

discl: a slightly nervous HGH holder

[blockhead]

Appreciated, its hard to come by, don't want to be diminishing it

[Beagle]

It looks to me like HGH is currently 'priced to perfection', with nothing able to go wrong. I will leave it to you if you think that provides a good entry point.

SNOOPY

discl: a slightly nervous HGH holder

Well my Beagle friend having seen your recent posts on MET and the retirement sector generally and this one I am starting to worry that your nose for a feed isn't working properly. Maybe its time for a visit to the Vet ?

Mid point of forecast for FY20 is $78.5m and on 577.47m shares that's eps forecast of 13.59 cps which at $1.85 = forward PE of 13.61.
Over the last 5 years Heartland's forward PE has ranged from 11 (dirt cheap) to 17.5 (priced for perfection) with a mid point of 14.25.

I think its a hold at present and slightly under fair value and note from a technical perspective its in a nice uptrend. I see no reason to be slightly nervous whatsoever which is why I topped up on Tuesday. 7.5% gross dividend yield > 1.6% in an HGH call account, the maths on that one is pretty simple :)

[value_investor]

Well my Beagle friend having seen your recent posts on MET and the retirement sector generally and this one I am starting to worry that your nose for a feed isn't working properly. Maybe its time for a visit to the Vet ?

Mid point of forecast for FY20 is $78.5m and on 577.47m shares that's eps forecast of 13.59 cps which at $1.85 = forward PE of 13.61.
Over the last 5 years Heartland's forward PE has ranged from 11 (dirt cheap) to 17.5 (priced for perfection) with a mid point of 14.25.

I think its a hold at present and slightly under fair value and note from a technical perspective its in a nice uptrend. I see no reason to be slightly nervous whatsoever which is why I topped up on Tuesday. 7.5% gross dividend yield > 1.6% in an HGH call account, the maths on that one is pretty simple :)

I like it at the current prices but not enough for me to top up at the moment. T There's not a lot for a value investor right now in the NZX at this moment.

[winner69]

Well my Beagle friend having seen your recent posts on MET and the retirement sector generally and this one I am starting to worry that your nose for a feed isn't working properly. Maybe its time for a visit to the Vet ?

:)

Hope not to be euthanised ....we need Snoopy to keep us from getting over excited

[percy]

Hope not to be euthanised ....we need Snoopy to keep us from getting over excited

Perhaps he should read Chris Lee's book "The Billion Dollar Bonfire" to better understand how finance companies and banks work.
Then his posts may be worth reading.


ps.The book was well researched and well written.A must read.

[winner69]

Perhaps he should read Chris Lee's book "The Billion Dollar Bonfire" to better understand how finance companies and banks work.
Then his posts may be worth reading.


ps.The book was well researched and well written.A must read.

Maybe Snoopy has read too many books like Crashed by Adam Tooze and Why Banks Fail by Joseph Katie

[percy]

Maybe Snoopy has read too many books like Crashed by Adam Tooze and Why Banks Fail by Joseph Katie

That I very much doubt

[winner69]

That I very much doubt

Probably hasn’t read How To Analyze Bank Financial Statements: A concise practical guide for analysts and investors by Padberg Thomas

[percy]

Probably hasn’t read How To Analyze Bank Financial Statements: A concise practical guide for analysts and investors by Padberg Thomas

He has a great deal of reading to do..............lol.


ps.Don't think the Australian Banks/Insurance companies with rural exposure will be looking to flash with all the terrible fires.

[fish]

He has a great deal of reading to do..............lol.


ps.Don't think the Australian Banks/Insurance companies with rural exposure will be looking to flash with all the terrible fires.

Horrific fires indeed .
Your post made me think about the financial consequences.
It may seem untimely to think about the financial implications of such huge destruction and economic damage but has HGH any exposure?

[janner]

He has a great deal of reading to do..............lol..

Pumping book sales perc ?.
Thought you had retired..

[stoploss]

He has a great deal of reading to do..............lol.



ps.Don't think the Australian Banks/Insurance companies with rural exposure will be looking to flash with all the terrible fires.

Think there will be a rate cut from the RBA , probably force our hand to or parity will be a certainty .It might help our banks make some margin back if he cuts after the new capital requirements .

[percy]

Horrific fires indeed .
Your post made me think about the financial consequences.
It may seem untimely to think about the financial implications of such huge destruction and economic damage but has HGH any exposure?

Very doubtful.Their Reverse Equity lending is in cities.


I also have doubts about the level of insurance those who have lost their homes have.
I am only going from a niece who lives in Nimbin,rural north NSW who told me they can't afford the insurance premium.Simple,house burns down her ,her husband, and two daughter shift to NZ,[with nothing].
So I think there will be many people left with nothing.


ps.My right wing brother, who lives in Tasmania blames the conservationists for not allowing winter controlled burn off, and fire breaks,while my wife's left wing cousin, blames the right wingers for no action on climate.
pps.In 1951 people in ChCh could not see the blue sky for a number of days because of the smoke from Australian bush fires.?

[percy]

Pumping book sales perc ?.
Thought you had retired..

Yes retired from selling books.
Silly me, only buying books to give away to our local Community Library.

[janner]

" So I think there will be many people left with nothing ".

More than many perc.
The average person in the " Western " economies lives from pay cheque to pay cheque.
The fallout from this will be long and hard for Aussie.
The credit cards will still need payments.
No house. No job.

However. Every dark cloud has a silver lining.
Heartland will be there offering Reverse Mortgages to Grandparents wanting to help their offspring.

[Snoopy]

Perhaps he should read Chris Lee's book "The Billion Dollar Bonfire" to better understand how finance companies and banks work.
Then his posts may be worth reading.

ps.The book was well researched and well written. A must read.


By a strange co-incidence I was reading Chris Lee's book when I made the post Percy! And here is the specific passage I was reading, from p53:

"(Business and) property lending Forsyth Barr said <snip numbers specific to South Canterbury Finance> was largely made on the basis of interest only loans or on the basis of no regular repayments at all"

"The company was in effect entirely reliant on extremely high levels of renewals and new money to pay its overheads and continue to lend."

In the book Lee was talking about South Canterbury Finance. But those comments can equally apply to Heartland's Australian Reverse Mortgage business today. The only difference being instead of relying on individual depositors, the funding is coming from the Australian wholesale interest markets. See note 15 of the HGH Annual Report:

"An $A50m two year unsubordinated notes issued 8th March 2019 and maturing 8th March 2021

"A Seniors Warehouse Trust securitization facility of $A650m drawn to $A637m, maturing on 20th September 2022"

So total Australian funding was $A687m, maturing in 1-3 years time.

In the FY2019 AGM presentation p15, Australian Reverse Mortgages were listed to be worth $NZ758m at balance date. At the prevailing exchange rate on 30-06-2019 of 0.9566, this translates to an $A Reverse Mortgage balance of $A725m. So this reverse mortgage balance was 95% funded from the shorter term Australian wholesale lending market at reverse mortgage balance date.

The typical reverse mortgage is taken out for 7-8 year term. So yes, there is a significant timing mismatch between the actual cash funding of these mortgages (1-3 years) and the amount of time Heartland are being asked to lay out the money for those Aussie Seniors (7-8 years). If any Beagle, or human critter, can't see the warning signs in that, may I suggest moving your floppy ears so they do not cover your eyes.

SNOOPY

PS One point I do agree with Percy on, and that is that Chris Lee's book is a very good read. "The Biliion Dollar Bonfire" is much more than tracing the decline of Alan Hubbard and South Canterbury Finance. It contains lessons for those investing in finance companies and banks today that should not go unheeded.

[iceman]

By a strange co-incidence I was reading Chris Lee's book when I made the post Percy! And here is the specific passage I was reading, from p53:

"(Business and) property lending Forsyth Barr said <snip numbers specific to South Canterbury Finance> was largely made on the basis of interest only loans or on the basis of no regular repayments at all"

"The company was in effect entirely reliant on extremely high levels of renewals and new money to pay its overheads and continue to lend."

In the book Lee was talking about South Canterbury Finance. But those comments can equally apply to Heartland's Australian Reverse Mortgage business today. The only difference being instead of relying on individual depositors, the funding is coming from the Australian wholesale interest markets. See note 15 of the HGH Annual Report:

"An $A50m two year unsubordinated notes issued 8th March 2019 and maturing 8th March 2021

"A Seniors Warehouse Trust securitization facility of $A650m drawn to $A637m, maturing on 20th September 2022"

So total Australian funding was $A687m, maturing in 1-3 years time.

In the FY2019 AGM presentation p15, Australian Reverse Mortgages were listed to be worth $NZ758m at balance date. At the prevailing exchange rate on 30-06-2019 of 0.9566, this translates to an $A Reverse Mortgage balance of $A725m. So this reverse mortgage balance was 95% funded from the shorter term Australian wholesale lending market at reverse mortgage balance date.

The typical reverse mortgage is taken out for 7-8 year term. So yes, there is a significant timing mismatch between the actual cash funding of these mortgages (1-3 years) and the amount of time Heartland are being asked to lay out the money for those Aussie Seniors (7-8 years). If any Beagle, or human critter, can't see the warning signs in that, may I suggest moving your floppy ears so they do not cover your eyes.

SNOOPY

PS One point I do agree with Percy on, and that is that Chris Lee's book is a very good read. "The Biliion Dollar Bonfire" is much more than tracing the decline of Alan Hubbard and South Canterbury Finance. It contains lessons for those investing in finance companies and banks today that should not go unheeded.

Snoopy of course there are risks to HGH with reverse mortgages. But to say, as you do, that "the only difference" between this lending and Canterbury Finance is misleading.

The main point being that the reverse mortgages are equity release mortgages so HGH is not lending up to 90-100% like CF was and thereby taking a huge risk. The highest LVR possible at drawing down of HGH's reverse mortgages is 40% for those over 85 yo but in most cases it is much lower and borrowers are encouraged not to take more than they need. My understanding is that the average age of borrower is 72-73 yo and LVR well under 25%. My numbers may not be quite up to date but that's about where it was when I looked at it in detail last and they wouldn't have changed much.

The borrowers of these mortgages are overwhelmingly responsible people that are relatively asset rich and just want to ease the burden of cost of living a little or use their assets to allow for a little more life enjoyment, often for things such as long overdue renovations to make their life easier or a new car etc.
But its certainly very different from the pre GFC craziness from finance companies.

Yes you could say with a short term view that there currently is a "funding mismatch" but we have a clear statement from HGH that they see now issue with ongoing funding in the near future and so far they have not had any problems accessing a wide variety of funding, deposits, unsubordinated bonds, DRP etc etc.
All their funding is on low interest rates (unlike CF) and HGH last reported NIM was a very healthy 4.33%.

They have done all they said they would do with the reverse mortgages and I see no reason to believe anything other than this being a great business for HGH for many years or decades to come, supported by Governments on both sides of the Tasman as an important part of the overall solution of housing and wellbeing for our senior residents.

[kiwico]

ps.My right wing brother, who lives in Tasmania blames the conservationists for not allowing winter controlled burn off, and fire breaks,while my wife's left wing cousin, blames the right wingers for no action on climate.

There was a case a few years back in rural Victoria (I think) where one owner had illegally cut back the eucalyptus trees around his house. Come the fire season his was the only house standing as it wasn't surrounded by bone-dry oil-filled trees.

[I think that puts me of the same view as your brother...]

[Snoopy]

Snoopy of course there are risks to HGH with reverse mortgages. But to say, as you do, that "the only difference" between this lending and South Canterbury Finance is misleading.

The main point being that the reverse mortgages are equity release mortgages so HGH is not lending up to 90-100% like CF was and thereby taking a huge risk. The highest LVR possible at drawing down of HGH's reverse mortgages is 40% for those over 85 yo but in most cases it is much lower and borrowers are encouraged not to take more than they need. My understanding is that the average age of borrower is 72-73 yo and LVR well under 25%. My numbers may not be quite up to date but that's about where it was when I looked at it in detail last and they wouldn't have changed much.

The borrowers of these mortgages are overwhelmingly responsible people that are relatively asset rich and just want to ease the burden of cost of living a little or use their assets to allow for a little more life enjoyment, often for things such as long overdue renovations to make their life easier or a new car etc.

But its certainly very different from the pre GFC craziness from finance companies.


Iceman, I think I need to explain my post a little more. You are quite right to point out the difference between the property realisation risk of asset lending up to 90% on an uncompleted property development in the late noughties, verses lending 40% maximum (mostly much less) to a retired pensioner. However, I am talking about 'borrowing risk' of the financial institution, not the 'asset realisation risk' should the loans fall over.

I contend that the borrowing risk for Heartland funding these reverse mortgages today is very similar to that faced by South Canterbury Finance funding those late 2000s property developments. The main difference is that HGH is using wholesale funding. Wholesale funders -hopefully- are not as fickle as private investors in that they would not suddenly pull all their financial backing out on the whim of an internet rumour and cause a run on funds queuing out of the door to withdraw their money. But make no mistake, wholesale funders do not take their risks for granted. This is why Heartland have diversified their Australian funding away from just CBA bank, to now include Westpac and ME bank and their own wholesale fixed interest funding too. But although this wholesale provider diversification is good, it has not addressed the mismatch in borrowing and lending loan timing. Jeff is not a fool and I would be very surprised if there is not further work going on 'behind the scenes' to address exactly the issue I am talking about. However, exactly to what extent Jeff will be able to offset this timing risk is unknown. And while it remains unknown, this 'funding timing risk' creates an 'investment risk' for HGH shareholders.

The next question to ask is, what happens if this 'funding timing risk' becomes an issue? Unlike with South Canterbury Finance, it is likely that HGH will eventually get all their capital back. But the cost will fall not on Heartland directly but on those taking out the reverse mortgage who are forced to repay early. They will not have alternative funding available (because that is why they took out a reverse mortgage in the first place). They will be forced to sell their homes and forced to live out their days in some grotty rented bedsit. It would be a PR disaster for Heartland, and no doubt Australian politicians would be quick to put the boot into that 'greedy NZ institution Heartland' squeezing 'our elderly' out of their last coin and forcing their to sell their 'life savings within four walls'. It would make no difference whether reverse mortgage holders lost 90% of their capital or 20% of their capital. With no alternative funding available, they would be 'out on their ear'. That means that even if Heartland get all their money back, they would be finished in Australia. Now ask yourself what multiple would 'the market' pay for a business with no clients and no prospect of ever getting any clients? Heartland in Australia would most likely eventually get their capital back. But as a business they would be destroyed and be forced to retreat to NZ. With the Australian growth engine gone, how would investors value what would be left in NZ? Perhaps a 50% dive in the HGH share price would set things back on an even keel?



Yes you could say with a short term view that there currently is a "funding mismatch" but we have a clear statement from HGH that they see now issue with ongoing funding in the near future and so far they have not had any problems accessing a wide variety of funding, deposits, unsubordinated bonds, DRP etc etc.
All their funding is on low interest rates (unlike CF) and HGH last reported NIM was a very healthy 4.33%.


You would expect Heartland to say all of the above wouldn't you? It still doesn't address the potential issue I have raised though. Historical access to funds does not guarantee future access to funds. And yes a large discounted share recapitalisation would get Heartland out of any potential funding hole. But at what cost to existing shareholders? And if those Australian 'shorters' got into Heartland while it was in trouble, a recapitalisation might not be possible!



They have done all they said they would do with the reverse mortgages and I see no reason to believe anything other than this being a great business for HGH for many years or decades to come, supported by Governments on both sides of the Tasman as an important part of the overall solution of housing and wellbeing for our senior residents.


You are sounding a bit like Alan Hubbard. Heartland like SCF have many years serving a market they know well. No reason to believe anything will be different in the future. All deals 'kosher'. But will Jeff Greenslade be putting in his own capital to prop up a potentially faltering Heartland , like Hubbard did with SCF (until the funding mismatch got too big for even a very wealthy Hubbard to deal with?)

SNOOPY

[BlackPeter]

Horrific fires indeed .
Your post made me think about the financial consequences.
It may seem untimely to think about the financial implications of such huge destruction and economic damage but has HGH any exposure?

Actually - I asked at the last AGM the question how they see the risk of their securities in Australia being exposed to climate change (fire, drought, flooding, sea level rise). Not sure I (or they) expected the issue to come up that fast ... but from memory they said at the time that most of their customers live in suburban areas and that they have insurance ...

If / When the outskirts of Sydney, Melbourne and Adelaide go up in flames and the house insurers start showing stress signals then it might be a good time to review our holding in HGH shares ...

[Beagle]

BEN 13.0
ANZ 11.5
WBC 13.5
NAB 12.0
CBA 14.2
BOQ 13.3
HGH 13.6

I am sure we're all well aware of the issues the Australians banks have with under capitalisation and other serious issues as a result of the Australian banking enquiry.

HGH looks well priced to me compared to its peers, most of which have serious issues.

[Snoopy]

BEN 13.0
ANZ 11.5
WBC 13.5
NAB 12.0
CBA 14.2
BOQ 13.3
HGH 13.6

I am sure we're all well aware of the issues the Australians banks have with under capitalisation and other serious issues as a result of the Australian banking enquiry.

I don't HGH is priced for perfection in any way whatsoever.


Perhaps 'priced to perfection' was the wrong phrase to use. Perhaps I should have said 'priced assuming everything goes to plan'. I am well aware of the problems that need to be faced by the Australian banks and am not suggesting that putting your capital there is necessarily the right thing to do either. But as your own figures show Beagle, the calculated PE ratios for FY2020 shows that HGH has one of the highest. That would indicate that investors see Heartland as less problematical than everything but CBA (which ironically is still the largest wholesale funder of Heartland's reverse mortgage business in Australia). But 'less problematical' does not equate to 'problem free'.

Heartland still has the balance of their dairy farm loan portfolio to work through. The 'funding match issue' in Australia must work itself through. Transferring their own account holding customers to become Westpac customers in all but name is a strategy that might yet backfire. These are all serious issues which could have negative consequences if the eye is taken off the ball. I am not saying that these are certain problems that will hit the company hard. I am saying they have the potential to become problems, and, as such, an appropriate potential risk discount should be factored in when purchasing HGH shares. I don't think 'assuming everything goes to plan' does this.

SNOOPY

[Marilyn Munroe]

Transferring their own account holding customers to become Westpac customers in all but name is a strategy that might yet backfire.

SNOOPY

Snoopy, I have elderly relatives with a heartland account.

Can you please expand on this comment or provide a link.

Boop boop de do
Marilyn

[Beagle]

There's always a degree of issues with banks Snoopy, that's why they trade at such a big discount to the market median forward multiple of about 19 and always have.
Last time I looked at this, which wasn't long ago, HGH has forecast eps growth considerably more than its peers which I concluded warranted a PE premium of about 2 to its peer group. The lack of issues compared to its peers also warrants a PE premium of at least 1, possibly 2.

Further, any consideration of an appropriate forward PE is best referenced off its own PE range I mentioned the other day, 11 - 17.5. Its not expensive especially when viewed in the context of 10 year Govt stock at ~ 1.6% which itself warrants a PE premium of 2 compared to more normal times when the risk free rate is closer to 4%.

I think eps growth in FY21 is going to be very strong and I actually think the shares are a bit cheap and let's be honest at 7.5% gross yield we're being paid pretty handsomely to enjoy the fruits of future growth.

Close to record dairy payout forecast this year means there's little to concern yourself with there.

You worry too much mate. Looking at the glass as half full is usually far more rewarding than looking at it as half empty and looking for problems.

[Snoopy]

Snoopy, I have elderly relatives with a heartland account.

Can you please expand on this comment or provide a link.

Boop boop de do
Marilyn


Jeff made the comment at the AGM IIRC on a question a shareholder posed on customer service which was something to do with the Heartland no longer offering over the counter services at their branches (for example taking out cash) that might be expected from a bank. Heartland have outsourced their customer banking functions to Westpac as they feel they can better deploy their own capital resources elsewhere.

Have a look at this Wikipedia article on NZ bank account codes

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

Note that Heartland shares the bank account prefix number with Westpac and it is 03 for both. This is because Heartland bank accounts are now Westpac bank accounts but under another label. Now take a look at your elderly relative's bank account number. I bet it begins with '03'!

SNOOPY

[justakiwi]

Interesting. I didn’t realise that, but yep ... mine are 03.


This is because Heartland bank accounts are now Westpac bank accounts but under another label. Now take a look at your elderly relative's bank account number. I bet it begins with '03'!

SNOOPY

[percy]

Jeff made the comment at the AGM IIRC on a question a shareholder posed on customer service which was something to do with the Heartland no longer offering over the counter services at their branches (for example taking out cash) that might be expected from a bank. Heartland have outsourced their customer banking functions to Westpac as they feel they can better deploy their own capital resources elsewhere.

Have a look at this Wikipedia article on NZ bank account codes

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

Note that Heartland shares the bank account prefix number with Westpac and it is 03 for both. This is because Heartland bank accounts are now Westpac bank accounts but under another label. Now take a look at your elderly relative's bank account number. I bet it begins with '03'!

SNOOPY

Has been the case since Heartland Bank Ltd was formed.
HBL's banking "back office" out sourced.
Works well for shareholders who have a Westpac bank a/c as you get your divies straight away.
HBL have also avoided costly branch networks.
Clever people doing clever profitable things.
It is a bit like the book trade where publishers out source their distribution.Works well too,as they can concentrate on publishing and sales,or David Jones out sourcing their web site to Estar,as does Briscoes and others.
In HBL's case they can concentrate on products and digital channels [sales] .
One of the reasons why HBL have been able to bring down their cost of doing business,retaining their net interest margin [NIM] which is twice other banks'.

[Snoopy]

Has been the case since Heartland Bank Ltd was formed.
HBL's banking "back office" out sourced.
Works well for shareholders who have a Westpac bank a/c as you get your divies straight away.
HBL have also avoided costly branch networks.
Clever people doing clever profitable things.


That is one way of looking at it. The downside is that by forcing your customers into the arms of a competitor on a regular (or even an irregular) basis, you risk some future business being poached. You can risk alienating potential future customers, like me, who have had a less than satisfactory experience dealing with Westpac branches over the years. At the point where my local home branch Westpac was closed down I became a number. All very different to the Trustebank Canterbury I first joined all those years ago. But I digress, and I accept that others experience with Westpac, over the years, may have been very different. I should add that when I have been into my local Heartland branch, even prior to becoming a shareholder I have found Heartland's in house service exemplary.

I will invest in a company that is chasing a different demographic to me if it fulfills the needs of that demographic well. So for now i am prepared to hold my Heartland shares, even though I have no intention of putting money into the retail front end of Heartland . I am seriously thinking about pulling out of the DRP though. The last shares I got through the plan came through at $1.54. But potentially acquiring shares at more than $1.80 is not such an attractive prospect.

SNOOPY

[percy]

That is one way of looking at it. The downside is that by forcing your customers into the arms of a competitor on a regular (or even an irregular) basis, you risk some future business being poached. Then you risk alienating potential future customers, like me, who have had a less than satisfactory experience dealing with Westpac branches over the years. At the point where my local home branch Westpac was closed down I became a number. All very different to the Trustebank Canterbury I first joined all those years ago. But I digress, and I accept that others experience with Westpac, over the years, may have been very different. I should add that when I have been into my local Heartland branch, even prior to becoming a shareholder I have found Heartland's in house service exemplary.

I will invest in a company that is chasing a different demographic to me if it fulfills the needs of that demographic well. So for now i am prepared to hold my Heartland shares, even though I have no intention of putting money into the retail front end of Heartland . I am seriously thjinking about pulling out of the DRP though. The last shares I got through the plan came through at $1.54. But potentially acquiring shares at more than $1.80 is not such an attractive prospect.

SNOOPY

Downsides are mainly in your mind.?.
Outsourcing is sensible and works well.Saves HBL huge ongoing capital expenditure, while an "earner for Westpac.
Breech of contract would see Westpac sued.
DRP is an individual's decision,so my only comment would be that I always took DRP option in any company that offered it, while I was building up my investment portfolio.
Today being over 70 I now take cash.

[RTM]

Blocky has $150k in the bank, have been saying to myself for 6 months I should have it owning the bank, perhaps I change today. Then have to provide the same explanation as Fish, he survived so I guess I might too

Thanks to all for the considered discussion re Heartland, Doesn't hurt to have a refresher course from time to time. There are risks of one sort or another with all the shares "we" own. Accordingly...and yes, very boringly....IMO its good to have a well diversified portfolio so that in the event of something tragic happening, one's income is not suddenly compromised. Especially if stocks form a significant portion of your income stream, as they do with ours. I guess this strategy is a bit different if you are a lot younger and trying to grow your capital.

HGH is ~10% of our portfolio, a little higher than I would like.
Should they reach $2.10 or greater again, I am going to seriously look at reducing our exposure a little.

[percy]

Thanks to all for the considered discussion re Heartland, Doesn't hurt to have a refresher course from time to time. There are risks of one sort or another with all the shares "we" own. Accordingly...and yes, very boringly....IMO its good to have a well diversified portfolio so that in the event of something tragic happening, one's income is not suddenly compromised. Especially if stocks form a significant portion of your income stream, as they do with ours. I guess this strategy is a bit different if you are a lot younger and trying to grow your capital.

HGH is ~10% of our portfolio, a little higher than I would like.
Should they reach $2.10 or greater again, I am going to seriously look at reducing our exposure a little.
Add to your winners,sell your losers.

[iceman]

Iceman, I think I need to explain my post a little more. You are quite right to point out the difference between the property realisation risk of asset lending up to 90% on an uncompleted property development in the late noughties, verses lending 40% maximum (mostly much less) to a retired pensioner. However, I am talking about 'borrowing risk' of the financial institution, not the 'asset realisation risk' should the loans fall over.

I contend that the borrowing risk for Heartland funding these reverse mortgages today is very similar to that faced by South Canterbury Finance funding those late 2000s property developments. The main difference is that HGH is using wholesale funding. Wholesale funders -hopefully- are not as fickle as private investors in that they would not suddenly pull all their financial backing out on the whim of an internet rumour and cause a run on funds queuing out of the door to withdraw their money. But make no mistake, wholesale funders do not take their risks for granted. This is why Heartland have diversified their Australian funding away from just CBA bank, to now include Westpac and ME bank and their own wholesale fixed interest funding too. But although this wholesale provider diversification is good, it has not addressed the mismatch in borrowing and lending loan timing. Jeff is not a fool and I would be very surprised if there is not further work going on 'behind the scenes' to address exactly the issue I am talking about. However, exactly to what extent Jeff will be able to offset this timing risk is unknown. And while it remains unknown, this 'funding timing risk' creates an 'investment risk' for HGH shareholders.

The next question to ask is, what happens if this 'funding timing risk' becomes an issue? Unlike with South Canterbury Finance, it is likely that HGH will eventually get all their capital back. But the cost will fall not on Heartland directly but on those taking out the reverse mortgage who are forced to repay early. They will not have alternative funding available (because that is why they took out a reverse mortgage in the first place). They will be forced to sell their homes and forced to live out their days in some grotty rented bedsit. It would be a PR disaster for Heartland, and no doubt Australian politicians would be quick to put the boot into that 'greedy NZ institution Heartland' squeezing 'our elderly' out of their last coin and forcing their to sell their 'life savings within four walls'. It would make no difference whether reverse mortgage holders lost 90% of their capital or 20% of their capital. With no alternative funding available, they would be 'out on their ear'. That means that even if Heartland get all their money back, they would be finished in Australia. Now ask yourself what multiple would 'the market' pay for a business with no clients and no prospect of ever getting any clients? Heartland in Australia would most likely eventually get their capital back. But as a business they would be destroyed and be forced to retreat to NZ. With the Australian growth engine gone, how would investors value what would be left in NZ? Perhaps a 50% dive in the HGH share price would set things back on an even keel?



You would expect Heartland to say all of the above wouldn't you? It still doesn't address the potential issue I have raised though. Historical access to funds does not guarantee future access to funds. And yes a large discounted share recapitalisation would get Heartland out of any potential funding hole. But at what cost to existing shareholders? And if those Australian 'shorters' got into Heartland while it was in trouble, a recapitalisation might not be possible!



You are sounding a bit like Alan Hubbard. Heartland like SCF have many years serving a market they know well. No reason to believe anything will be different in the future. All deals 'kosher'. But will Jeff Greenslade be putting in his own capital to prop up a potentially faltering Heartland , like Hubbard did with SCF (until the funding mismatch got too big for even a very wealthy Hubbard to deal with?)

SNOOPY

Snoopy I think more posts will not really bring us any closer to agreeing about HGH. When I first bought the now named HGH back when it was Building Society Holdings, you were warning against it and you have ever since. I've held it (mostly) all that time and it has been a great investment. But of course it has risks, like all other shares on any bourse.

But I have to make 3 comments on your post that I can not let go unanswered.
Firstly, I contend it is madness to compare the funding of HGH to SCF. HGH/HBL is highly regulated and transparent through being listed on the NZX and ASX and owning a bank overseen by the RBNZ.
SCF was run as a small private company with some large funding from private investors being personally received in the form of a cheque by Alan Hubbard and put into whatever account and entity he pleased. Other "Directors" had no idea what he was doing and should have been held responsible for it. Furthermore, there was no proper book keeping.


Secondly, you are totally wrong saying HGH can demand early repayments of borrowers of the reverse mortgages and indicates you have not studied them in any detail.
They all have 3 promises:
#Lifetime Occupancy Guarantee
# No Negative Equity Guarantee
# Loan Repayment Guarantee (no repayments required until end of loan)

Finally you say I sound like Alan Hubbard because I have confidence in the Management and Board of HGH and HBL. Apparently this relates to your concern about what you call the "funding mismatch"
HGH in the FY19 presentation back in August had this to say about it and I particularly point you to the last bullet point which I have highlighted:
" Continued diversification of funding with a focus on matching asset duration, increasing leverage and improving capital efficiency:
• Established A$ medium-term note programme, A$50m issued.
• New A$250m committed reverse mortgage funding facility.
• Additional funding in progress with a potential new funder.
• Long term reverse mortgage-backed structure being developed. "

So lets agree to disagree.

[Beagle]

Fresh 12 month high in HGH today. No surprises to this dog.
Snoops me ol Beagle mate, I recommend Blackmores Executive B stress formula supplements. https://www.healthpost.co.nz/blackmores-executive-b-stress-formula-bmexb-p You'll feel great and highly rated by others as you'll see from the review score. !
If you follow me closely you'll see which days I forget to take one :lol:

Fresh 12 month high's in MET and KFL today too. I may not need one tomorrow :)

[percy]

Fresh 12 month high in HGH today. No surprises to this dog.
Snoops me ol Beagle mate, I recommend Blackmores Executive B stress formula supplements. https://www.healthpost.co.nz/blackmores-executive-b-stress-formula-bmexb-p You'll feel great and highly rated by others as you'll see from the review score. !
If you follow me closely you'll see which days I forget to take one :lol:

Fresh 12 month high's in MET and KFL today too. I may not need one tomorrow :)

HGH share price.
3/1/2019........................$1.32
3/1/2020........................$1.87................. increase of 41.67%
3/1/2021........................$2.50................a increase of 33.7%.???????????????????......................lol .

[Snoopy]

Snoopy I think more posts will not really bring us any closer to agreeing about HGH.


This is a forum. It woudl be fairly dull if we all agreed about everything wouldn't it?



When I first bought the now named HGH back when it was Building Society Holdings, you were warning against it and you have ever since. I've held it (mostly) all that time and it has been a great investment. But of course it has risks, like all other shares on any bourse.


I don't withdraw any of my previous warnings. They were all 'of their time'. Just because events post my warnings turned out in a certain way that allowed HGH to prosper, doesn't mean those alternative future scenarios I highlighted should not have been considered as 'reasonable alternative scenarios' by potential investors. Had they panned out, Heartland.may have been nobbled.

Most obviously where I 'got it wrong' was the recovery in the Lakes District property market that allowed Heartland to trade out of what seemed at the time to be extremely marginal property developments. Without the benefit of hindsight I don't think this property market recovery was in any way a sure thing and I certainly have no regrets about not investing in Heartland at that time.

While I have had more than my fair share of posts aimed at 'bringing shareholders back to reality', I reject the suggestion that I have only issued warnings. In January of 2019, I posted that I had entered the share register and was now a shareholder. I had to wait until the HGH share price moved into my 'approved value range' before making that purchase, and my forum announcement. My approved value range was determined by the risk/reward ratio I was prepared to take. You can take my statement of buying in as an endorsement - it certainly wasn't a warning! Other people have different risk/reward flashpoints, So this is not a criticism of others buying in at different price points.



But I have to make 3 comments on your post that I can not let go unanswered.

Firstly, I contend it is madness to compare the funding of HGH to SCF. HGH/HBL is highly regulated and transparent through being listed on the NZX and ASX and owning a bank overseen by the RBNZ.
SCF was run as a small private company with some large funding from private investors being personally received in the form of a cheque by Alan Hubbard and put into whatever account and entity he pleased. Other "Directors" had no idea what he was doing and should have been held responsible for it. Furthermore, there was no proper book keeping.


As made clear in Chis Lee's book, SCF did have debt instruments listed on the NZX debt markets. So SCF was required to keep the market informed, and accounts were audited and presented and available to investors.

Yes Heartland Bank has RBNZ oversight. But the Australian Reverse Mortagge business was demerged from Heartland Bank because the Reserve Bank would not sanction the way Heartland wanted to develop. The Reserve Bank have indirectly said they do not approve of the risks that Heartland are taking in Australia in the context of operating as an NZ Bank. This is the equivalent of the RBNZ giving Heartland a yellow card - the complete opposite of an overseer's endorsement.

I take your point on some of Alan Hubbards bookkeeping practices that I don't think are being applied at Heartland!



Secondly, you are totally wrong saying HGH can demand early repayments of borrowers of the reverse mortgages and indicates you have not studied them in any detail.
They all have 3 promises:
#Lifetime Occupancy Guarantee
# No Negative Equity Guarantee
# Loan Repayment Guarantee (no repayments required until end of loan)


Yes but all those guarantees assume that HGH remains as a going concern. If the loan structure collapses and the Australian Seniors operation goes into administration all of those promises mean diddly squat.



Finally you say I sound like Alan Hubbard because I have confidence in the Management and Board of HGH and HBL. Apparently this relates to your concern about what you call the "funding mismatch"
HGH in the FY19 presentation back in August had this to say about it and I particularly point you to the last bullet point which I have highlighted:
" Continued diversification of funding with a focus on matching asset duration, increasing leverage and improving capital efficiency:
• Established A$ medium-term note programme, A$50m issued.
• New A$250m committed reverse mortgage funding facility.
• Additional funding in progress with a potential new funder.
• Long term reverse mortgage-backed structure being developed. "


The key words in your highlight is 'being developed'. That means the funding mismatch is not yet fixed. The funding risk remains until it is fixed.



So lets agree to disagree.


You are entitled to an opinion that is different to mine. I am fine with that.

SNOOPY

[percy]

This is a forum.


I don't withdraw any of my previous warnings. They were all of their time. Just because events post my warnings turned out in a certain way that allowed HGH to prosper, doesn't mean those alternative future scenarios I highlighted should not have been considered as 'reasonable alternative scenarios' by potential investors. Had they panned out, Heartland.may have been knobbled.

Most obviously where I 'got it wrong' was the recovery in the Lakes District property market that allowed Heartland to trade out of what seemed at the time to be extremely marginal property developments. Without the benefit of hindsight I don't think this property market recovery was in any way a sure thing and I certainly have no regrets about not investing in Heartland at that time.

I can not remember you ever getting anything right with Heartland.
Just pages of drivel,and "Fail" tests.
In hindsight totally lacking any foresight.
Heartland have a history of doing what they said they would do,as far back as saying they would receive a banking licence.

[Beagle]

HGH share price.
3/1/2019........................$1.32
3/1/2020........................$1.87................. increase of 41.67%
3/1/2021........................$2.50................a increase of 33.7%.???????????????????......................lol .

LOL You'll get your $2.50 at some stage, that's for sure :)

[percy]

I knew you would love that post.
Don't know what I am going to be saying when it does.?...lol.

[Baa_Baa]

I knew you would love that post.
Don't know what I am going to be saying when it does.?...lol.

Something along the lines of relentless promotion no doubt. You forgot to mention when it was $2.14 … been a loooong recovery, sigh that still seems a long way away. That was a summer of great expectations dashed by sobering reality. Few posted their successful exit and long wait for re-entry, and while others fell silent, one lone voice carried the mantel waiting for redemption, still waiting.

[percy]

Something along the lines of relentless promotion no doubt. You forgot to mention when it was $2.14 … been a loooong recovery, sigh that still seems a long way away. That was a summer of great expectations dashed by sobering reality. Few posted their successful exit and long wait for re-entry, and while others fell silent, one lone voice carried the mantel waiting for redemption, still waiting.

The relentless increase in fully imputated dividends has been something I have learnt to live with.
Like a great number of Sharetraders who brought HGH at well under $1.00, I have never had cause to complain.

[Beagle]

I knew you would love that post.
Don't know what I am going to be saying when it does.?...lol.

Somehow I don't think "I told you so" will cut the mustard lol

[King1212]

What I like about HGH is the dividend never disappointing me. Always increases...n DRP is fabulous...just like term deposit with compounding interest...but better...

[fish]

I can not remember you ever getting anything right with Heartland.
Just pages of drivel,and "Fail" tests.
In hindsight totally lacking any foresight.
Heartland have a history of doing what they said they would do,as far back as saying they would receive a banking licence.

We live in a very perilous world which includes finance.
Passing judgements with the benefit of hindsight can hurt the wrong people .
I suspect Snoopy is too resilient to be hurt but I can understand if he was feeling frustrated.
Banking,borrowing and lending can be very risky and I appreciate all thoughts.
The diligence and time snoopy has put in is much appreciated by many.
Snoopy has skin in the game and we should all listen and see value in what he has to say.
An optimist will never agree with a reasoned pessimist but we should listen to both before making investment decisions

I have a brother who was a senior manager at National Westminister Bank-doing really well-then they were taken over by Royal Bank Scotland .You may Know the story but he saw what was happening and his only way out was to sell his shares and negotiate good leaving package at the age of 55.With that secured he continued to do contract work in his specialised field(unrelated to RBS misdeeds) until things went to custard.Another brother also working for Nat West did not sell-and for many years we heard his regrets .

[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.

The drivel started on 20-07-2011.

[pierre]

The drivel started on 20-07-2011.

Percy - why don't you just say what you really think? Lol.

[Snoopy]

The drivel started on 20-07-2011
.

Thanks for that 'blast from the past' Percy. A pretty good post from me in 2011 and It holds lessons for us today. The 'old rope tied up with a frilly bow knot' has held together. It has even managed to 'wrap up' Seniors Finance along the way. All good. Even the credit rating has gone up, by one half notch anyway.

But I think the veneer coating that was painted on Heartland creating a bank is getting a little thin. A bank that has outsourced its personal banking functions is hardly a bank for people in my books. But by qualifying as a 'bank' in technical terms, even though they have given up their banking licence to Westpac, Heartland are able to get away with offering call investments at 1.6%. I doubt if many investors would invest with 'Marac' or the 'Canterbury Building Societies' directly on those terms. Call yourself a bank and many people don't read beyond the 'b'. But Heartland have three B's in a row, and think they can align themselves in the public mind with banks that start with 'AA'. Which obviously they do as people keep investing with Heartland at what I consider inadequate interest rates. It is a repeat of what happened nine years ago with Heartland offering significantly lower interest rates than the then PGW owned PGW Finance for the same risk,

So what to do? What is bad for depositors is good for shareholders, so buy HGH shares! That is one point that I think Percy and I can agree on, even if we have different views on what price point to pay. For the record I see fair value for HGH at $1,63, as derived in my post 12556 for those you want to look it up.

SNOOPY

[Brain]

It is always good to read and consider alternative viewpoints. Thanks for your posts Snoopy. Greatly appreciated.

[Beagle]

Overdue for a peer group comparison. I think we all know the Australian banks are grappling with issues and don't need to regurgitate all of them.
FY20 forwards PE's
BEN 13.9 Comment a no growth bank with eps in FY17 and FY18 higher than either the forecast for FY20 or FY21 !
BOQ 12.7 - Comment - same as above
ANZ 12.2 Comment - Crikey do they have issues on both sides of the Tasman or what !...which probably explains their low PE
NAB 13.4
WBC 13.1
CBA 16.2
Australian sector average 13.6

How does HGH compare. Has been growing eps steadily but somewhat frustratingly more slowly in recent years. Mid point of FY20 forecast is 78.5m which gives forcast eps of 13.59 cos and a forward FY20 PE of just 12.2.

I think their generally better track record of eps growth, better capital ratio and better earnings prospects should accord them a PE at least the same as the sector average in Australia, 13.6 which could see a rerating to 13.6 x 13.59 = $1.85 in early 2020.

Gross yield assuming 10.5 cos in fully imputed annual dividends for FY20 is 10.5 / 0.72 = 14.583 / 166 = 8.8%.

I think eps growth in FY21 will be stronger than FY20. Disc 5.3% portfolio allocation.

Posted on 12 November 2019 when the SP was $1.67. (Emphasis added).
Now sits at 7.3% of my portfolio allocation after share price increase and buying some more at $1.85, (actions speak louder than words), this week.

[iceman]

We live in a very perilous world which includes finance.
Passing judgements with the benefit of hindsight can hurt the wrong people .
I suspect Snoopy is too resilient to be hurt but I can understand if he was feeling frustrated.
Banking,borrowing and lending can be very risky and I appreciate all thoughts.
The diligence and time snoopy has put in is much appreciated by many.
Snoopy has skin in the game and we should all listen and see value in what he has to say.
An optimist will never agree with a reasoned pessimist but we should listen to both before making investment decisions

I have a brother who was a senior manager at National Westminister Bank-doing really well-then they were taken over by Royal Bank Scotland .You may Know the story but he saw what was happening and his only way out was to sell his shares and negotiate good leaving package at the age of 55.With that secured he continued to do contract work in his specialised field(unrelated to RBS misdeeds) until things went to custard.Another brother also working for Nat West did not sell-and for many years we heard his regrets .

For the record, I totally agree with this. I respect all the great work that Snoopy puts in on this site. He never shies from a debate and that's how it should be. We just do not see eye to eye on HGH and that's fine with me.

[percy]

. But by qualifying as a 'bank' in technical terms, even though they have given up their banking licence to Westpac,.

SNOOPY

Factually incorrect.[as per usual]
Heartland Bank Ltd is a NZ registered bank,owned by Heartland Group Holdings,which is listed on both the NZX and ASX .

[winner69]

Posted on 12 November 2019 when the SP was $1.67. (Emphasis added).
Now sits at 7.3% of my portfolio allocation after share price increase and buying some more at $1.85, (actions speak louder than words), this week.

No doubt about it, you are a guru ....but maybe just a lucky guess?

Seeing the consensus is that Heartland is really only a Bank in name / disguise and really is just a finance company a ‘peer review’ against Aussie banks is a bit nonsensical.....isn’t it?

You never know you might find Heartland at $1.87 appears to be even cheaper if compared against a ‘peer group’ of finance companies.

[winner69]

I
Factually incorrect.[as per usual]
Heartland Bank Ltd is a NZ registered bank,owned by Heartland Group Holdings,which is listed on both the NZX and ASX .

Only became a ‘bank’ as a marketing ploy to give them some credibility - so said their finance man at the time with a big smile.

Mind you it does impose some added disciplines ..that’s good

[Beagle]

I've made quite a few "lucky guesses" with this one mate, as you know :)
I'm no fan of their unsecured lending through Harmoney but it seems to be working. Bit harsh calling them a finance company and as you say, they have the extra disciplines required by the Reserve Bank of New Zealand.

I think the current risk environment for HGH is quite benign and's there's scope for reasonable earnings growth and possibly a modest PE expansion such that we should see a (well earned this time) $2.14 sometime next year :)

[Snoopy]

There's always a degree of issues with banks Snoopy, that's why they trade at such a big discount to the market median forward multiple of about 19 and always have.
Last time I looked at this, which wasn't long ago, HGH has forecast eps growth considerably more than its peers which I concluded warranted a PE premium of about 2 to its peer group. The lack of issues compared to its peers also warrants a PE premium of at least 1, possibly 2.


Heartland may not have the issues of the big Aussie banks. But it has other issues. It is still the bank with the most rural exposure as a percentage of their loan portfolio. Cashflow is much worse than other banks. As we get near the end of the business cycle some of the marginal loans at Heartland are more likely to become distressed than those made by the big banks. So in my mind no premium PE is warranted.

I expect all banks to continue to trade at below market PEs and IMO, with the increased capital requirements and scrutiny, they deserve to. This is not a reason to take your capital out of other shares and put it into banks.



Further, any consideration of an appropriate forward PE is best referenced off its own PE range I mentioned the other day, 11 - 17.5. Its not expensive especially when viewed in the context of 10 year Govt stock at ~ 1.6% which itself warrants a PE premium of 2 compared to more normal times when the risk free rate is closer to 4%.


I don't believe you should buy a share and justify your position by how well the return compares with today's government stock rate, I think you have to consider what the medium to long term outlook for interest rates is. Clearly interest rates are likely to be lower over the next ten years, on average, than they were over the last ten years. But does lower mean stuck at today's all time low levels? I think not. By justifying your share purchases by using today's interest rates, the only certainty you are locking in is that you are paying too much for your shares in the medium term.



I think eps growth in FY21 is going to be very strong and I actually think the shares are a bit cheap and let's be honest at 7.5% gross yield we're being paid pretty handsomely to enjoy the fruits of future growth.


Perhaps, but the slow down has to come. If growth goes according to plan you can kiss good-bye to fully imputed dividends because most of that growth will come from Australia. Not that I see this as a problem. It is a natural consequence of Heartland's growth ambitions in Australia. A higher PE is more appropriate at the bottom of the business cycle, not at the top.



Close to record dairy payout forecast this year means there's little to concern yourself with there.


Did you miss the auction price plunge of over 6% in both whole and skim milk prices in December?



You worry too much mate. Looking at the glass as half full is usually far more rewarding than looking at it as half empty and looking for problems.


Perhaps so. But I don't mind giving away growth opportunities if the downside risk of losing capital is too high. I am a buyer of Heartland shares at $1.40, not $1.80.

SNOOPY

[winner69]

Heartland may not have the issues of the big Aussie banks. But it has other issues. It is still the bank with the most rural exposure as a percentage of their loan portfolio. Cashflow is much worse than other banks. As we get near the end of the business cycle some of the marginal loans at Heartland are more likely to become distressed than those made by the big banks. So in my mind no premium PE is warranted.

I expect all banks to continue to trade at below market PEs and IMO, with the increased capital requirements and scrutiny, they deserve to. This is not a reason to take your capital out of other shares and put it into banks.



I don't believe you should buy a share and justify your position by how well the return compares with today's government stock rate, I think you have to consider what the medium to long term outlook for interest rates is. Clearly interest rates are likely to be lower over the next ten years, on average, than they were over the last ten years. But does lower mean stuck at today's all time low levels? I think not. By justifying your share purchases by using today's interest rates, the only certainty you are locking in is that you are paying too much for your shares in the medium term.



Perhaps, but the slow down has to come. If growth goes according to plan you can kiss good-bye to fully imputed dividends because most of that growth will come from Australia. Not that I see this as a problem. It is a natural consequence of Heartland's growth ambitions in Australia. A higher PE is more appropriate at the bottom of the business cycle, not at the top.



Did you miss the auction price plunge of over 6% in both whole and skim milk prices in December?



Perhaps so. But I don't mind giving away growth opportunities if the downside risk of losing capital is too high. I am a buyer of Heartland shares at $1.40, not $1.80.

SNOOPY

Some good points there Snoops - not just relevant to Heartland but to the whole market per se.

[Beagle]

Heartland may not have the issues of the big Aussie banks. But it has other issues. It is still the bank with the most rural exposure as a percentage of their loan portfolio. Cashflow is much worse than other banks. As we get near the end of the business cycle some of the marginal loans at Heartland are more likely to become distressed than those made by the big banks. So in my mind no premium PE is warranted.

I expect all banks to continue to trade at below market PEs and IMO, with the increased capital requirements and scrutiny, they deserve to. This is not a reason to take your capital out of other shares and put it into banks.



I don't believe you should buy a share and justify your position by how well the return compares with today's government stock rate, I think you have to consider what the medium to long term outlook for interest rates is. Clearly interest rates are likely to be lower over the next ten years, on average, than they were over the last ten years. But does lower mean stuck at today's all time low levels? I think not. By justifying your share purchases by using today's interest rates, the only certainty you are locking in is that you are paying too much for your shares in the medium term.



Perhaps, but the slow down has to come. If growth goes according to plan you can kiss good-bye to fully imputed dividends because most of that growth will come from Australia. Not that I see this as a problem. It is a natural consequence of Heartland's growth ambitions in Australia. A higher PE is more appropriate at the bottom of the business cycle, not at the top.



Did you miss the auction price plunge of over 6% in both whole and skim milk prices in December?



Perhaps so. But I don't mind giving away growth opportunities if the downside risk of losing capital is too high. I am a buyer of Heartland shares at $1.40, not $1.80.

SNOOPY

The same Aussie banks that lend billions for decades long LNG projects with no idea whether with commodity cycles whether it will be profitable or not ?
The same Aussie banks that launder money for terrorist organisations and charge dead people fees and manipulate investors into a "diversified" portfolio made up entirely of their own financial products ?
The same Aussie banks that are dangerously under capitalized according to the Reserve Bank of New Zealand ?
ANZ has massive exposure to dairy as does Rabobank.
HGH's dairy exposure is reducing. I try not to overreact to any one change in the dairy auction price these days, I learn from past mistakes unlike SUM dogs.

Growth in Australia will be very strong but the bulk of their business is still in N.Z. so your claim of no imputation credits is baseless.

I am comfortable with my own assessment of valuation for HGH. You've been worried about this stock ever since it was 85 cents when I first bought in.

All banks have a mismatch in funding. They lend long and borrow short, its simply how it works and the vast majority of people roll their short term deposits over and over and when required various banks make their short term deposits more attractive than normal to get the funds required. This mismatch in funding you regularly go on about...I am sorry but it is needless worry.

You don't understand the retirement sector at all...oh dear is all I will say.

Thankfully this Beagle has his own nose to follow and my nose works.

A forward PE of 13.5 for HGH is fair and reasonable in my opinion as is a gross yield of 7.5%. The average Aussie bank I follow is currently on a forward FY20 PE of 13 and I think a small PE premium is fully warranted for HGH. If you can't see the value at this level maybe you should sell ?
I have just bought some more at $1.85 this week which tells you exactly what I think.

[BlackPeter]

The drivel started on 20-07-2011.

Any chance we could go back to kicking the ball instead of trying to hit the player? This sort of language is adding nothing of value. A disgrace to the poster using these words.

[percy]

Any chance we could go back to kicking the ball instead of trying to hit the player? This sort of language is adding nothing of value. A disgrace to the poster using these words.

Was referring to the poster's posts on this thread,not the poster,who I went to the trouble of introducing to "our Jeff" at the last agm..

[Snoopy]

The same Aussie banks that lend billions for decades long LNG projects with no idea whether with commodity cycles whether it will be profitable or not ?
The same Aussie banks that launder money for terrorist organisations and charge dead people fees and manipulate investors into a "diversified" portfolio made up entirely of their own financial products ?


Yes, you and I both know these Aussie banks have issues (although LNG is widely regarded as a suitable transition fuel on the way to to lower carbon economy, and all mineral prospecting has risk). Now that these issues are out in the open the Aussie banks can do something about them. I expect the behaviour of these Aussie banks to improve. I am not denying that the Aussie banks have issues.



The same Aussie banks that are dangerously under capitalized according to the Reserve Bank of New Zealand ?


You are talking about the likes of ANZ,NZ. You cannot buy shares in ANZ.NZ. You have to buy shares in the whole group. The capitalization of the whole group is being dealt with by the Australian Reserve Bank.



ANZ has massive exposure to dairy as does Rabobank.
HGH's dairy exposure is reducing. I try not to overreact to any one change in the dairy auction price these days, I learn from past mistakes unlike SUM dogs.





Agricultural Loan Portfolio {A}Total Loan Portfolio {B}Percentage of Agricultural Loans {A}/{B]


Heartland Group Holdings EOFY2019
$741.947m$4,787.079m15.5%


ANZ Bank EOFY2019
$38,562m$618,295m6.2%



What the above table doesn't show is that the ANZ 'agricultural' figure also includes mining. Take that out and you can see that it is likely that the rural exposure of HGH is very likely triple that of the parent ANZ, in relative terms.



Growth in Australia will be very strong but the bulk of their business is still in N.Z. so your claim of no imputation credits is baseless.


I didn't say that. I said future dividends would likely not be fully imputed if the Australian expansion goes to plan. I am quite comfortable with this, if the growth strategy pans out.



All banks have a mismatch in funding. They lend long and borrow short, its simply how it works and the vast majority of people roll their short term deposits over and over and when required various banks make their short term deposits more attractive than normal to get the funds required. This mismatch in funding you regularly go on about...I am sorry but it is needless worry.


I am not talking about Heartland Bank. I am talking about Heartland Australia the non-banking group with a BBB- credit rating (below the BBB of Heartland Bank). Heartland Australia has no access to depositors and is set up to run on wholesale funding entirely. You may not be worried about any funding mismatch but Jeff is. Furthermore Jeff is doing something to fix it. Perhaps you had better e-mail Jeff and tell him to cease and desist and stop wasting time?



A forward PE of 13.5 for HGH is fair and reasonable in my opinion as is a gross yield of 7.5%. The average Aussie bank I follow is currently on a forward FY20 PE of 13 and I think a small PE premium is fully warranted for HGH. If you can't see the value at this level maybe you should sell ?


I thought about that. $1.85 is some 13% above my fair valuation. Many shares on the NZX are overvalued by that amount or more. When it gets to 20% above my fair valuation I will think again,

SNOOPY

[dreamcatcher]

@SNOOPY thanks for your thoughts ..... will continue to watch

4-Traders Low to High TP $1.48 - avg$1.57 - $1.70 ..........1-sell : 2-hold : 1-buy

[Snoopy]

Was referring to the poster's posts on this thread,not the poster,who I went to the trouble of introducing to "our Jeff" at the last agm..

Yes he did. Percy and I have had robust exchanges on this forum before and no doubt will have more of them in the future. Percy is very passionate about his investments. Passion is good. But passion can overflow at times. I understand this.

SNOOPY

[Beagle]

Yes, you and I both know these Aussie banks have issues (although LNG is widely regarded as a suitable transition fuel on the way to to lower carbon economy, and all mineral prospecting has risk). Now that these issues are out in the open the Aussie banks can do something about them. I expect the behaviour of these Aussie banks to improve. I am not denying that the Aussie banks have issues. I think these issues are very serious and a PE discount to HGH of at least 1 is warranted in the circumstances.

You are talking about the likes of ANZ,NZ. You cannot buy shares in ANZ.NZ. You have to buy shares in the whole group. The capitalization of the whole group is being dealt with by the Australian Reserve Bank. I am talking about the group. The Australian Reserve bank will have different and lower capitalisation requirements but that still means the group is dangerously undercapitalised according to RBNZ




Agricultural Loan Portfolio {A}Total Loan Portfolio {B}Percentage of Agricultural Loans {A}/{B]


Heartland Group Holdings EOFY2019
$741.947m$4,787.079m15.5%


ANZ Bank EOFY2019
$38,562m$618,295m6.2%



What the above table doesn't show is that the ANZ 'agricultural' figure also includes mining. Take that out and you can see that it is likely that the rural exposure of HGH is very likely triple that of the parent ANZ, in relative terms.
Its the weekend, I can't be bothered checking your figures at this stage

I didn't say that. I said future dividends would likely not be fully imputed if the Australian expansion goes to plan. I am quite comfortable with this, if the growth strategy pans out.
They don't pay out all profits and the vast majority of profits at this point and for the foreseeable future will be made in N.Z. so I am confident that dividends will remain fully imputed for the foreseeable future

I am not talking about Heartland Bank. I am talking about Heartland Australia the non-banking group with a BBB- credit rating (below the BBB of Heartland Bank). Heartland Australia has no access to depositors and is set up to run on wholesale funding entirely. You may not be worried about any funding mismatch but Jeff is. Furthermore Jeff is doing something to fix it. Perhaps you had better e-mail Jeff and tell him to cease and desist and stop wasting time?I am certainly not going to do that, I will leave him to run the thing and not pretend to be a banker, like some are on here
I thought about that. $1.85 is some 13% above my fair valuation. Many shares on the NZX are overvalued by that amount or more. When it gets to 20% above my fair valuation I will think again,

SNOOPYI think the risk free rate is going to stay low for the foreseeable future. I agree many shares are overvalued on the NZX at present but in my opinion HGH isn't one of them.

[Snow Leopard]

As far as I am concerned fair value for HGH, right here, right now, IS $1.75 being made up of the an underlying $1.725 + $0.025 of the next dividend (assume/hope 4c will be declared).

Obviously not buying more at current SP.

With me selling down 10% of my ARV recently HGH is once more currently my largest NZX holding.

[Snoopy]

Snoopy wrote:
"You are talking about the likes of ANZ,NZ. You cannot buy shares in ANZ.NZ. You have to buy shares in the whole group. The capitalization of the whole group is being dealt with by the Australian Reserve Bank."

I am talking about the group. The Australian Reserve bank will have different and lower capitalisation requirements but that still means the group is dangerously undercapitalised according to RBNZ


I think your interpretation of what the RBNZ was commenting on is wrong Beagle.

The NZ Reserve Bank was criticising the ANZ in NZ as chaired by John Key. This is what I term "ANZ.NZ". The RBNZ was commenting on the capitalisation of the NZ branch of the ANZ Group, the whole group headquartered in Australia. That is the listed entity ANZ, and this is what you can buy on the ASX or NZX - shares in the whole group. Yes the Australians were grizzling about Adrian Orr's suggestion that ANZ,NZ was not well enough capitalised. But that was because they would have to supply the extra capital to bolster the balance sheet of their NZ arm. Adrian Orr said nothing about the capitalisation of the ANZ group as a whole. The Reserve Bank of New Zealand has no jurisdiction in Australia and it would be inappropriate of Adrian to comment on what the ANZ in Australia should do.

A similar argument in reverse applies to HGH shareholders who 'take some confidence' that the Reserve Bank of NZ is keeping a watching oversight over HGH. The Reserve Bank is keeping tabs on the NZ subsidiary Heartland Bank only. But as far as Heartland Australia is concerned, the Reserve Bank of NZ has washed their hands of it. Heartland Australia is not a bank so there is no oversight from the Reserve Bank of Australia either. Heartland Australia is an unregulated wild west operation that can more or less do what it likes.

What does this mean for those taking out reverse mortgages? The guarantee of lifetime occupation between a retiree to occupy their house indefinitely into retirement and Seniors Australia will operate until the death of one of the parties to that reverse mortgage contract. I am sure that all retirees sign this thinking it will last until their own death or their voluntary move from their house. But it could be 'Seniors Australia' that dies first, particularly now because it operates under the wild west umbrella of 'Heartland Australia', a grossly undercapitalised shell (under any recognised oversight, which of course they are exempt from complying with), that exists only at the behest of the HGH board. Where would these retirees be if HGH decides to cut Heartland Australia loose? I bet those retirees haven't thought about that!

SNOOPY

[Beagle]

Why would they cut it loose seeing as its so profitable with high growth, low risk and a high NIM...(in case you are wondering Snoopy, that's a rhetorical question).

[Snoopy]

Why would they cut it loose seeing as its so profitable with high growth, low risk and a high NIM...(in case you are wondering Snoopy, that's a rhetorical question).


I know you don't want an answer Beagle but...

Heartland Australia needs wholesale funding to operate. Without supporting wholesale funders, either directly approached by Heartland Australia to take on Heartland Bonds or via bank securitrzation of loans, the Seniors Australia reverse mortgage business would find it very difficult to operate at all. So profitable or not, Heartland Australia can only operate at the behest of its wholesale funders. Wholesale funders will determine whether the Reverse Mortgage business still exists in three years time - not Heartland Australia. Jeff is working very hard now to make sure the wholesale funding does continue. But it is not a done deal,

Heartland's biggest wholesale funder is still CBA bank, a former provider of reverse mortgages themselves, until early 2019. Yet CBA have chosen to abandon this "profitable, high growth, low risk and a high NIM market" as you put it. Will they continue to support Heartland Australia into the future to carry on in this market they have themselves abandoned? I think Jeff will earn his pay cheque this year!

SNOOPY

[percy]

I know you don't want an answer Beagle but...

Heartland Australia needs wholesale funding to operate. Without supporting wholesale funders, either directly approached by Heartland Australia to take on Heartland Bonds or via bank securitrzation of loans, the Seniors Australia reverse mortgage business would find it very difficult to operate at all. So profitable or not, Heartland Australia can only operate at the behest of its wholesale funders. Wholesale funders will determine whether the Reverse Mortgage business still exists in three years time - not Heartland Australia. Jeff is working very hard now to make sure the wholesale funding does continue. But it is not a done deal,

Heartland's biggest wholesale funder is still CBA bank, a former provider of reverse mortgages themselves, until early 2019. Yet CBA have chosen to abandon this "profitable, high growth, low risk and a high NIM market" as you put it. Will they continue to support Heartland Australia into the future to carry on in this market they have themselves abandoned? I think Jeff will earn his pay cheque this year!

SNOOPY

From what I understand the Aussie Banks do like RELs,however compliance is an issue for them.They can arrange/approve a standard mortgage in 24 hours,however a REL takes a little over a month to be processed,with the applicant needing legal advice and usually family consultations.They see too many steps where they can make errors,[and be legally liable].Basically they are not set up for RELS.Just too difficult.Maybe branch networks work against them.?They do have a history of giving bad advice,as The Australian Banking Royal Commission proved.
HGH have spent time and effort making sure their process is right.This has been in consultation with both NZ and Australian regulators.HGH's process is so good it has been approved by Consumer in NZ,and needed little [if any] change to comply with Australian Royal Banking Commission requirements.
Excellent security [ and margins] will always attract funding,particularly bonds and wholesale funding.HGH being listed in Australia means Australian funds etc can legally invest in HGH's funding products.

[Snoopy]

From what I understand the Aussie Banks do like RELs,however compliance is an issue for them.They can arrange/approve a standard mortgage in 24 hours,however a REL takes a little over a month to be processed,with the applicant needing legal advice and usually family consultations.They see too many steps where they can make errors,[and be legally liable].Basically they are not set up for RELS.Just too difficult. Maybe branch networks work against them.?They do have a history of giving bad advice,as The Australian Banking Royal Commission proved.


Westpac demerged their BT fund management business from the parent bank a few years ago, despite funds management being seemingly very profitable. Today people, if they go into a bank branch, want instant (or at least 24 hour) service. Retirement Savings and Reverse Mortgages are not things where a fast solution is necessarily a desirable solution, It may be that with ever increasing legal requirements that getting staff qualified in these specialist areas is not straightforward. Thus Heartland's approach: centralizing expert staff at a call centre, may be the way of the future? Jeff at the AGM certainly said that when questioned on the subject. I don't see why the likes of big banks couldn't take a similar approach though. These days with video conferencing technology, customers could be ushered into a special room at the branch and hooked up live with a bank employee expert at a video call centre. That to me would be a more credible solution than being handed a Seniors Australia card and being told to go home and ring them.

Personally I have a real problem with dealing with any financial institution with no local branch. When things go well it can seem easy. But when things go wrong,..? I would like to think I can go in and 'thump on a desk' somewhere local.



HGH have spent time and effort making sure their process is right.This has been in consultation with both NZ and Australian regulators.HGH's process is so good it has been approved by Consumer in NZ,and needed little [if any] change to comply with Australian Royal Banking Commission requirements.
Excellent security [and margins] will always attract funding, particularly bonds and wholesale funding. HGH being listed in Australia means Australian funds etc can legally invest in HGH's funding products.


The problem is that as a wholesale institution if you want a two year bond and the people paying that interest are on average on a 6-8 year term there is a cashflow timing mismatch after two years. Heartland might have to offer higher interest rates to new providers of cash bonds. The banks might up their securitization interest rates ti Heartland. Or maybe Heartland Bank might be required by parent HGH to pay a 'special dividend', so that HGH could use such money to recapitalise their Australian operations (wouldn't the RBNZ like that)? It is not clear if recovering such cost increases from Reverse Mortgage holders could be done in a way that does not anger them and torpedo future reverse mortgage business in Australia . Hence Jeff's mission to lock in a longer term lending source at a low fixed rate.

SNOOPY

[percy]

A lot of "speculation" on your part.

[justakiwi]

Moved to Newbies

[forest]

Westpac demerged their BT fund management business from the parent bank a few years ago, despite funds management being seemingly very profitable. Today people, if they go into a bank branch, want instant (or at least 24 hour) service. Retirement Savings and Reverse Mortgages are not things where a fast solution is necessarily a desirable solution, It may be that with ever increasing legal requirements that getting staff qualified in these specialist areas is not straightforward. Thus Heartland's approach: centralizing expert staff at a call centre, may be the way of the future? Jeff at the AGM certainly said that when questioned on the subject. I don't see why the likes of big banks couldn't take a similar approach though. These days with video conferencing technology, customers could be ushered into a special room at the branch and hooked up live with a bank employee expert at a video call centre. That to me would be a more credible solution than being handed a Seniors Australia card and being told to go home and ring them.

Personally I have a real problem with dealing with any financial institution with no local branch. When things go well it can seem easy. But when things go wrong,..? I would like to think I can go in and 'thump on a desk' somewhere local.



The problem is that as a wholesale institution if you want a two year bond and the people paying that interest are on average on a 6-8 year term there is a cashflow timing mismatch after two years. Heartland might have to offer higher interest rates to new providers of cash bonds. The banks might up their securitization interest rates ti Heartland. Or maybe Heartland Bank might be required by parent HGH to pay a 'special dividend', so that HGH could use such money to recapitalise their Australian operations (wouldn't the RBNZ like that)? It is not clear if recovering such cost increases from Reverse Mortgage holders could be done in a way that does not anger them and torpedo future reverse mortgage business in Australia . Hence Jeff's mission to lock in a longer term lending source at a low fixed rate.

SNOOPY

Thinking about the interest rates Snoopy, if rates go up and HGH needs to pay more for their funds would't they simply charge more interest on the reverse morgages?
The way I see it that the risk of short term funding and longer term reverse morgages is greatly reduced because of the possibility of adjustments of intetest rates of the reverse morgages.
It would be a concerne if no funding was available some time in the future but I think that is unlikely.

[percy]

Thinking about the interest rates Snoopy, if rates go up and HGH needs to pay more for their funds would't they simply charge more interest on the reverse morgages?
The way I see it that the risk of short term funding and longer term reverse morgages is greatly reduced because of the possibility of adjustments of intetest rates of the reverse morgages.
It would be a concerne if no funding was available some time in the future but I think that is unlikely.

Term of loans.
Average term of a REL is under 10 years.
Average term of a standard mortgage is most probably 20 to 30 years.

[Snoopy]

Thinking about the interest rates Snoopy, if rates go up and HGH needs to pay more for their funds wouldn't they simply charge more interest on the reverse mortgages?
The way I see it that the risk of short term funding and longer term reverse mortgages is greatly reduced because of the possibility of adjustments of interest rates of the reverse mortgages.


Yes Forest, that is how I see it too. You just pass on your increased costs, and there is not much existing reverse mortgage holders can do about that. I was trying to look one step ahead of that and consider what would happen next, and also look around to see what might cause these changes:

Q1/ Why would a lender want to increase their interest rate return?
A1/ Because they perceive an increased security risk on their loan.

Q2/ Why would the loan security be reducing?
A2/ Because house prices are no longer going up, and may be falling slightly.

Q3/ If house prices are not going up what will that do to the demand for REL loans?
A3/ Existing reverse mortgage holders may pull out all stops to repay their loan early, and growth in new REL loans may slow because the loan holders equity base will erode much more quickly.

A3 is a pretty bad result for Heartland Australia.



It would be a concern if no funding was available some time in the future but I think that is unlikely.


I am not saying that having reduced funding available is likely. I am saying it is a possibility and so should be planned for as a contingency. Some would say if something is not likely then you should not worry about it. I would say that even if something is not likely, and in the unlikely event of something happening the contingency is severe, the you should very much worry about it. Jeff is onto the problem so let''s see what he can do to fix it. In the meantime as an investor, you should discount your HGH buy price to reflect the unlikely but serious consequence that shareholders will face if Jeff is unsuccessful in sorting this out.

SNOOPY

[percy]

Yes Forest, that is how I see it too. You just pass on your increased costs, and there is not much existing reverse mortgage holders can do about that. I was trying to look one step ahead of that and consider what would happen next, and also look around to see what might cause these changes:

Q1/ Why would a lender want to increase their interest rate return?
A1/ Because they perceive an increased security risk on their loan.

Q2/ Why would the loan security be reducing?
A2/ Because house prices are no longer going up, and may be falling slightly.

Q3/ If house prices are not going up what will that do to the demand for REL loans?
A3/ Existing reverse mortgage holders may pull out all stops to repay their loan early, and growth in new REL loans may slow because the loan holders equity base will erode much more quickly.

A3 is a pretty bad result for Heartland Australia.



I am not saying that having reduced funding available is likely. I am saying it is a possibility and so should be planned for as a contingency. Some would say if something is not likely then you should not worry about it. I would say that even if something is not likely, and in the unlikely event of something happening the contingency is severe, the you should very much worry about it. Jeff is onto the problem so let''s see what he can do to fix it. In the meantime as an investor, you should discount your HGH buy price to reflect the unlikely but serious consequence that shareholders will face if Jeff is unsuccessful in sorting this out.

SNOOPY

Snoopy.
You need to reread HGH's November 2018 Heartland Investor Day Presentation,pages 15 to 33.
The answers to all your current and future concerns are covered there,and much more.

[Snoopy]

Snoopy.
You need to reread HGH's November 2018 Heartland Investor Day Presentation,pages 15 to 33.
The answers to all your current and future concerns are covered there,and much more.


This presentation Percy?

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HGH/327018/290747.pdf

This is a very good summary of how the loans work from a consumer perspective. However I did raise an eyebrow when I saw the case of Jack and Bev (p30) who used part of their reverse mortgage to 'pay off another mortgage'. Did someone at Heartland not tell them that a reverse mortgage interest rate is higher than a regular mortgage? Surely they would have been better off just paying off the small remaining mortgage, then taking out a much smaller reverse mortgage capital sum for their own lifestyle benefit? Perhaps cashflow was an issue with those residual mortgage payments? But if they wanted more regular cashflow they could plug into the state government reverse mortgage scheme at a better rate that Heartland could offer. What were those Heartland advisors thinking? Very poor advice given to this poster couple Jack and Bev by the look of it!

None of those pages you referenced Percy talks about the funding the reverse mortgage portfolio by Heartland Australia. For that you had to go on to page 42. The future funding strategy is listed as follows:

"1/ Continue to develop multiple warehouse facilities,"

Job done. Heartland have broadened their Securitization program beyond just CBA Bank to include Westpac and ME bank.

2/ "Potential A$ Medium Term Note programme (senior unsecured) utilising Heartland Australia Group’s BBB-rating (Fitch)."

Job partly done. Following on from as issue of $A50m in subordinated notes in March 2019 (two year term) , Heartland announced the day after the AGM (November 2019) that they have completed a senior unsecured bond placement of A$100 million with a key Australian institutional fixed income investor. In both cases these are medium term investments only, so the timing mismatch is not fixed. More $A bonds to come?

3/ "Broadening providers of senior funding and introducing mezzanine investors •Potential rated Reverse Mortgage Backed Note programme•

Job NOT done (although Jeff is on to it).

The presentation does show that the average term for an Australian Reverse Mortgage is 6.6 years (p25, slightly less than I thought). But it does not resolve any of my concerns about the funding mismatch at Heartland Australia. Nevertheless Jeff is on the job to fix things, so I have in no way given up hope.

SNOOPY

[Beagle]

Good, just leave him to do his job. The glass is half full mate and all equities involve risk.

[Snoopy]

Good, just leave him to do his job. The glass is half full mate and all equities involve risk.



Yes they do and the price you pay should reflect that risk. Heartland is my newest NZX investment. I bought an initial stake in January 2019 and have participated in two DRPs since. My average acquisition price is $1.39. My fair value estimate of the worth of each HGH share is $1.63. I am quite happy to sit in my current position

Technically I should add a couple of cents to that as we are half way to earning that upcoming interim dividend, which I am guessing will be 4c. So if I could accumulate some more shares at $1.63 to $1.65 I would be in. But I won't be in at $1.87. That doesn't mean that HGH won't be worth $1.87 one day. But, to me, that price does not reflect the risk inherent in HGH today. I am not a seller at $1.87- all share investments should be given room to breathe with the market- , but I am definitely not a buyer. YMMV and it obviously does. Good luck Beagle.

SNOOPY

[RTM]

Good, just leave him to do his job. The glass is half full mate and all equities involve risk.

Great post.
And additionally, make sure HGH is an appropriate percentage of ones portfolio.

[Beagle]

Good buying Snoopy. I managed to get a small top up at $1.32 about a year ago and some more at under $1.50 but I have no idea what my average price is as its a complicated mess of shares transferred over from the former Heartland Bank, DRP shares acquired over the years and sales when the share price really did get overpriced a few years ago as well as my latest top up at $1.85.

There's been a few people mentioning they are hoping for a dividend increase this year but I think with the new more stringent RBNZ capital requirements and taking into account last year's dividend increase I think that's unlikely this year and I'm quite relaxed about that.

[RTM]

Good buying Snoopy. I managed to get a small top up at $1.32 about a year ago and some more at under $1.50 but I have no idea what my average price is as its a complicated mess of shares transferred over from the former Heartland Bank, DRP shares acquired over the years and sales when the share price really did get overpriced a few years ago as well as my latest top up at $1.85.

There's been a few people mentioning they are hoping for a dividend increase this year but I think with the new more stringent RBNZ capital requirements and taking into account last year's dividend increase I think that's unlikely this year and I'm quite relaxed about that.

Although I have lost visibility of all my transactions due to name change...grrrr…..I think/hope Direct Broking still tells me my correct average price which is $1.06. As per Horus's technique I sometimes use this to calculate the % of my portfolio and justify where it has got to.

[winner69]

Although I have lost visibility of all my transactions due to name change...grrrr…..I think/hope Direct Broking still tells me my correct average price which is $105.55. As per Horus's technique I sometimes use this to calculate the % of my portfolio and justify where it has got to.

Somebody must have paid me to buy Hgh shares ....average over the years is negative

Stupid concept is averaging

[percy]

Somebody must have paid me to buy Hgh shares ....average over the years is negative

Stupid concept is averaging

What is known as "FREE ONES".
The target of many,achieved by few.

[winner69]

What is known as "FREE ONES".
The target of many,achieved by few.

Can even buy some more and they'd still be FREE but that doesn't seem to make sense does it

[percy]

Can even buy some more and they'd still be FREE but that doesn't seem to make sense does it

Does to me...................

[justakiwi]

Makes perfect sense, even to a newbie like me.


Can even buy some more and they'd still be FREE but that doesn't seem to make sense does it

[Snow Leopard]

Does to me...................


Makes perfect sense, even to a newbie like me.

Please! Do not get me started...

Did you or did you not pay money (from an account or from a dividend) for the shares that you currently own?

[percy]

Please! Do not get me started...

Did you or did you not pay money (from an account or from a dividend) for the shares that you currently own?

Pleased to get you started.
Usually it sets W69 right off..!!

[justakiwi]

We are not saying we didn’t pay for our shares. We are saying, the effect of dollar cost averaging over time, reduces the average cost of our total purchase. Which, as you have already discovered, can sometimes result in a negative average price. So yeah, it can feel as though you get some free shares along the way.

We know what we mean don’t we Percy ;)


Please! Do not get me started...

Did you or did you not pay money (from an account or from a dividend) for the shares that you currently own?

[Brain]

Buying or selling shares should be based on whether or not you think the share is over valued or undervalued at the current price. Previous Losses or gains on a share should have nothing to do with that decision.

[tim23]

[QUOTE=justakiwi;784707]We are not saying we didn’t pay for our shares. We are saying, the effect of dollar cost averaging over time, reduces the average cost of our total purchase. Which, as you have already discovered, can sometimes result in a negative average price. So yeah, it can feel as though you get some free shares along the way.

We know what we mean don’t we Percy ;)[/QUOTE
This has me more than curious I'm guessing you have owned since inception and they owe you say 40c and over time you have collected more than 40c in dividends?

[justakiwi]

Huh? :huh:

I’ve read this twice and am still not entirely sure what you’re asking.

All I’m saying is that’s how dollar cost averaging works. Sometimes you pay more per share, sometimes you pay less. When you take the average you have paid over a specific period of time (or from first purchase if you want) you will have paid less per share than you would have, had you not spread your purchases. You already know this. You told us your average is a negative figure. Not sure why that bothers you - it’s a good thing! No doubt you have bought a hell of a lot of shares to achieve that but it shows that dollar cost averaging has worked a treat for you.

I’m really not understanding what your problem is.


[QUOTE=justakiwi;784707]We are not saying we didn’t pay for our shares. We are saying, the effect of dollar cost averaging over time, reduces the average cost of our total purchase. Which, as you have already discovered, can sometimes result in a negative average price. So yeah, it can feel as though you get some free shares along the way.

We know what we mean don’t we Percy ;)[/QUOTE
This has me more than curious I'm guessing you have owned since inception and they owe you say 40c and over time you have collected more than 40c in dividends?

[percy]

We are not saying we didn’t pay for our shares. We are saying, the effect of dollar cost averaging over time, reduces the average cost of our total purchase. Which, as you have already discovered, can sometimes result in a negative average price. So yeah, it can feel as though you get some free shares along the way.

We know what we mean don’t we Percy ;)

Off course we know what we mean.
However. over the years I have been heavily criticized for harping on about my growing portfolio of FREE SHARES.
As I have always pointed out I LOVE THEM...lol

Best example is having a share triple and selling half.
Buy 100 shares at $1,sell 50 shares at $3.left with $50 and 50 "FREE SHARE'worth $150.................
Think of a number of posters would call this BLISS.?

[winner69]

Off course we know what we mean.
However. over the years I have been heavily criticized for harping on about my growing portfolio of FREE SHARES.
As I have always pointed out I LOVE THEM...lol

Best example is having a share triple and selling half.
Buy 100 shares at $1,sell 50 shares at $3.left with $50 and 50 "FREE SHARE'worth $150.................
Think of a number of posters would call this BLISS.?

Ah so..I’ve been doing the SUMs wrong

In you example each share averages out at -$1 (negative) - I don’t keep the spare $50 as already have enough spare cash for the oysters and chips

Let’s say the share price goes to $5 and I buy another 10 - only then would I have FREE shares - 60 of them .....they become FREE because I spent some cash in buying another 10.

But Brain is right - only buy if you think it’s good value - so if $5 in this example is way overvalued one wouldn’t buy another 10 and 50 you have wouldn’t become FREE by buying another 10 - oh well buy a crayfish to go with the oysters and chips and forget about FREEing my 50 shares.

Never include divies in this averaging or FREE thing ...complicated enough without it

[percy]

Buying or selling shares should be based on whether or not you think the share is over valued or undervalued at the current price. Previous Losses or gains on a share should have nothing to do with that decision.

Good grief.
To think I have spent a life time trying to build up a portfolio of FREE shares.
Bit long in the tooth to change my misplaced objectives now.
ps Is buying based on overvalued/undervalued as much fun as collecting FREE Shares.?........................................lo l.

[Bjauck]

Good grief.
To think I have spent a life time trying to build up a portfolio of FREE shares.
Bit long in the tooth to change my misplaced objectives now.
ps Is buying based on overvalued/undervalued as much fun as collecting FREE Shares.?........................................lo l.

This is the holding I initially bought thanks in major part to analysis (with the caveat of DYOR) I read on this site! I don't have any what could be called free shares as between 2012- 2018 I have accumulated ten small parcels and sold none. Each purchase was at a higher price than the previous one. Sharesight calculates that my HBL/HGH holdings have performed 50% better than the annual performance of the NZX50. So I am happy with its performance to date. I had been tempted several times to sell my holding but I held through the gloom.

[percy]

This is the holding I initially bought thanks in major part to analysis I read on this site! I don't have any what could be called free shares as between 2012- 2018 I have accumulated ten small parcels and sold none. Each purchase was at a higher price than the previous one. Sharesight calculates that my HBL/HGH holdings have performed 50% better than the annual performance of the NZX50. So I am happy with its performance to date. I had been tempted several times to sell my holding but in held through the gloom.

I was very lucky a number of years ago to receive some sage advice from a very skilled investor:"Add to your winners,sell your losers."
By adding to your HGH, at increasing prices,you have been doing the right thing.
Take no notice of my FREE share nonsense,I am just having fun.[although if you did sell some HGH you too would end up with some FREE shares.lol]

[davflaws]

Kia ora Percy
Thank you for that. I have just checked in for the day and have been feeling quite confused and ignorant for the last few posts on this thread. I can't imagine selling anything right now, and I was really confused by your comments about seeking FREE SHARES as a lifetime investment strategy.

[Peter Webster]

Standard mortgages in Australia change funders every 3.8 years

[Snoopy]

Standard mortgages in Australia change funders every 3.8 years


Welcome to the forum Peter. If you are in Australia and want to change from your Seniors Australia reverse mortgage, run by Heartland, after 3,8 years who do you change to?

SNOOPY

[iceman]

Welcome to the forum Peter. If you are in Australia and want to change from your Seniors Australia reverse mortgage, run by Heartland, after 3,8 years who do you change to?

SNOOPY

I read Peter's comment differently. He said "change funders" which I take to mean that the so called "mismatch" you have talked about is not unusual. But maybe I'm reading his comment wrong.

[winner69]

Global Dairy Prices up 2.8%

That’s a good sign ......for the Heartland share price

[Beagle]

Global Dairy Prices up 2.8%

That’s a good sign ......for the Heartland share price

That should settle the other Beagle's nerves. Maybe HGH is a takeover target ? https://www.stuff.co.nz/business/118636406/buying-a-competitor-may-be-only-way-to-improve-kiwibank-market-share

[stoploss]

That should settle the other Beagle's nerves. Maybe HGH is a takeover target ? https://www.stuff.co.nz/business/118636406/buying-a-competitor-may-be-only-way-to-improve-kiwibank-market-share

Maybe thats why NZ Super happy to take $ 7.00 for Met and move on .......sights set on a bigger target.

[percy]

A merger between Kiwi Bank,TSB,SBS and perhaps The Co-Op Bank would make sense.
Can't see HGH being much interested,as they have too many of their own organic growth opportunities.

[winner69]

Kiwibank is 51% owned by NZ Post

NZ Post have no money and lots of it own issues

Kiwibank buying BNZ (or anything) as per that article is nonsense

[Snoopy]

Global Dairy Prices up 2.8%

That’s a good sign ......for the Heartland share price

Here is something not so good. Those residual Dairy farm loans may be difficult to quit. A market update from Keith Woodford

https://keithwoodford.wordpress.com/2020/01/06/declining-dairy-farm-values-are-likely-to-continue/#more-2116

"None of the Big Four banks are interested in new dairy lending unless the investor has high equity. The related policy is that all banks now want repayments of principal whereas interest-only loans were the norm for many years. At least two of the Big Four banks are actively trying to reduce their exposure to New Zealand dairying."

Heartland crashing down to $1.84 at the market close, minus 2c for the day!

SNOOPY

[Beagle]

Chatting with my client 'Johnny" just before Christmas he told me that he had just sent off a couple of truck loads of mature steers to the works which will result in a record ever price of more than $2,600 per head. He's been farming for more than 40 years and never seen prices that high.

A lot of HGH's lending is livestock finance so that's good.

[stoploss]

Chatting with my client 'Johnny" just before Christmas he told me that he had just sent off a couple of truck loads of mature steers to the works which will result in a record ever price of more than $2,600 per head. He's been farming for more than 40 years and never seen prices that high.

A lot of HGH's lending is livestock finance so that's good.

Prices set to rise further , large stock losses in Australia and no feed .

[dreamcatcher]

Not that rosy .............NZ dairy farm sales plummet, prices weaken, despite firm outlook

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12295844

[King1212]

What!!!!sell...sell...sell..... anyway that was 2019...now is 2020..lol

[dreamcatcher]

YES off course I forgot last year ............now :scared:

[Beagle]

Not that rosy .............NZ dairy farm sales plummet, prices weaken, despite firm outlook

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12295844

The other Beagle will go into warp drive with the yapping when he reads that...YAWN, where's my ear muffs...

[Snoopy]

The other Beagle will go into warp drive with the yapping when he reads that...YAWN, where's my ear muffs...


I am not bringing up the plunging price of dairy farms in an attempt to start a run on Heartland shares. I am trying to show that this, combined with the Heartland Australia funding mismatch, poor cashflow (inherent in a growing Reverse Mortgage business) and the late business cycle's likely effect on second tier lenders are all reasons why Heartland should not trade a a premium to other banks. The big banks have their own problems, different to that of Heartland Bank. I think the whole sector should trade at a discount to the market - no exceptions!

SNOOPY

[Beagle]

I am not bringing up the plunging price of dairy farms in an attempt to start a run on Heartland shares. I am trying to show that this, combined with the Heartland Australia funding mismatch, poor cashflow (inherent in a growing Reverse Mortgage business) and the late business cycle's likely effect on second tier lenders are all reasons why Heartland should not trade a a premium to other banks. The big banks have their own problems, different to that of Heartland Bank. I think the whole sector should trade at a discount to the market - no exceptions!

SNOOPY

It already is Snoopy and always does. Forward PE of HGH is about 13.5 compared to the median for the market of 19 and average by market cap of about 30. That's plenty enough of a discount in my opinion.

If you want something new to worry about, start right here https://www.msn.com/en-nz/news/world/live-iran-fires-rockets-at-base-housing-us-troops-in-iraq-after-trump-ordered-killing-of-qassem-soleimani/ar-BBYIADV?ocid=spartandhp

[Snoopy]

BEN 13.0
ANZ 11.5
WBC 13.5
NAB 12.0
CBA 14.2
BOQ 13.3
HGH 13.6

I am sure we're all well aware of the issues the Australians banks have with under capitalisation and other serious issues as a result of the Australian banking enquiry.

HGH looks well priced to me compared to its peers, most of which have serious issues.



Forward PE of HGH is about 13.5 compared to the median for the market of 19 and average by market cap of about 30. That's plenty enough of a discount in my opinion.


We are getting close to dancing on the head of a pin Beagle. I think we both agree that there is a least one opportunity to invest in the finance sector in today's market. We have both bought into HGH this year. Whether one should continue to accumulate at a PE of 12 (HGH at $1.64) or a PE of 13.5 (HGH at $1.85) comes down to what yield you would see as acceptable to offset the inherent risk of the investment.

Given your raw PE figures for all Australasian banks, I would be inclined to accumulate ANZ and reduce HGH. Of course the problems at ANZ dwarf any problems at Heartland in dollar terms. But in proportion to the size of the bank I think the potential problems at Heartland are at least a match for those at ANZ. I don't see Heartland as any less risky than the other banks and I think it should be trading on a PE of 12. That is a fairly minor variation on your position in the big picture of things.

SNOOPY

[Brain]

The two beagles are almost in agreement. It is now time to send you to the Middle East and see what you can do there.

[Beagle]

The two beagles are almost in agreement. It is now time to send you to the Middle East and see what you can do there.

:lol: :lol:

Snoopy - I investing in HGH primarily for yield and growth in yield in the years ahead. Its the only bank here that pays fully imputed dividends and I believe they will continue to do so for the foreseeable future.

Quite apart from the massive issues yet to be resolved with Australian banks https://www.marketscreener.com/news/Bad-to-worse-pain-not-over-for-Australia-s-beleaguered-banks--29752485/
including their substantial undercapitalisation of New Zealand operations, none of them provide meaningful imputation credits which means you're on the back foot (paws:) ) in regard to yield right from the get-go.

I'm comfortable with 7.5% gross yield in this ultra low interest rate environment which assumes no increase in the dividend for FY20 and I'm also comfortable with a PE of 13.5
Its difficult to find better value on the NZX than HGH at present.

In terms of the difference in PE's between HGH and ANZ its probably worth noting that according to average forecasts of analysts on market screener they are forecasting average growth in eps for HGH over the next 3 years of ~ 5% per annum and for ANZ ~ 4% per annum.

[Bjauck]

The two beagles are almost in agreement. It is now time to send you to the Middle East and see what you can do there. Unleash the dogs of peace!

[percy]

We are getting close to dancing on the head of a pin Beagle. I think we both agree that there is a least one opportunity to invest in the finance sector in today's market. We have both bought into HGH this year. Whether one should continue to accumulate at a PE of 12 (HGH at $1.64) or a PE of 13.5 (HGH at $1.85) comes down to what yield you would see as acceptable to offset the inherent risk of the investment.

Given your raw PE figures for all Australasian banks, I would be inclined to accumulate ANZ and reduce HGH. Of course the problems at ANZ dwarf any problems at Heartland in dollar terms. But in proportion to the size of the bank I think the potential problems at Heartland are at least a match for those at ANZ. I don't see Heartland as any less risky than the other banks and I think it should be trading on a PE of 12. That is a fairly minor variation on your position in the big picture of things.

SNOOPY

Interesting looking at charts. "A picture is worth a thousand words" , [or three thousand of Snoopy's..lol.]
ANZ,WBC,and NAB are in strong down trends.
CBA is tracking sideways.
However HGH is in a very strong up trend.

[Beagle]

Unleash the dogs of peace!

Can't resist posting this which my step-daughter just sent me.. Apologies for the thread diversion but it seems appropriate on a day like this.

WHY DOGS LIVE LESS THAN HUMAN
Here's the surprising answer of a 6 year old child.
Being a veterinarian, I had been called to examine a ten-year-old Irish Wolfhound named Belker. The dog’s owners, Ron, his wife Lisa, and their little boy Shane, were all very attached to Belker, and they were hoping for a miracle.
I examined Belker and found he was dying of cancer. I told the family we couldn’t do anything for Belker, and offered to perform the euthanasia procedure for the old dog in their home.
As we made arrangements, Ron and Lisa told me they thought it would be good for six-year-old Shane to observe the procedure. They felt as though Shane might learn something from the experience.
The next day, I felt the familiar catch in my throat as Belker‘s family surrounded him. Shane seemed so calm, petting the old dog for the last time, that I wondered if he understood what was going on. Within a few minutes, Belker slipped peacefully away.
The little boy seemed to accept Belker’s transition without any difficulty or confusion. We sat together for a while after Belker’s Death, wondering aloud about the sad fact that dogs' lives are shorter than human lives. Shane, who had been listening quietly, piped up, ”I know why.”
Startled, we all turned to him. What came out of his mouth next stunned me. I’d never heard a more comforting explanation. It has changed the way I try and live.
He said, ”People are born so that they can learn how to live a good life — like loving everybody all the time and being nice, right?” The six-year-old continued,
”Well, dogs already know how to do that, so they don’t have to stay for as long as we do.”
Live simply.
Love generously.
Care deeply.
Speak kindly.
Remember, if a dog was the teacher you would learn things like:
• When your loved ones come home, always run to greet them.
• Never pass up the opportunity to go for a joyride.
• Allow the experience of fresh air and the wind in your face to be pure Ecstasy.
• Take naps.
• Stretch before rising.
• Run, romp, and play daily.
• Thrive on attention and let people touch you.
• Avoid biting when a simple growl will do.
• On warm days, stop to lie on your back on the grass.
• On hot days, drink lots of water and lie under a shady tree.
• When you’re happy, dance around and wag your entire body.
• Delight in the simple joy of a long walk.
• Be faithful.
• Never pretend to be something you’re not.
• If what you want lies buried, dig until you find it.
• When someone is having a bad day, be silent, sit close by, and nuzzle them gently.
That's the secret of happiness that we can learn from a good dog.

Maybe something for the Iranians and American's to think about...

We lost two dogs last year and none left at present so it was rather poignant for me.

Good point about the downtrend and uptrend Percy...it's always easier to swim with the tide than against it !

[kiora]

I have never heard of this company. Competition?
https://www.lifetimeincome.co.nz/
https://www.goodreturns.co.nz/nz-income.html

[percy]

No.
Very different product.
This one you buy an annuity.ie pay the issuer say $500,000 to invest and draw down a weekly/fortnightly amount.Westpac also [[use to?]do them.Do not know whether other banks do so.
Reverse Equity Loans,ie HGH's product you use your equity in your house to draw down lump sums or weekly/fortnightly/monthly amounts.It is for people who do not have the spare capital to buy an annuity, as all their capital is tied up in their house.Means they can live in their house and have an income.
Both are based on capital invested,or house value,drawings,and your age.

[winner69]

I have never heard of this company. Competition?
https://www.lifetimeincome.co.nz/
https://www.goodreturns.co.nz/nz-income.html

Been around a while — hasn’t hurt Heartland in that time eh

With Dr Cullen in charge what could go wrong

[Beagle]

https://www.msn.com/en-nz/money/news/dairy-prices-rise-in-latest-auction/ar-BBZbRDJ?ocid=spartandhp

Looking pretty good isn't it Snoopy :) With pretty looking cows like that one, what could possibly go wrong :D

[Marilyn Munroe]

I have never heard of this company. Competition?
https://www.lifetimeincome.co.nz/
https://www.goodreturns.co.nz/nz-income.html

Let me get this staight, you give someone who brought a railroad for many times its worth your hard earned nomey and he promisies to give it back to you in regular payments.

Boop boop de do
Marilyn

[mfd]

Heartland are back in the frame according to the UDC rumour mill

https://www.interest.co.nz/banking/103346/heartlands-not-commenting-speculation-its-one-shortlisted-parties-vying-buy-udc-anz

[winner69]

Heartland are back in the frame according to the UDC rumour mill

https://www.interest.co.nz/banking/103346/heartlands-not-commenting-speculation-its-one-shortlisted-parties-vying-buy-udc-anz

Not commenting code for announcement soon?

[percy]

Heartland are back in the frame according to the UDC rumour mill

https://www.interest.co.nz/banking/103346/heartlands-not-commenting-speculation-its-one-shortlisted-parties-vying-buy-udc-anz

Last time the rumour mill had then HBL buying UDC the HBL share price went to $2.14.
I have been wondering whether the current HGH share price has again risen on UDC rumours.
With HGH experiencing strong organic growth,particularly with RELS, I see the need of buying UDC has deminished .
With HGH directors and management being such big HGH shareholders I can't see them paying over the top,as they will have to front up for the inevitable capital raise.
Replacing ANZ funding would also be a big issue.
All that said, if HGH did go ahead,UDC would be a great fit,and if HGH brought UDC at a great price, shareholders and institutions would support a capital raise.
Most probably see HGH rerated [upwards].

[Beagle]

Last time the rumour mill had then HBL buying UDC the HBL share price went to $2.14.
I have been wondering whether the current HGH share price has again risen on UDC rumours.
With HGH experiencing strong organic growth,particularly with RELS, I see the need of buying UDC has deminished .
With HGH directors and management being such big HGH shareholders I can't see them paying over the top,as they will have to front up for the inevitable capital raise.
Replacing ANZ funding would also be a big issue.
All that said, if HGH did go ahead,UDC would be a great fit,and if HGH brought UDC at a great price, shareholders and institutions would support a capital raise.
Most probably see HGH rerated [upwards].

Agreed. Throw this into the mix and we live in interesting times... https://tmmonline.nz/article/976516206/kiwibank-bnz-takeover-talk-grows?utm_source=GR&utm_medium=email&utm_campaign=Kiwibank-BNZ+takeover+talk+heats+up%3B+BNZ+aims+for+investo r+market

[percy]

Would makes good sense.
Next up Co-Op,TSB and SBS merger ?
We certainly live in interesting times..lol.

[janner]

Would makes good sense.

It does.

If HGH go through with UDC at about the same time.
There will be a huge drop in Liquidity in The NZ share market

[King1212]

Read the news...HGH has been shortlisted by ANZ to buy UDC..any comments holders?

[justakiwi]

Why? :mellow:


It does.

If HGH go through with UDC at about the same time.
There will be a huge drop in Liquidity in The NZ share market

[BlackPeter]

Read the news...HGH has been shortlisted by ANZ to buy UDC..any comments holders?

What news? Only thing I could find was old rumor : https://www.interest.co.nz/banking/103346/heartlands-not-commenting-speculation-its-one-shortlisted-parties-vying-buy-udc-anz

But if it would be true I'd say as a shareholder that this is either good or bad. Good, if they manage to buy UDC for a sensible price, but bad if they get too excited and join a bidding war ...

[Oliver Mander]

Well that would be timely. Just bought a whole heap this morning at the open...although I didn't see that news report, its good good prospects right now, so happy to add to my holding.

[Beagle]

I added recently too. When the lead cat and dog agree what could possibly go wrong lol

[winner69]

Keith Woodford always a good read

Here’s something he wrote recently on dairy debt

https://keithwoodford.wordpress.com/2020/01/29/dairy-debt-and-declining-values-create-an-equity-pincer/

The big picture message from all of the above is that however one looks at the data there will now be a considerable proportion of dairy farmers who now have minimal equity in their farming business.

[janner]

Why? :mellow:

In short.

It would not be chump change like the Napier Port issue.
Institutions ( who make up the largest share of new money ) and Shareholders will be digging deep.

However as percy said. " Would makes good sense ".

[winner69]

If Jeff says UDC will be great for Heartland ....and even if he asks me to put 20% more cash in .....and he says it will be eps accretive ...i’ll be a starter

[Beagle]

If Jeff says UDC will be great for Heartland ....and even if he asks me to put 20% more cash in .....and he says it will be eps accretive ...i’ll be a starter

"eps accretive" is the key term.

[winner69]

"eps accretive" is the key term.

Eps accretive .....easily said but rarely ever proved if it ever was eps accretive

[iceman]

Eps accretive .....easily said but rarely ever proved if it ever was eps accretive

Our Jeff needs to do a few more "eps accretive" tricks to make us even more comfortable about him being the 6th highest paid CEO in the country at $2.8 million according to the Herald !

[Snoopy]

Our Jeff needs to do a few more "eps accretive" tricks to make us even more comfortable about him being the 6th highest paid CEO in the country at $2.8 million according to the Herald !


Be careful what you ask for. The best way to make an 'earnings accretive' acquisition is to make sure your existing business is performing very poorly!

SNOOPY

[Beagle]

Our Jeff needs to do a few more "eps accretive" tricks to make us even more comfortable about him being the 6th highest paid CEO in the country at $2.8 million according to the Herald !

Agree that's a lot of money for a company that has issued a lot of talk about acquisitions and not actually done much and is delivering very modest eps growth. To me it speaks of a culture of greed in the banking industry. Not happy about that.

[couta1]

Agree that's a lot of money for a company that has issued a lot of talk about acquisitions and not actually done much and is delivering very modest eps growth. To me it speaks of a culture of greed in the banking industry. Not happy about that. Mate the Troughers are everywhere, nature of the Beast.

[Beagle]

Mate the Troughers are everywhere, nature of the Beast.

If they deliver strong earnings growth I have no objection to senior executives being paid well. I am reminded at this time of the very interesting approach towards diversity and one particular culture...you need to pay millions to come up with brilliant strategies like that so he's an absolute "bargain" at $2.8m :rolleyes:

[winner69]

Mate the Troughers are everywhere, nature of the Beast.

Proof of ‘Troughing’ from the Annual Report

CEO remuneration as a multiple of staff remuneration
The CEO’s salary as a multiple of the staff average is 10.11 times (FY18: 10.5 times), and his total remuneration as a multiple of the staff average is 19.77 times (FY18: 19 times


No wonder he thanks staff for all their hard work and greatness at the ASM ...greedy bugger

[percy]

The board, which includes Greg Tomlinson who owns 58,392,997 HGH shares would not employ a "Stupid bastard."

[couta1]

The board, which includes Greg Tomlinson who owns 58,392,997 HGH shares would not employ a "Stupid bastard." He said Greedy not Stupid.

[percy]

He said Greedy not Stupid.

I know what he said.
When you have a board with huge personnel holdings they will not employ either a greedy or stupid bastard.

[BlackPeter]

I know what he said.
When you have a board with huge personnel holdings they will not employ either a greedy or stupid bastard.

Actually - you might be right related to HGH, but I don't think I would generalize your statement - LOL.

I could think about a number of boards with huge personal holdings who (in hindsight) employed either greedy or stupid (or potentially just incompetent) hmm - subjects. Couldn't you?

[percy]

Actually - you might be right related to HGH, but I don't think I would generalize your statement - LOL.

I could think about a number of boards with huge personal holdings who (in hindsight) employed either greedy or stupid (or potentially just incompetent) hmm - subjects. Couldn't you?

Boards with little or no personnel holdings have more chance of employing them.
I trust boards with skin on the line.

[BlackPeter]

Boards with little or no personnel holdings have more chance of employing them.

To be honest - I have never seen a statistical analysis providing evidence that boards with large holdings acting less greedy or stupid. Do you?

But anyway - lesser risk to employ - say "undesirable" board members - does not mean it does not happen. And we all know that it actually does.

[winner69]

Mate the Troughers are everywhere, nature of the Beast.

The way corporate excesses are heading and the outrageous salaries management get together with the power corporates have over the world we are probably heading for a revolution of sorts one day soon.

Pity movements like ‘Occupy Wall Street’ faded away but they will re-emerge - the world is getting sick and tired of excesses and corporatocracy

[percy]

Board and management holdings;
Over 50 years investing it is one of the first things i check before investing.
Always exceptions,but they a usually fraudsters,and with knowledge you know to avoid them.
I note the directors/management in my three largest holdings, have a great deal of skin on the line.
I like it like that.!

[Beagle]

HGH shareholders can relax, at least our man is delivering some growth for his $2.83m.
Other far more worrying salary packages noted in the Herald included :-
Theo Spierings of Fonterror $4.7m for his part year and his replacement Miles Hurrell $2.2m for part year, (gosh hasn't that company done "well" !).
Ross Taylor at Fletchers "earning' $5.3m not too shabby when he has "101" other senior executives to help him preside over such poor performance
Marko Bogolevski of Infratil "earning" $1.9m despite the payment of over $100m in management fees to Morrison and Co for actually managing their investments !!
Mike Bennetts of ZEL got the tidy sum of $2.2m in 2017, not too shabby for running a bunch of petrol stations and other sundry assets, although just lately there's be no short term or long term incentive fees so he's down to a "miserable" $860Kin 2019.
Chris Luxon did alright for himself on over $4m too and delivered the lowest profit in the last 5 years despite jet fuel costs being around the average of the last 10 years.

[Blue Skies]

HGH shareholders can relax, at least our man is delivering some growth for his $2.83m.
Other far more worrying salary packages noted in the Herald included :-
Theo Spierings of Fonterror $4.7m for his part year and his replacement Miles Hurrell $2.2m for part year, (gosh hasn't that company done "well" !).
Ross Taylor at Fletchers "earning' $5.3m not too shabby when he has "101" other senior executives to help him preside over such poor performance
Marko Bogolevski of Infratil "earning" $1.9m despite the payment of over $100m in management fees to Morrison and Co for actually managing their investments !!
Mike Bennetts of ZEL got the tidy sum of $2.2m in 2017, not too shabby for running a bunch of petrol stations and other sundry assets, although just lately there's be no short term or long term incentive fees so he's down to a "miserable" $860Kin 2019.
Chris Luxon did alright for himself on over $4m too and delivered the lowest profit in the last 5 years despite jet fuel costs being around the average of the last 10 years.


How do they get away with it !
And please don't someone say it's just market rates.

[winner69]

HGH shareholders can relax, at least our man is delivering some growth for his $2.83m.
Other far more worrying salary packages noted in the Herald included :-
Theo Spierings of Fonterror $4.7m for his part year and his replacement Miles Hurrell $2.2m for part year, (gosh hasn't that company done "well" !).
Ross Taylor at Fletchers "earning' $5.3m not too shabby when he has "101" other senior executives to help him preside over such poor performance
Marko Bogolevski of Infratil "earning" $1.9m despite the payment of over $100m in management fees to Morrison and Co for actually managing their investments !!
Mike Bennetts of ZEL got the tidy sum of $2.2m in 2017, not too shabby for running a bunch of petrol stations and other sundry assets, although just lately there's be no short term or long term incentive fees so he's down to a "miserable" $860Kin 2019.
Chris Luxon did alright for himself on over $4m too and delivered the lowest profit in the last 5 years despite jet fuel costs being around the average of the last 10 years.

So Jeff is up there with the big earners

On a profit per $ remuneration basis he must be leading the pack by miles

Maybe it’s the Board that’s stupid allowing such a high package.

[percy]

So Jeff is up there with the big earners

On a profit per $ remuneration basis he must be leading the pack by miles

Maybe it’s the Board that’s stupid allowing such a high package.

With directors holding such big personnel holdings ie Greg Tomlinson holding 58,392,997 HGH shares,you can not call any of them stupid.
Far from it.
May pay to reread the start of this thread where people had doubts about HGH succeeding.and ask yourself why HGH has.
Has not been a case of paying peanuts to monkeys.
And looks to me as though the best is yet to come.

[Beagle]

So Jeff is up there with the big earners

On a profit per $ remuneration basis he must be leading the pack by miles

Maybe it’s the Board that’s stupid allowing such a high package.

Yes I see what you're saying. Just under $3m is a LOT for a company making well under $100m and quite possibly is leading the pack on that basis.
Similar sized level of profit was SUM and our man Julian Cook only just "scraped by" on just over $1m and made more money with vastly higher growth !
I think its an industry problem. The real issue is you have these Australian bank CEO's earning far more (despite presiding over extremely dodgy activities), so when the executive remuneration committee meets they have GREED as their only relative measure in the sector.

[winner69]

Yes I see what you're saying. Just under $3m is a LOT for a company making well under $100m and quite possibly is leading the pack on that basis.
Similar sized level of profit was SUM and our man Julian Cook only just "scraped by" on just over $1m and made more money with vastly higher growth !
I think its an industry problem. The real issue is you have these Australian bank CEO's earning far more (despite presiding over extremely dodgy activities), so when the executive remuneration committee meets they have GREED as their only relative measure in the sector.

No no Beagle - Julian’s company made over $200m for his just over $1m pay

Jeff’s company made under $80m for his just under $3m pay

Bankers world wide are a greedy lot ..maybe even unconscionable.

Maybe I should have said the Board made a stupid decision instead of implying the individuals were stupid.

[percy]

No no Beagle - Julian’s company made over $200m for his just over $1m pay

Jeff’s company made under $80m for his just under $3m pay

Bankers world wide are a greedy lot ..maybe even unconscionable.

Maybe I should have said the Board made a stupid decision instead of implying the individuals were stupid.

Start at the beginning of this thread, and you will see the board and management have made nothing but great decisions.
Attract excellent people and you get excellent results.
Pay them well and you get even better results.

[Beagle]

No no Beagle - Julian’s company made over $200m for his just over $1m pay

Jeff’s company made under $80m for his just under $3m pay

Bankers world wide are a greedy lot ..maybe even unconscionable.

Maybe I should have said the Board made a stupid decision instead of implying the individuals were stupid.

Yes good point mate. No wonder Jeff smiles so much in the annual report photo's ! Meanwhile Julian a far more serious type, knows some company executives have to EARN their pay.

[iceman]

Boards with little or no personnel holdings have more chance of employing them.
I trust boards with skin on the line.

That's what I thought with Arborgen, that they all had skin in the game and would look after shareholders, but was sadly mistaken :-(

[percy]

That's what I thought with Arborgen, that they all had skin in the game and would look after shareholders, but was sadly mistaken :-(

Perhaps you should therefore sell your PAZ.?

[winner69]

That's what I thought with Arborgen, that they all had skin in the game and would look after shareholders, but was sadly mistaken :-(

There is a school of thought that directors owning shares (especially lots) are not truly independent and don’t always act in the best interest of ALL shareholders....they can think along the lines of ‘whats best for me’

[iceman]

Perhaps you should therefore sell your PAZ.?

Uhh, NO. I sold ARB

[winner69]

This chart from AR justifying the huge amounts paid out under the incentive schemes.

Suppose does deserve some little reward ...but not totally awesome performance ....a bit up and down eh ...hope that’s not indicating a bit of down relative to NZX50 coming up

They need to the National guys in to teach them how to make things look really awesome instead of so so

[percy]

There is a school of thought that directors owning shares (especially lots) are not truly independent and don’t always act in the best interest of ALL shareholders....they can think along the lines of ‘whats best for me’

Same could be said for directors who hold no shares.
I much prefer "the owner's eye".

[Jerry]

If you want to see what Aussie bankers do for their money, read "A Wunch of Bankers" by Daniel Ziffer.

[BlackPeter]

So - how good are the forecasts of our stockmarket analysts?
Here is the overview of my wee researchtask:
https://www.sharetrader.co.nz/showthread.php?11721-How-good-are-the-forecasts-of-stockmarket-analysts

Looking today at

Stock: HGH
Prediction month: January 2019
Forecast month: January 2020



Share price (peak) in January 2019
$1.43



Consensus forecast for January 2020
$1.58



actual shareprice (peak) in January 2020
$1.87
Share price did rise, as predicted, but instead of the predicted 10.5% it actually did rise by 30.8%; according to the rules this is a failed prediction, which might be a bit harsh. Need to think about this


consensus recommendation in January 2019
outperform (6,25/10)



actual 12 month growth vs NZX50
outperformed NZX50 by 10%
PREDICTION PASS



Rating of the analysts so far:

6 stocks checked (checking for each consensus and buy recommendation);
Consensus shareprice forecasts correct: 1/6; analyst hitrate: 17%
Consensus recommendation vs NZX50 correct: 2/6; analyst hitrate: 33%

[justakiwi]

Half yearly report out tomorrow. Thoughts? Predictions? Expectations?

[winner69]

Half yearly report out tomorrow. Thoughts? Predictions? Expectations?

Solid half year and reconfirmation of full year NPAT $77m to $80m

They always do what they say they will do.

[percy]

Half yearly report out tomorrow. Thoughts? Predictions? Expectations?

The good....Solid increases in O4B and RELs.Further reduction in big loans [ rural and business].
The not so good....Increase spend on systems and other compliance overheads.No increase in divie.

[Beagle]

Expecting a modest increase in profit and no change in dividend.

[horus1]

the question is UDC

[dabsman]

Nice policy change with REL's where you can equity release on investment properties. I think this is very astute

[percy]

the question is UDC

Certain is.
However I doubt we will receive the answer tomorrow.

[percy]

Nice policy change with REL's where you can equity release on investment properties. I think this is very astute

Not going to happen.

[dabsman]

Not going to happen.
Just saw a release today about it. I'll try and track it down

[percy]

Just saw a release today about it. I'll try and track it down

Would appreciate it if you could.

[winner69]

Announcement day ...but be patient as bankers aren’t early starters

[Bjauck]

Nice policy change with REL's where you can equity release on investment properties. I think this is very astute Would that be a big market at present? Wouldn't it be best just to sell the property. I could see a point for equity release on a treasured bach/crib.

[dabsman]

I'm trying to find where I saw it yesterday...

[Beagle]

Think I will leave others to enjoy reading about their endless do-good politically correct social welfare policies today and stick strictly to the numbers. Stomach not feeling that strong today...

[winner69]

Think I will leave others to enjoy reading about their endless do-good politically correct social welfare policies today and stick strictly to the numbers. Stomach not feeling that strong today...

But the story is a better way of assessing value rather than the numbers ...you should know that by now

[Beagle]

hat they don't release the results in a timely manner so people can do their analysis before market open is disappointing.
I'm bored already.

[winner69]

That they don't release the results in a timely manner so people can do their analysis before market open is disappointing.
I'm bored already.

You’re not listening to me mate

Values don't come from models, but from stories.

Has the story changed? I doubt it

[Beagle]

I get it mate. They want to be the Maori employer of choice for young Maori so they can get them off the streets and gainfully employed instead of joining gangs and causing chaos. That's good and its good for everyone. Good on them.
Where's the numbers ?

[winner69]

I get it mate. They want to be the Maori employer of choice for young Maori so they can get them off the streets and gainfully employed instead of joining gangs and causing chaos. That's good and its good for everyone. Good on them.
Where's the numbers ?

Bankers have always struggled with cutting and pasting

[winner69]

Maybe they’ll get a public censure like Cooks Food for not reporting in a timely manner

[winner69]

It’s out ...main points

.Significant progress made on implementing Heartland’s workplan to address improvements across conduct and culture.
• 47% of employees were aged 35 years and under.
• 35 interns joined Heartland Bank’s Manawa Ako internship programme – 10 more interns than last year’s intake.


And that’s a story that leads to profit up 20%

[BlackPeter]

It’s out ...main points

.Significant progress made on implementing Heartland’s workplan to address improvements across conduct and culture.
• 47% of employees were aged 35 years and under.
• 35 interns joined Heartland Bank’s Manawa Ako internship programme – 10 more interns than last year’s intake.


And that’s a story that leads to profit up 20%

Well, looks like diversification really works.

Anyway - pretty happy about the numbers.

NPAT of $39.9 million, up 20.4% ($6.7 million).
Gross finance receivables (Receivables) of $4.6 billion, up $177 million (8% annualised growth) since June 2019.

Did anybody notice - interim dividend up to 4.5 cents (from 3.5 cents)! Not bad ...

[winner69]

And leaving upgrading FY guidance for another day

Clever ploy

[iceman]

The good....Solid increases in O4B and RELs.Further reduction in big loans [ rural and business].
The not so good....Increase spend on systems and other compliance overheads.No increase in divie.

Pretty well spot on except about the divie. A solid result.

[winner69]

There’s so many good numbers I don’t think we’ll hear from beagle for a while ...lot of good stuff to digest and he hasnt installed the upgrade to his abacus yet

[Bjauck]

Good headline figures - especially coming after ASB's result.

[Beagle]

It’s out ...main points

.Significant progress made on implementing Heartland’s workplan to address improvements across conduct and culture.
• 47% of employees were aged 35 years and under.
• 35 interns joined Heartland Bank’s Manawa Ako internship programme – 10 more interns than last year’s intake.


That's fantastic, who cares about the financial numbers after reading that !

[iceman]

Aussie REL's continue showing strong annual growth of 20% and are up to and now up to $ 887 million, raising market share to 26%. Interesting to see very fast growth (from a low base) for Harmoney in Australia. Divie increased by 1c which was a bit of a surprise. Nothing too negative in there except operating costs are significantly higher but not unexpected.
From first read this seems to be another great result.

[percy]

An incredible result.
Strong growth in the sectors they want.
Reduced lending in areas of low margin.
NPAT up 20% yes 20% to $39.9mil.
ROE well up to 11.7%.
And wait there's more .An INCREASED fully imputate divie of 4.5 cents per share payable on 11th March.Gross yield 8.3%.
No mention of UDC.

[RTM]

“47% of employees were aged 35 years and under. “

Is this a good or bad thing ? My immediate feeling is that it is bad, banking, lending, etc needs older experienced people.

[peat]

An incredible result.

And wait there's more.

HuGe eH? ...

[percy]

“47% of employees were aged 35 years and under. “

Is this a good or bad thing ? My immediate feeling is that it is bad, banking, lending, etc needs older experienced people.

Note 53% of employees are aged over 35 years.

[Snow Leopard]

FY NPAT expectation is $77M - $80M
or 4.6% to 8.7% increase
less on an EPS basis

or 2H flat to down on 1H

Not so flash then; unless we get a good upgrade.

[Bjauck]

“47% of employees were aged 35 years and under. “

Is this a good or bad thing ? My immediate feeling is that it is bad, banking, lending, etc needs older experienced people. It is a relatively new and growing bank. As it is, 53% are OVER 35.

[Marilyn Munroe]

“47% of employees were aged 35 years and under. “

Is this a good or bad thing ? My immediate feeling is that it is bad, banking, lending, etc needs older experienced people.

It would be helpful in a financial services office to have one old curmudgeon who has seen it all before and and is able to warn the whipersnappers with tales of past irrational exuberances.

Boop boop de do
Marilyn

[Beagle]

Great result, market loves it.
Impairments down and very low and strong growth in lending across most divisions.

[dabsman]

Not going to happen.

I knew I received something in my hundreds of emails yesterday!

We are excited to announce Heartland Bank is now offering Reverse Mortgages against investment properties and holiday homes with our new feature, Secondary Property Loans.

A Secondary Property Loan allows people aged 60 years and over to enjoy a more comfortable retirement by accessing equity from their secondary property, rather than their primary residence.

Like our regular Reverse Mortgage, Heartland’s Secondary Property Loan can be used for a variety of different purposes including home improvements, debt consolidation, travel or just taking the stress out of everyday bills.

The Secondary Property Loan may suit those who do not want a mortgage against their primary residence or those living in a retirement village who still own a property.

We continue to offer the protection of a Heartland Reverse Mortgage, including our three promises:· Lifetime Occupancy Guarantee – your home will remain the place you live in for as long as you choose· No Negative Equity Guarantee – the amount required to repay your loan will never exceed the net sale proceeds of the property· Loan Repayment Guarantee – there is no requirement to make any loan repayment until the end of your loan, although you may do so at any time without penalty costs.
The interest rate for a Secondary Property Loan is the same as a Heartland Reverse Mortgage, with a floating rate of 6.95% p.a.

The loan is due to be repaid when the borrower sells their investment property or holiday home, or when they move permanently from their primary residence.

[RTM]

It would be helpful in a financial services office to have one old curmudgeon who has seen it all before and and is able to warn the whipersnappers with tales of past irrational exuberances.

Boop boop de do
Marilyn


Note 53% of employees are aged over 35 years.


It is a relatively new and growing bank. As it is, 53% are OVER 35.

Yes, understand. But nevertheless. Especially in a bank that does not a lot of physical branches with customer facing tellers.

Personally over the moon with the result, only bad thing is it could again blow out the % of my portfolio that it occupies...good problem and I may address it if the price goes to > $2.10ish....love the dividend increase.

Yahoo !

[Beagle]

Full year forecast looks extremely conservative ($77 - $80m) relative to the result just achieved ($39.9m) and suggests they think impairments will go up in 2H even if nobody on here thinks so. Maybe they think this new virus might affect the economy materially and people and some business's ability to service their loans ? Maybe they're right to be conservative in the circumstances ?

I for one am not getting carried away and see fair value at present as $1.89. I suppose you could pay up to $1.935 inclusive of the pending 4.5 cent fully imputed dividend.

Hey Winner - I worked these numbers out with my old steam powered slightly rusty abacus...not bad for a motley old mutt, and it seems the market agrees.

[janner]

They are just doing what they say they will do

https://www.youtube.com/watch?v=957Zr2Pre2s

Aye percy ?.

[jonu]

I reckon the institutions will set the tone this afternoon once they have had time to digest and set their strategy. This mornings flurry will have been Mum & Dad's. Volume to come with the battleground @ 1.90 I think. Once it breaks through that on volume it will be onwards and upwards.

[RTM]

I reckon the institutions will set the tone this afternoon once they have had time to digest and set their strategy. This mornings flurry will have been Mum & Dad's. Volume to come with the battleground @ 1.90 I think. Once it breaks through that on volume it will be onwards and upwards.

“ The resulting gross dividend yield was 8.3% .”
Agree Jonu, but I think even the Mum & Dad activity will take the price higher, as the dividend yield is very high,

[winner69]

Last year it was pointed out H119 relatively poor result was impacted by ~$2m of non-recurring studd related to restructure. Explained why 6% growth wasn’t too bad

No mention this time around as 20% plus is amazing

On the good old ‘normalised’ basis earnings growth H120 was only about 10%

Still pretty good but not amazing

[percy]

I knew I received something in my hundreds of emails yesterday!

We are excited to announce Heartland Bank is now offering Reverse Mortgages against investment properties and holiday homes with our new feature, Secondary Property Loans.

A Secondary Property Loan allows people aged 60 years and over to enjoy a more comfortable retirement by accessing equity from their secondary property, rather than their primary residence.

Like our regular Reverse Mortgage, Heartland’s Secondary Property Loan can be used for a variety of different purposes including home improvements, debt consolidation, travel or just taking the stress out of everyday bills.

The Secondary Property Loan may suit those who do not want a mortgage against their primary residence or those living in a retirement village who still own a property.

We continue to offer the protection of a Heartland Reverse Mortgage, including our three promises:· Lifetime Occupancy Guarantee – your home will remain the place you live in for as long as you choose· No Negative Equity Guarantee – the amount required to repay your loan will never exceed the net sale proceeds of the property· Loan Repayment Guarantee – there is no requirement to make any loan repayment until the end of your loan, although you may do so at any time without penalty costs.
The interest rate for a Secondary Property Loan is the same as a Heartland Reverse Mortgage, with a floating rate of 6.95% p.a.

The loan is due to be repaid when the borrower sells their investment property or holiday home, or when they move permanently from their primary residence.
Thanks for finding that.
I am surprised,but I guess it makes sense.

[dabsman]

Thanks for finding that.
I am surprised,but I guess it makes sense.

I think it is great. Imagine someone with a rental property who needs to do some desperately needed maintenance. Spend 50k and increase rent $100 a week. The interest cost is compounded to the loan and the increased rent is pocketed - win win and if the owner occupied home is sold this rental REL is required to be repaid. Safe as houses? Safer I'd say

[percy]

I think it is great. Imagine someone with a rental property who needs to do some desperately needed maintenance. Spend 50k and increase rent $100 a week. The interest cost is compounded to the loan and the increased rent is pocketed - win win and if the owner occupied home is sold this rental REL is required to be repaid. Safe as houses? Safer I'd say

I am slowly getting my head around it.
My mind set has been along the lines people keep their house debt free, while mortgaging rentals.Have not thought of people not having rentals debt free.

[winner69]

And leaving upgrading FY guidance for another day

Clever ploy

As Snowie says H2 profits will be flat if not down if $80m npat remains guidance

C’mon Jeff, get real or you’ll end up like the Blis man in losing credibility

Maybe the timing of the inevitiable profit upgrade is related to the LTI scheme or something

[jonu]

As Snowie says H2 profits will be flat if not down if $80m npat remains guidance

C’mon Jeff, get real or you’ll end up like the Blis man in losing credibility

Maybe the timing of the inevitiable profit upgrade is related to the LTI scheme or something

It's a strange old fence you're sitting on there Winner. Your comments have been a bob each way through the day.

[Beagle]

As Snowie says H2 profits will be flat if not down if $80m npat remains guidance

C’mon Jeff, get real or you’ll end up like the Blis man in losing credibility

Maybe the timing of the inevitiable profit upgrade is related to the LTI scheme or something

Full year guidance is for $77 - $80m which does seem strange for a growing bank with $39.9m already booked at the half year. Clearly they think second half is going to be $37.1m - $40.1m but at the bottom end of that range implies a 37.1m / 39.9m = 0.93, up to 7% reduction in 2H profit compared to 1H profit and best case profit is flat ? What are we to make of this ? Maybe they think a recession could be just around the corner like the BNZ do ? https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12309233

[winner69]

It's a strange old fence you're sitting on there Winner. Your comments have been a bob each way through the day.

Great result but not amazing in real terms

The story is still good

Only wish companies would be more forthright / honest with shareholders re guidance instead of playing games

[winner69]

Full year guidance is for $77 - $80m which does seem strange for a growing bank with $39.9m already booked at the half year. Clearly they think second half is going to be $37.1m - $40.1m but at the bottom end of that range implies a 37.1m / 39.9m = 0.93, up to 7% reduction in second half profit and best case profit is flat for 2H compared to 1H.

What are we to make of this ?

Huge amount of marketing spend and investment in the future ...jeff says will ‘contribute to growth beyond FY2020’

If that makes sense it sort of says they’re going to spend about $6m to $10m extra ...bloody heck

[jonu]

Battle lines drawn @ 1.90. Let's see if they go at it.

[Beagle]

Huge amount of marketing spend and investment in the future ...jeff says will ‘contribute to growth beyond FY2020’

If that makes sense it sort of says they’re going to spend about $6m to $10m extra ...bloody heck

You could be forgiven for thinking he's just trying to boost his bonus...Hope his best laid plans don't come unstuck with a recession.

[winner69]

Something weird going on.

FY19 release said the $73.6m reported F19 NPAT was actually $77.1m if you excluded the one off ‘Corporate Restructure and ASX’ (all clearly displayed in a table on page 3 http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HBL/339193/305400.pdf )

So continuing to say F20 NPAT is going to be $77m to $80m means in reality F20 is a pretty poor year .....only 3%/4% earnings growth at best

Not very good is it.

[jonu]

You could be forgiven for thinking he's just trying to boost his bonus...Hope his best laid plans don't come unstuck with a recession.

Virtually all companies best laid plans in that scenario Beagle. I'm becoming convinced you're looking to accumulate at the lowest level possible.

[Snoopy]

Well, looks like diversification really works.

Anyway - pretty happy about the numbers.

NPAT of $39.9 million, up 20.4% ($6.7 million).
Gross finance receivables (Receivables) of $4.6 billion, up $177 million (8% annualised growth) since June 2019.


Did you shareholders look at the cashflow statement? Profit may have been $39.865m. But operating cashflow for the same period was 'minus' $59.655m. So around $20m of cash lost over the last six month! Granted this is better than the net $45m of negative operating cashflow over the comparative half year last year. But look at the comparative dollars used to pay tax half year on half year.

HY2019: $1,944m + $0.381m = $2.325m (c.f. 28% tax on half year profit = $9.272m)
HY2018: $9.624 + $4.630m = $14.254m (c.f. 28% tax on half year profit = $11.162m)

Tax is always a timing issue. But it does look like the normalised current half year tax actually paid was around $7.0m light, and last year was $3m too heavy.

I see the payment to suppliers and employees was down by $10m too - another timing issue? That doesn't seem sustainable for a growing company. So add in both of these correction factors ( A sum of -$20m, which changes Operating Cashflow for FY2019 to -$80m) and underlying operating cashflow does not seem to have improved. This isn't surprising because one of the core growth areas, reverse mortgages are strongly cashflow negative while the business is being grown. This does suggest that more cash from some source to fund this negative operating cashflow growth is required.

Fortunately Heartland has found this cash with a net $103,167m raised in subordinated notes last November 2019. But this will not be the last cash raised by Heartland, that is for sure. IMO more money will need to be raised over the next six months and we still haven't got over the problem of borrowing medium term capital to finance longer term loans. Let's hope Jeff is still working on this. But it is disappointing that nothing more as regards matching long term funding to long term loans has been announced.

On a positive note It is good to see the 'collectively impaired asst expense' down so much, by $4m. That means the small guys are getting better at paying their loans back right?



Did anybody notice - interim dividend up to 4.5 cents (from 3.5 cents)! Not bad ...


Looks like Heartland will be borrowing to pay that dividend.

SNOOPY

[Beagle]

Virtually all companies best laid plans in that scenario Beagle. I'm becoming convinced you're looking to accumulate at the lowest level possible.

LOL... Like nobody else does that. Better enlist the helpful commentary of the other Beagle...oh wait, he just has :D

[winner69]

From June19 to Dec19 Heartland Equity (Book Value) up $12m. (Book Value never goes up much from period to period because so much of the profits are paid out as dividends)

Market cap since June19 up $150m

That’s some market rerating ...the market just loves Heartland

[winner69]

Looks like Heartland will be borrowing to pay that dividend. (Of 4.5 cents)

SNOOPY

DRP will reduce the cash needed eh Snoopy (about a third took it up last time)

Another question Snoops - ROI pretty impressive ....seems this is a result of higher leverage to me.....what say you?

Would mean return on total invested capital is down ..too much marketing spend

[BlackPeter]

Did you shareholders look at the cashflow statement? Profit may have been $39.865m. But operating cashflow for the same period was 'minus' $59.655m. So around $20m of cash lost over the last six month! Granted this is better than the net $45m of negative operating cashflow over the comparative half year last year. But look at the comparative dollars used to pay tax half year on half year.

HY2019: $1,944m + $0.381m = $2.325m (c.f. 28% tax on half year profit = $9.272m)
HY2018: $9.624 + $4.630m = $14.254m (c.f. 28% tax on half year profit = $11.162m)

Tax is always a timing issue. But it does look like the normalised current half year tax actually paid was around $7.0m light, and last year was $3m too heavy.

I see the payment to suppliers and employees was down by $10m too - another timing issue? That doesn't seem sustainable for a growing company. So add in both of these correction factors ( A sum of -$20m, which changes Operating Cashflow for FY2019 to -$80m) and underlying operating cashflow does not seem to have improved. This isn't surprising because one of the core growth areas, reverse mortgages are strongly cashflow negative while the business is being grown. This does suggest that more cash from some source to fund this negative operating cashflow growth is required.

Fortunately Heartland has found this cash with a net $103,167m raised in subordinated notes last November 2019. But this will not be the last cash raised by Heartland, that is for sure. IMO more money will need to be raised over the next six months and we still haven't got over the problem of borrowing medium term capital to finance longer term loans. Let's hope Jeff is still working on this. But it is disappointing that nothing more as regards matching long term funding to long term loans has been announced.

On a positive note It is good to see the 'collectively impaired asst expense' down so much, by $4m. That means the small guys are getting better at paying their loans back right?



Looks like Heartland will be borrowing to pay that dividend.

SNOOPY

Isn't this how banks operate? Banks typically do borrow money from third parties to lend it out to other people and they make money by charging a higher interest rate than they pay.

Banks are not supposed to lend out only their own money or money they first earned ....

If Heartland need to borrow more money to lend more money out, than this is how you recognize a successful bank :):

[jonu]

Isn't this how banks operate? Banks typically do borrow money from third parties to lend it out to other people and they make money by charging a higher interest rate than they pay.

Banks are not supposed to lend out only their own money or money they first earned ....

If Heartland need to borrow more money to lend more money out, than this is how you recognize a successful bank :):

Agreed. BP. Since when do banks raise share capital for lending? Wouldn't they be going offshore and possibly be getting negative rates in Europe?

[jonu]

LOL... Like nobody else does that. Better enlist the helpful commentary of the other Beagle...oh wait, he just has :D

I'll take that as a yes Beagle :D

[Snoopy]

Isn't this how banks operate? Banks typically do borrow money from third parties to lend it out to other people and they make money by charging a higher interest rate than they pay.

Banks are not supposed to lend out only their own money or money they first earned ....

If Heartland need to borrow more money to lend more money out, than this is how you recognize a successful bank :):


Yes, but some banks (by that I mean all banks other than Heartland) collect interest payments from their mortgage customers on a regular basis. They can then pocket these interest payments as 'cash' and use them as part of their own capital base to use to support future lending. There is no regular cashflow from a Heartland reverse mortgage. So if Heartland want to expand their (reverse) mortgage book, cash has to be raised by issuing new shares (or new debt instruments) at a rate incrementally higher than other banks. If you compare the operating cashflow for FY2019 for Heartland vs the operating cashflow for their 'parent' bank Westpac for FY2019 you will see a very different cashflow pattern.



Heartland FY2019Westpac FY2019


Net cashflows from operating activities before changes to operating assets and liabilities$63.433m$8,396m


Net cashflows from operating activities($49.912m)$7,104m



Only one of these banks generates cash from their operating activities. The other is at the perpetual mercy of their wholesale funders.

SNOOPY

[jonu]

Yes, but some banks (by that I mean all banks other than Heartland) collect interest payments from their mortgage customers on a regular basis. They can then pocket these interest payments as 'cash' and use them as part of their own capital base to use to support future lending. There is no regular cashflow from a Heartland reverse mortgage. So if Heartland want to expand their (reverse) mortgage book, cash has to be raised by issuing new shares (or new debt instruments) at a rate incrementally higher than other banks. If you compare the operating cashflow for FY2019 for Heartland vs the operating cashflow for their 'parent' bank Westpac for FY2019 you will see a very different cashflow pattern.



Heartland FY2019Westpac FY2019


Net cashflows from operating activities before changes to operating assets and liabilities$63.433m$8,396m


Net cashflows from operating activities($49.912m)$7,104m



Only one of these banks generates cash from their operating activities. The other is at the perpetual mercy of their wholesale funders.

SNOOPY

I'm no accountant Snoopy, but would the Reverse Mortgage then show as an asset and also have some sort of deferred profit allowed for?

[Snoopy]

DRP will reduce the cash needed eh Snoopy (about a third took it up last time)


Yes it will Winner. But given we are talking about a cashflow statement for the half year, will not the DRP reinvestment effect already be built into the cashflow figures as presented?

SNOOPY

[Snoopy]

I'm no accountant Snoopy, but would the Reverse Mortgage then show as an asset and also have some sort of deferred profit allowed for?


On the Heartland balance sheet there is an item 'Finance Receivables - Reverse Mortgages'. There is no 'discount' applied to that asset on the balance sheet because it is not readily cashable at short notice. The whole asset class of 'Finance Receivables - Reverse Mortgages' represents a 'deferred profit' asset class.

On the Cashflow statement, which is the statement I was talking about, there is an entry 'Capitalised net interest income'. That is the interest income that Heartland have booked as a profit on reverse mortgages but have not yet received in cash. You won't find 'Capitalised net interest income' on the cashflow statements of other banks, apart from legacy loans that are being wound down. In the case of Westpac who do have some legacy reverse mortgage business it is so inconsequential to the Westpac group, I can find no mention of these loans in the annual report.

SNOOPY

[winner69]

Snoops ...that ‘Capitalised net interest income’ doesn’t form part of Operating Cash Flows on the ‘Statement of Cash Flows’ (because as you say they haven’t got that cash yet)

The $24,859 does show as an item on the reconciliation between Profit and Operating Cash Flow .....as a non cash item.

[BlackPeter]

Yes, but some banks (by that I mean all banks other than Heartland) collect interest payments from their mortgage customers on a regular basis. They can then pocket these interest payments as 'cash' and use them as part of their own capital base to use to support future lending. There is no regular cashflow from a Heartland reverse mortgage.

Fair enough - but actually, there is a regular cash flow, it is just a bit slower than with other banks.

Cash flows every time a REL is paid back ... and I think (from memory) the average length of a REL mortgage is something like 7 years (could be less, but not sure).

It sounds like you have a fundamental problem with REL's. If you do, you should not invest into companies which offer REL's. Easy as that.

I don't see an issue as long as they make sure that the security is good enough to cover the loan, but yes, cash needs longer before it flows back. Not a problem in my view as long as the increased interest rates are sufficient to pay for the increased risk ... but you are right to point tho the increased risks. Just one of these things ... if you don't like risk, better invest into government bonds ...