HGH - Heartland Group Holdings

[zs_cecil]

I am more curious about if HGH will have any sentiment to sell its shares once the escrow restrictions expire.
Selling the shares would increase HGH's capital reserve to meet the future capital requirement.

[winner69]

I am more curious about if HGH will have any sentiment to sell its shares once the escrow restrictions expire.
Selling the shares would increase HGH's capital reserve to meet the future capital requirement.


....or go a long way to funding a divie.

[Snoopy]

Revaluation of HGH..will see sp will also be re rated

What you mean is that the listing of Harmoney may cause a re-rating of the holding price of the Heartland 8.44% stake in Harmoney.

https://www.nzx.com/announcements/363561

You would be right but it would be a one off profit boost. If the share price went down in the months following there would be a one off profit loss. So I don't think HGH can use that Harmoney stake as a source of equity to lend against from a Reserve Bank oversight stance. And I don't think HGH could pay a dividend as a result of any such capital gain either. (unless of course the Harmoney stake was sold),

SNOOPY

[Beagle]

I must be out of date with the very latest rocket science IFRS accounting standards. It seems weird to me that just because the shares they own in another company have gone up they are reporting that as part of their realised profit for the year ? Dumb out of date crusty old suburban bean counter I am. All my training was a profit cannot be reported as such until it is real profit, i.e. realised.

This modern approach of counting profits (while something is in escrow and cannot be sold) is lost on me. IFRS16 accounting for leases another "fine" example that makes me wonder if the academic accounting boffins in Brussels or Switzerland or wherever they promulgate their latest idea's, haven't got enough to do ? Maybe its time to retire and forget about all this stupid nonsense...

Lending money unsecured to people heading into a Covid deep recession based on a whole bunch of assumptions they probably dredged up from GFC days and loaded onto a digital platform also seems like a situation where it surely begs the question, what could possibly go wrong :eek2:

Thankfully there's the old fashioned reverse equity loans that are simple to understand, have very good net interest margins and you're lending money to people that will definitely pay it back from their estate. Best part of HGH's business model by a VERY VERY long way and easily understandable !!

[percy]

Pleasing noting discussion on HGH's gain on purchase price of their stake in Harmoney.
Bet we all would have a lot more to say had they lost money on the investment..lol.

[DDog]

It is the same thing as property revaluation.

[Scrunch]

I must be out of date with the very latest rocket science IFRS accounting standards. It seems weird to me that just because the shares they own in another company have gone up they are reporting that as part of their realised profit for the year ? Dumb out of date crusty old suburban bean counter I am. All my training was a profit cannot be reported as such until it is real profit, i.e. realised.

This modern approach of counting profits (while something is in escrow and cannot be sold) is lost on me. IFRS16 accounting for leases makes me wonder if the academic accounting boffins in Zurich or wherever they promulgate their latest idea's haven't got enough to do ? Maybe its time to retire and forget about all this stupid nonsense...

Agree there's some silly results from IRFS16, but this just looks to be applying the long standing idea of mark to market with a twist because they can't sell yet.

[Snoopy]

I must be out of date with the very latest rocket science IFRS accounting standards. It seems weird to me that just because the shares they own in another company have gone up they are reporting that as part of their realised profit for the year ? Dumb out of date crusty old suburban bean counter I am. All my training was a profit cannot be reported as such until it is real profit, i.e. realised.


At 8.44%, the Heartland Harmoney stake is an unconsolidated investment. There has been no open market for Harmoney shares. Now there is. So whatever book value the Heartland stake had, there is now a measuring stick to compare it to. Therefore any difference between the book value of the Harmoney stake and the market value of the Harmoney stake must be reported as profit by Heartland for this half year. This is the reason behind the 'profit upgrade' announcement that Heartland made to the market today. As you note though, it is not a realised profit and in my view any such profit should be ignored as a one off.

I am surprised you bring up the subject of 'realised profit' at Heartland though. The vast majority of those reverse home equity profits are unrealised. If you discounted unrealised profits, you wouldn't want to be on the Heartland share register I would have thought!

SNOOPY

[Beagle]

At 8.44%, the Heartland Harmoney stake is an unconsolidated investment. There has been no open market for Harmoney shares. Now there is. So whatever book value the Heartland stake had, there is now a measuring stick to compare it to. Therefore any difference between the book value of the Harmoney stake and the market value of the Harmoney stake must be reported as profit by Heartland for this half year. This is the reason behind the 'profit upgrade' announcement that Heartland made to the market today. As you note though, it is not a realised profit and in my view any such profit should be ignored as a one off.

I am surprised you bring up the subject of 'realised profit' at Heartland though. The vast majority of those reverse home equity profits are unrealised. If you discounted unrealised profits, you wouldn't want to be on the Heartland share register I would have thought!

SNOOPY

Snoops me ol mate I think we both know you're just pulling my leg (paw ?). Accounting for accrued interest validly charged on loan contracts on reverse interest mortgage with a certain end game outcome and much more predictable house price values is a very different thing that accounting for theoretical gains on fintech companies with shares in escrow. Still, a theoretical gain is a gain that theoretically might need to be revalued again one way or the other and if they want to count some valuation they dream up as income in the meantime good for them. Like you suggested, I am going to simply ignore it as a one-off or maybe offset some of it against possible under provisioning for Covid. Before you do more than just pull my paw, I would hasten to add that I did buy some more this week :)

[KJMLimited]

So retirement (property) companies can take asset revaluations through the P&L but Heartland can't?

[Beagle]

Property and retirement companies have special rules. Most professional investors and analysts with respect to retirement companies look at underlying profit anyway which strips out unrealised valuation gains and takes them off to a safe place called embedded value where they stay until they are realised. Sorry, No more accounting standard discussion for this dog today.

[nztx]

I must be out of date with the very latest rocket science IFRS accounting standards. It seems weird to me that just because the shares they own in another company have gone up they are reporting that as part of their realised profit for the year ? Dumb out of date crusty old suburban bean counter I am. All my training was a profit cannot be reported as such until it is real profit, i.e. realised.

This modern approach of counting profits (while something is in escrow and cannot be sold) is lost on me. IFRS16 accounting for leases another "fine" example that makes me wonder if the academic accounting boffins in Brussels or Switzerland or wherever they promulgate their latest idea's, haven't got enough to do ? Maybe its time to retire and forget about all this stupid nonsense...

Lending money unsecured to people heading into a Covid deep recession based on a whole bunch of assumptions they probably dredged up from GFC days and loaded onto a digital platform also seems like a situation where it surely begs the question, what could possibly go wrong :eek2:

Thankfully there's the old fashioned reverse equity loans that are simple to understand, have very good net interest margins and you're lending money to people that will definitely pay it back from their estate. Best part of HGH's business model by a VERY VERY long way and easily understandable !!

I'm with on that one Beagle - in my distant past training revaluation gains (loss) were taken direct
to Revaluation Reserve & not through P&P account

On the positive - a rough back of the card tot up suggests HGH's Harmoney gain looks like 4.75 - 4.9 cps across
HGH issued capital, ignoring ins & outs of of effects of restrictions on their disposal, working on roughly NZ 35.0 cps
ingoing in 2014 - which may or may not be the case

[Ggcc]

I must be out of date with the very latest rocket science IFRS accounting standards. It seems weird to me that just because the shares they own in another company have gone up they are reporting that as part of their realised profit for the year ? Dumb out of date crusty old suburban bean counter I am. All my training was a profit cannot be reported as such until it is real profit, i.e. realised.

This modern approach of counting profits (while something is in escrow and cannot be sold) is lost on me. IFRS16 accounting for leases another "fine" example that makes me wonder if the academic accounting boffins in Brussels or Switzerland or wherever they promulgate their latest idea's, haven't got enough to do ? Maybe its time to retire and forget about all this stupid nonsense...

Lending money unsecured to people heading into a Covid deep recession based on a whole bunch of assumptions they probably dredged up from GFC days and loaded onto a digital platform also seems like a situation where it surely begs the question, what could possibly go wrong :eek2:

Thankfully there's the old fashioned reverse equity loans that are simple to understand, have very good net interest margins and you're lending money to people that will definitely pay it back from their estate. Best part of HGH's business model by a VERY VERY long way and easily understandable !!
Much to even my surprise I have seen that indeed there are different accounting practises and different way accountants do stuff. I have have had three different accountants and I learn something from each of them. I am now using a chartered accountant and the way they do things is extraordinary in regards to legal tax minimisation. The world is constantly changing in the accounting world as my current accountant starts at 8.30am and leaves the office around 7pm most nights. I have come to discover that some accountants are just glorified bookkeepers.

[sb9]

Can someone help knock off that big wall of resistance at 1.45..

[Ggcc]

Can someone help knock off that big wall of resistance at 1.45..
I wonder if I offer them a crisp $5 note for all those shares

[peat]

An article from Business Desk talks about the Australian ‘Retirement Income Review’ released last week and it seems happy with their 9% contribution on the basis that retirees use their capital more efficiently which means they should use Reverse Mortgages to ACCESS THEIR EQUITY!

Regulators are now encouraging RELS so they dont have to raise contribution rates to 12% (which slows economy down) .

gotta be good tail winds for HGH

[sb9]

Keeps getting slammed every time it tries move up a bit, wonder if ASM on Monday will break the shackles...

[nztx]

How long until Reserve Bank releases it's straight jacket on banks paying dividends ? ;)

should that happen - take the brake off - who knows $2 or further north could be likely .. ;)

I may be wrong, but in comparison to the rest of the market HGH looks to me to be undervalued ..

[nztx]

I wonder if I offer them a crisp $5 note for all those shares


I'd be quick if I were you - in a few months time your crisp note might only afford a matching pair .. ;)

[Greekwatchdog]

I thought it was ending in March. Sure I read that somewhere..

[Beagle]

Financials do have a very high Covid beta as they are very sensitive to the economic effects of Covid on their customers and the opposite, to the recovery prospects that vaccines give hope for so its is very surprising to note that while many US, European and Australian financials have rebounded strongly on the hopes of the Pfizer vaccine and yesterday's Modera vaccine with an even higher efficacy at 94.5% HGH has been stuck pretty much in the doldrums.

For many years now I have compared the forward metrics to HGH's peers in Australia and found a very close correlation. Its not often that HGH's forward PE is more or less than 2 different to the average of its peers so imagine my surprise when I noted yesterday that based on HGH's official forecast at the midpoint of $84m = 14.4 cps HGH are currently on a forward FY21 PE of just 9.4 ! 9.8
This compares with peers as follows, (all figures are average analyst forecasts off market screener)
ANZ 13.3 14.5
WBC 13.4 14.8
NAB 15.8 16.6
BEN 14.3 16.5
BOQ 14.4 15.9
CBA 18.2 19.9
Peer Group Average 14.9 16.4

Leaving aside the outlier of this group CBA which for reasons unknown is also trading at about twice NTA this still gives an average forward PE for the Australian banks of 14.25. 15.7
In my experience HGH's normal trading range on a forward PE basis is 11 - 17.5 with the mid point also being 14.25.

I have never seen HGH trade at a discount of this size to its peer group, nothing remotely like it so this presents as a real overlooked recovery story.

I think as 2021 unfolds and the recovery story and vaccinations get rolled out HGH has excellent prospects to recover towards the mid point of its historical PE range which is where the Australian banks already are.

14.25 x officially forecast of 14.4 cps = Target Price of $2.05. I think HGH has excellent prospects to make a strong recovery in 2021. I already have a sizeable position and added some more this morning.

I note the RBNZ dividend restrictions still apply so I am only expecting 5 cps (6.94 cps gross) in fully imputed dividends in the year ahead which gives a gross yield of 6.94 / 137 = 5.1% but I am expecting that to approximately double for FY22 and beyond and on a look through Covid recovery basis HGH could give a 10% Gross Yield in FY22

Posted a couple of weeks ago. Since then the Australian banks have moved northwards quite considerably and the updated forward PE's are shown above. The gap has widened by just over 1 more PE from HGH's forward PE now at 9.8 to its peer group average excluding CBA the outlier to a massive gap of 16.4 - 9.8 = 6.6. I find that quite remarkable. It will be interesting to see if there's any color provided on Monday that might shine some light on HGH's situation.

[Greekwatchdog]

Dividend Restrictions


On 2 April 2020, the Reserve Bank announced that, taking effect immediately, all locally-incorporated banks will be restricted from paying dividends on ordinary shares and redeeming all non-Common Equity Tier 1 capital instruments such as bonds "until further notice" under revised Conditions of Registration. The Reserve Bank stated that these restrictions are designed to maintain higher levels of capital during a period of reduced economic activity resulting from the COVID-19 pandemic and will be kept in place until the economic outlook has sufficiently recovered.


The Banking Supervision Handbook (the Handbook) sets out the detailed rules regarding conditions of registration which are imposed upon banks under the Reserve Bank of New Zealand Act 1989. On 14 April 2020, the Reserve Bank issued revised versions of two Handbook documents including the document 'Statement of Principles - Bank Registration and Supervision' (BS1) which reflects these earlier announced restrictions on banks from making certain types of distributions. BS1 updates the standard wording of the Conditions of Registration and adds explanatory text.


For further information on the Handbook and revised documents, please see the Reserve Bank's website.


On 11 November 2020, the Reserve Bank announced that the restrictions on dividends and redeeming non-Common Equity Tier 1 capital instruments will be retained until 31 March 2021 or later if required.


Further, the Reserve Bank has written to insurers to advise that it expects insurers will only make dividend payments if it is prudent for that insurer to do so, they should take into account their own stress testing and elevated risks in the current climate.


For further information on this regulatory update, please see the Reserve Bank's press release.

[winner69]

Posted a couple of weeks ago. Since then the Australian banks have moved northwards quite considerably and the updated forward PE's are shown above. The gap has widened by just over 1 more PE from HGH's forward PE now at 9.8 to its peer group average excluding CBA the outlier to a massive gap of 16.4 - 9.8 = 6.6. I find that quite remarkable. It will be interesting to see if there's any color provided on Monday that might shine some light on HGH's situation.

Heartland Board been lamenting these relativities for years ...this from 2014 ASM presentation

Nothings changed ...maybe no point crying over spilt milk ...it’s just the way the world is.

Or if they truly believe that story then it’s time Jeff and the Board moved on .....they have failed miserably in closing the relativity gap......and now spending big bucks with Jarden to come up with other ideas.

Maybe the ‘colour’ tomorrow is all about FINTECH

[Leftfield]

Heartland Board been lamenting these relativities for years ...this from 2014 ASM presentation
Nothings changed ...maybe no point crying over spilt milk ...it’s just the way the world is.

My issue with HGH is that I see it as a Finance Company and don't find comparisons with Banks such as ANZ, Westpac etc as overly relevant.

[winner69]

My issue with HGH is that I see it as a Finance Company and don't find comparisons with Banks such as ANZ, Westpac etc as overly relevant.

That’s how I see it as well leftie

Always been a pretend bank (for marketing purposes) and valuation comparisons to Aussie banks in particular not that meaningful....and suppose that’s how Jeff sees it now.

Interesting that things haven’t changed much in 6 years

[winner69]

ASX have HGH in A peer group with Aus Finance Group AFG, Resimac RSM and My State MYS

The ASX has this little chart showing their relative positions - PE and share price growth. I had to draw HGH in (the wonky circle in negative territory) has obviously ASX couldn't cope with negative share price changes

Maybe this is what Jarden are going to come up - cos if anything HGH maybe slightly undervalued in this peer group.

If nothing else this is a bit funny

[Beagle]

PE correlation with Australian banks has been very very good in most recent years, (I have followed this quite closely over recent years), and I think the way they are dramatically growing their reverse equity loan book the comparison with their peer group is more relevant than it has been in previous years. Disconnect in earnings multiples has never been higher than at present in recent years.

My 2 cents is unless there's a forecast downgrade at tomorrow's annual meeting the directors are right to think that the shares are considerably undervalued at present.

[davflaws]

I must be out of date with the very latest rocket science IFRS accounting standards.

Yep - you should fuel up, provision up, lure Ms Beagle aboard, and head N for a week or two. Come anchor up in the inner channel in McKenzie Bay and I'll even findya a scallop or two.

[Leftfield]

PE correlation with Australian banks has been very very good in most recent years, (I have followed this quite closely over recent years).....

All depends by what you mean by correlation Beagle.

If you are saying that HGH correlation with Aus Banks should be 100% ie exactly the same as leading Aus banks, then I suspect you are overstating HGH's prospects.

If you are saying that HGH's correlation with Aus Banks should be 50% ie half the Aus banks then you might be more accurate.

Big Diff between Aus banks and HGH IMHO.

Just my two cents..... and no, I don't hold, but I have friends who have had their fingers burned on this one.

[winner69]

PE correlation with Australian banks has been very very good in most recent years, (I have followed this quite closely over recent years), and I think the way they are dramatically growing their reverse equity loan book the comparison with their peer group is more relevant than it has been in previous years. Disconnect in earnings multiples has never been higher than at present in recent years.

My 2 cents is unless there's a forecast downgrade at tomorrow's annual meeting the directors are right to think that the shares are considerably undervalued at present.

PE gap big in 2014 as Jeff pointed out. PE gap big now. Maybe that’s how it’s meant to be. Maybe it’s a big v small thing (like RYM v OCA)

What was it that caused Heartland to get out of step a few years ago and become more highly prized than Aussie banks? Maybe that’s the secret that Jeff is looking for?

Might repeat - and shareprice go to $2.14 - and then the beagle can close out another successful trade on Heartland

Be funny if Jeff puts an updated chart from 2014 up today.

[Leftfield]

What was it that caused Heartland to get out of step a few years ago and become more highly prized than Aussie banks? Maybe that’s the secret that Jeff is looking for?
.

At one stage HGH was hyped as a digital banking play.....Harmony etc. Maybe the PE Vals got ahead of themselves at that time??

Whatever, I wish holders well.

[Bjauck]

That’s how I see it as well leftie

Always been a pretend bank (for marketing purposes) and valuation comparisons to Aussie banks in particular not that meaningful....and suppose that’s how Jeff sees it now.

Interesting that things haven’t changed much in 6 years Certainly is not a pretend bank as far as I am concerned. The accounts and deposits I have with Heartland are every bit as bank-like as those I have with a big Australian!

[Snoopy]

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.




Certainly is not a pretend bank as far as I am concerned. The accounts and deposits I have with Heartland are every bit as bank-like as those I have with a big Australian!


Sorry to burst your bubble on your Heartland bank accounts Bjauck. But I am afraid, despite the Heartland label on the front, your Heartland bank accounts are Westpac accounts. So you are actually 'all in' with the big Australian(s).

SNOOPY

[Beagle]

PE gap big in 2014 as Jeff pointed out. PE gap big now. Maybe that’s how it’s meant to be. Maybe it’s a big v small thing (like RYM v OCA)

What was it that caused Heartland to get out of step a few years ago and become more highly prized than Aussie banks? Maybe that’s the secret that Jeff is looking for?

Might repeat - and shareprice go to $2.14 - and then the beagle can close out another successful trade on Heartland

Be funny if Jeff puts an updated chart from 2014 up today.

https://www.marketscreener.com/quote/stock/HEARTLAND-GROUP-HOLDINGS-47041144/financials/

Average analyst forecast for FY21 is $76m. Company's own forecast at mid point is $84m so it would appear the investment community are skeptical that HGH have provisioned sufficiently for Covid.
That said there's a nice growth path forecast with 13, 14 and 15 cps forecast for the next 3 years.
BUT - just for a laugh, lets pretend HGH isn't ever going to grow in the future, (I know that's completely silly but hang in there for a minute longer), and take the company's own forecast of 14.4 cps and apply a fair PE for the ultra low interest rate environment of 12 and we get a pretend fair value with no further growth ever of $1.73

HGH's PE has ranged between 11 - 17.5 in recent years. If others can't see the current opportunity, trust me I am not concerned as this for me is rated BBB - Beagle Busy Buying ;)

For you Left Field https://www.statology.org/what-is-a-strong-correlation/

[winner69]

We can't lose - it's fantastic Jeff and beagle are on the same page ...and they both use same methodology ...better still

Wonder what Jarden come up with ...could be the old sum of the parts are worth more than the whole.

[Waltzing]

if its BBB+ the market is pricing in one grade above junk at the moment.....:confused:

this sets up the ultimate the money or the bag....

or the Market versus the Beagle...:ohmy:

[Beagle]

We can't lose - it's fantastic Jeff and beagle are on the same page ...and they both use same methodology ...better still

Wonder what Jarden come up with ...could be the old sum of the parts are worth more than the whole.

What a surprise that would be ;)

[Joshuatree]

Yeah and another curious thing.Traders upramp , sprook, spin positive as they SELL and vice versa.Investors quietly fill their positions(for obvious reasons) then share their reasons why after. Then again beagle is no ordinary mutt.

[Beagle]

HGH are starting to get into the benefits of Beagles with one on their home page https://www.heartland.co.nz/ but I reckon they need a younger keener looking one, maybe Snoopy could volunteer as I am starting to go grey and am too fat with profits and previous feeding :)

[Bjauck]

Sorry to burst your bubble on your Heartland bank accounts Bjauck. But I am afraid, despite the Heartland label on the front, your Heartland bank accounts are Westpac accounts. So you are actually 'all in' with the big Australian(s).

SNOOPY Heartland has a separate licence. What is the extent of their agreement? For example if Westpac were to be in difficulties and the OBR were instigated, would accounts at Heartland be affected too? Would the $100 cash I may have deposited at a Westpac branch, acting as agent for Heartland, for the credit my Heartland account, be frozen or included in the Administration of Westpac?

Does Heartland have to offer the same terms, conditions and interest rates as Westpac?

If It is just a matter of needing to go to a bricks and mortar Westpac branch to make cash and cheque deposits and cash withdrawals, then it would just be to use Westpac as an agent. It would not mean Heartland accounts are re-labelled Westpac accounts.

[Waltzing]

HGH then is basically a banking broker...

[KJMLimited]

The outcome is no different from how any bank operates then. They take in other people's money, and lend it out to other people with not much of their own in between.

[Snoopy]

Heartland has a separate licence.


Yes. But that hasn't stopped them outsourcing their Mom and Dad customer arrangements to Westpac.



What is the extent of their agreement? Does Heartland have to offer the same terms, conditions and interest rates as Westpac?


It would be a wholesaling agreement. And it would have been negotiated in such a way that allowed Heartland to set their own deposit and loan rates. As long as what was negotiated doesn't mean that Westpac breaches their own banking covenants!



For example if Westpac were to be in difficulties and the OBR were instigated, would accounts at Heartland be affected too?


Yes Heartland would be affected. I can't see how they could escape it. The saving grace is that as a Heartland customer you are effectively a wholesale Westpac customer. So if the government announced that all personal accounts at Westpac were to be frozen for 48 hours, that might not apply to your Heartland account as a matter of course.



If It is just a matter of needing to go to a bricks and mortar Westpac branch to make cash and cheque deposits and cash withdrawals, then it would just be to use Westpac as an agent. It would hardly mean Heartland accounts are Westpac accounts.


Get the full 19 digit banking codes of all of your Heartland accounts. Any that start with '03' are Westpac accounts. Yes Heartland are using Westpac as an agent. That fact alone doesn't mean that Heartland accounts are Westpac accounts. But in this instance they are.

SNOOPY

[Greekwatchdog]

Like the CEO address http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HGH/364198/336436.pdf

• Finally, the possibility of structuring the Bank’s Motor business as a separate entityunder the Bank may assist in highlighting any intrinsic value which may not be reflectedin current bank-based benchmarking. This may also provide flexibility and efficiency interms of access to, and cost of, capital.

[Waltzing]

yes since no one is going to want those old gas powered thingee's ..... crushed within 10 years...but the finance companies get there money and you dont... love it... all i need in sweden is a bike and for the hangers on ... which one of you took my bike today!!! They all peer at me.. NOT ME! only you cant even trust your nearest and dearest...

imagine all those car finance agreements on holden V6 and 8's i feel sorry for all those kiwis...

anyone have any numbers on model types... those will be the hardest to sell on soon..

[Beagle]

The pedigree hound is always happy to back his own sense for a decent feed. Looking very good so far !

• Net profit after tax $29.9 million vs. full year guidance $83 million to $85 million
• Net interest margin and cost to income ratio in line with expectations
• Overall balance sheet growth flat – repayments in non-core Relationship Lending as well as
Open for Business and Harmoney have offset growth in core areas (Business Intermediated,
Motor, Reverse Mortgages NZ and Reverse Mortgages Australia)
• Economic overlay taken in FY20 has not been utilised
• Impairments to date much lower than anticipated
• Reassessment of fair value of equity investment in Harmoney may impact FY21 NPAT guidance
range

Heck Winner - who are they kidding with $83-$85m, 3 times 29.9m = 89.7m so with ongoing growth they should do $90m+ !!...and they're not utilizing last year's Covid overlay.
Hmmm...opportunity knocks !

[Bjauck]

Yes. But that hasn't stopped them outsourcing their Mom and Dad customer arrangements to Westpac.

It would be a wholesaling agreement. And it would have been negotiated in such a way that allowed Heartland to set their own deposit and loan rates. As long as what was negotiated doesn't mean that Westpac breaches their own banking covenants!


So do you know for certain that it is a wholesale agreement and not merely and agreement use Westpac branches as agents? Have you got any links? Surely the agreement should be available to the public if an account holder is affected by Westpac operations?




Get the full 19 digit banking codes of all of your Heartland accounts. Any that start with '03' are Westpac accounts. Yes Heartland are using Westpac as an agent. That fact alone doesn't mean that Heartland accounts are Westpac accounts. But in this instance they are.

SNOOPY I may have missed it and cannot locate it, but have Heartland announced or published a disclosure statement indicating their arrangement is an Wholesaling agreement as opposed to an agency for use of their branches?

I am not sure that codes really help - 06 (old National Bank) codes are not really independent from 01 codes.

[Bjauck]

The pedigree hound is always happy to back his own sense for a decent feed. Looking very good so far !


Heck Winner - who are they kidding with $83-$85m, 3 times 29.9m = 89.7m so with ongoing growth they should do $90m+ !!...and they're not utilizing last year's Covid overlay.
Hmmm...opportunity knocks !

So far the fears from about six months have not eventuated.

[winner69]

So pleased to see a photo of Natasha Abeysundara in the presentation - member of the Rangatahi Advisory Board

Natasha a good person

[Doug]

RaboBank accounts also have an 03 prefix. I've been banking with RaboBank for many years even when they were guaranteed by their Dutch parent owner and I've never seen the slightest sign that they are financially entangled with Westpac. I suspect WestPac are simply leasing space on their servers to them.

[King1212]

This is what i like to hear!!

The Group remains capable of declaring an interim dividend at half year in line with previous‘usual’ dividends, should performance and conditions be supportive. Once the RBNZ restrictionsare removed, subject to the usual prudential considerations, a return to historical pay-out ratiosis expected.

[Bjauck]

RaboBank accounts also have an 03 prefix. I've been banking with RaboBank for many years even when they were guaranteed by their Dutch parent owner and I've never seen the slightest sign that they are financially entangled with Westpac. I suspect WestPac are simply leasing space on their servers to them.
it sounds like both Rabobank and Heartland have an arrangement with Westpac for the processing of transactions - hence the 03 prefix. Heartland also have an agreement for bricks and mortar transactions.

[winner69]

The pedigree hound is always happy to back his own sense for a decent feed. Looking very good so far !


Heck Winner - who are they kidding with $83-$85m, 3 times 29.9m = 89.7m so with ongoing growth they should do $90m+ !!...and they're not utilizing last year's Covid overlay.
Hmmm...opportunity knocks !

You've got it wrong beagle - slow down wand think when you get all excited

Heartland generally makes more in H2 than H1

So 4 months = $30m is H1 likely profit $45m and on recent H1/H2 splits gives $95m for full year ...plus ongoing strong growth gives $100m

At $100m that's an EPS of 17 cents - your 14 PE gives what as a share price ....and what size divie

Answer in Te Reo Maori please

[iceman]

This is the main points I take from it. Have to say I am finding HGH's reports more difficult to read amongst all the woke ****e they increasingly put in their reports. Have bought a few this morning.

As at the end of October, which is the first four months of FY21, NPAT is tracking at $29.9 million (versus full year guidance of $83 million - $85 million).

Margin and Costs have been maintained, with NIM and Cost Income Ratio both in line with expectations
FY 20 dividend of 7c per share but returning to “normal” in 2021. I expect 10c
Overall balance sheet growth has been flat. Repayments from non-core area of Relationship Lending, Open for Business (O4B) and Harmoney have offset growth in core areas of Business 4 Intermediated (up 13% per annum); Motor is up 11.5% per annum; Reverse Mortgages are up 4.4% and 11% respectively per annum in New Zealand and Australia (excluding the FX impact). Lower interest rates and customers utilising the government’s packages appear to have contributed to the level of repayments.
Impairments way down
Economic overlay of $9.6m not been used but kept for 2021
Intermediated (up 13% per annum); Motor is up 11.5% per annum; Reverse Mortgages are up 4.4% and 11% respectively per annum in New Zealand and Australia (excluding the FX impact). Lower interest rates and customers utilising the government’s packages appear to have contributed to the level of repayments. Livestock is also down due to seasonality reasons.

[Waltzing]

Te Rangatahi - book 1 - 3 , published 1980 .. i await the beagle reply but i am not a translator. Ill settle for a market update ...holders since PGC until recently.

[winner69]

Any decent questions asked?

[King1212]

Yup. .I asked when the management is going to send us...royal shareholders some nice cup 🍰...

[BlackPeter]

Any decent questions asked?

What would be the opposite of a decent question? An indecent question? Haven't heard any of these ...

But if you mean with decent question anything which gets the chair to drop his chin and go into hiding ... no, haven't heard any of these either.

A number of (for an AGM) quite irrelevant questions, and some open questions to get more info about the business (but chair didn't bite - i.e. not successful) - otherwise pretty relaxed affair, really.

NZSA asked whether the board should work on improving its digital competency level - and they said that they are good enough above the bonnet :):

[Snoopy]

So do you know for certain that it is a wholesale agreement and not merely and agreement use Westpac branches as agents? Have you got any links? Surely the agreement should be available to the public if an account holder is affected by Westpac operations?


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

"New Zealand has a 6-digit prefix identical to Australia's BSB code, and although they appear similar (e.g. ANZ bank accounts in both countries start with 01, Westpac with 03), they are not compatible. The first 2 digits indicate the bank and the next 4 digits indicate the branch. All digits, along with the seven-digit account number and two or three digit suffix, are required for all wire transfers regardless of whether the transfer is intra-bank or interbank."

The two bold bits indicate the information you are after. 03 = Westpac

SNOOPY

[winner69]

What would be the opposite of a decent question? An indecent question? Haven't heard any of these ...

But if you mean with decent question anything which gets the chair to drop his chin and go into hiding ... no, haven't heard any of these either.

A number of (for an AGM) quite irrelevant questions, and some open questions to get more info about the business (but chair didn't bite - i.e. not successful) - otherwise pretty relaxed affair, really.


NZSA asked whether the board should work on improving its digital competency level - and they said that they are good enough above the bonnet :):

Good question that was ..and the response is a bit of worry ....signs of arrogance and even complacency

S’pose it was about their pretend online banking app.

[JohnnyTheHorse]

Looks like it'll break the 145 resistance here. This should get it through to at least the resistance at 155 I'm picking.

Disc: hold in long term portfolio & swing trading a position.

[Bjauck]

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

"New Zealand has a 6-digit prefix identical to Australia's BSB code, and although they appear similar (e.g. ANZ bank accounts in both countries start with 01, Westpac with 03), they are not compatible. The first 2 digits indicate the bank and the next 4 digits indicate the branch. All digits, along with the seven-digit account number and two or three digit suffix, are required for all wire transfers regardless of whether the transfer is intra-bank or interbank."

The two bold bits indicate the information you are after. 03 = Westpac

SNOOPY ...or Rabobank or Heartland. That prefix could just indicate a processing arrangement - so it does not answer my questions. As previously posted, Rabobank is also prefix 03 so does that also mean that Rabobank accounts are merely relabelled Westpac accounts?

Anyway this discussion has become circular. I have not seen any evidence to show that my Heartland accounts are merely relabelled big Australian Bank (Westpac) accounts. My bubble remains “unbursted”.

[Waltzing]

first addition 1962 - Hoani R Waititi.. author.

Do beagles fish is my question?

Gosh no major texts prepared for teaching by education department until this book. J L Hunter inspector of primary schools wrote the forward for the first official teaching maori books for education department in NZ.

[sb9]

Very bullish ASM having listened and viewed it online, onwards and upwards from here...

[Beagle]

You've got it wrong beagle - slow down wand think when you get all excited

Heartland generally makes more in H2 than H1

So 4 months = $30m is H1 likely profit $45m and on recent H1/H2 splits gives $95m for full year ...plus ongoing strong growth gives $100m

At $100m that's an EPS of 17 cents - your 14 PE gives what as a share price ....and what size divie

Answer in Te Reo Maori please

:lol: :lol: :lol: Just for you mate that suggests a target price of rua tāra hokorua and a dividend of waru cents per share fully imputed even with RBNZ (sorry no Te Reo translation for them) restrictions. Would you like a sustainability report from me as well with that projection :p

Mine was very quick back of the envelope stuff...was to busy engaging in BBB activities before everyone else does ;)

Only way the recent price made sense was if a downgrade was coming, and now it appears its very plausible the exact opposite will happen in due course.

Cindy talking about a vaccine coming in March...she wouldn't tell us porkies surely ! Banks have a very high beta to Covid recovery. Hmmm

Wouldn't it be "a shame" if on top of your ~ $95m they had to add back some of the over-provisioning for Covid from FY20 that they confirmed is not being used this year and also account for their gain on holding Harmoney as well.....not out of the question we could possibly see a bit north of $100m !

Waltzing Man - Beagles only fish for Kingfish, Barramundi and Marlin ;)

[Waltzing]

some trout rods here from the days of scottish and english immigrants , cane ones too...

Beagles only fish for the big ones!

[Snoopy]

...or Rabobank or Heartland. That prefix could just indicate a processing arrangement - so it does not answer my questions. As previously posted, Rabobank is also prefix 03 so does that also mean that Rabobank accounts are merely relabelled Westpac accounts?


Yes.

Think about it. Rabobank have never had a nationwide network. Heartland have reduced their nationwide network as they follow their 'digital growth strategy'. It makes sense for both to outsource the face to face part of their respective businesses.

If either Heartland or Rabobank wanted to operated their own banking accounts, they could have got their own unique banking code, like Kiwibank did. But they did not do that.

Come to think of it, I am not really sure what the difference is between an account prefix 'indicating a processing arrangement' and actually 'being a Westpac account' means in practice. If Heartland wanted a processing arrangement separate from Westpac, they presumably could have used their own unique code that accessed a parallel off site unique Heartland computer network. The Westpac teller who serves you would then type in something like '0H' not '03' for example. But Heartland didn't arrange it that way.

If Westpac got into trouble and had to suspend their activities for a period then obviously everything else operating on the Westpac platform would also be suspended. Do you really think the Westpac branches would reopen with a sign on the door saying: "Westpac customer go away. We are seeing Heartland customers only"?

The fact is that to deal with a Heartland account in person, you go into a Westpac branch and deal with an 03 account. It comes down the the 'duck theory'. If it looks like a duck and quacks like a duck, what you are looking at is very likely a duck. If you go into a Westpac branch and see a goose, despite all indicators pointing to your account being a duck, what more can I say? Your alternative explanation of having one bank reference number for three completely separate banking systems just doesn't seem very likely.

SNOOPY

[King1212]

Let this kamatua translate master Beagle prediction....$2 target n 8 c dividend...kiora...

[Bjauck]

... If Westpac got into trouble and had to suspend their activities for a period then obviously everything else operating on the Westpac platform will also be suspended. Do you really think the Westpac branches would reopen with a sign on the door saying: "Westpac customer go away. We are seeing Heartland customers only"?... I think there is a big difference between a processing arrangement and offering separate accounts . Rabobank, Heartland and Westpac offer different accounts subject to their own financial standing and credit worthiness assessment.

Meemaw and Meepaw may miss the bricks and mortar access but Mom and Dad bankers probably do most of their banking online. I am not sure why a Westpac Bank regulatory suspension issue would affect the transaction processing side of things which Rabobank and Heartland use.

However if the processing side of things on behalf of Heartland is inextricably linked to Westpac's credit worthiness as a bank, then the fortunes of Heartland and Rabobank would be inextricably linked with Westpac - especially if Heartland could not rapidly outsource transaction processing to another outfit. In that situation, my bubble would indeed be burst and my accounts are mere westpac ducklings! I agree that a technical/ computer outage would affect them all.

[winner69]

Beagle ... RBNZ is Te Putea Matua

Adrian talks about Tane Mahuta the giant kauri quite a lot

[Beagle]

Let this kamatua translate master Beagle prediction....$2 target n 8 c dividend...kiora...

Better switch back to good old English so nothing is lost in the translation ;) eps of 17 cents x mid range PE (for HGH) of 14 suggests $2.38 is not completely implausible in due course.
HGH is actually rated by the credit rating agency as BBB and by me as BBB although my meaning is a little different lol (Beagle busy buying) for those that don't know :)

[King1212]

Hahha.. classic!!

[winner69]

Jeff says - the possibility of structuring the Bank’s Motor business as a separate entity

Marac IPO ....surely not

[nztx]

Jeff says - the possibility of structuring the Bank’s Motor business as a separate entity

Marac IPO ....surely not


Let's have some fun on a dreamed up version of maximising shareholder value -

In-specie distribution to HGH Holders of new stand alone Motor Business finance division with NZX listing
- then merge with MTF ..

Everyone would be smiling all round .. ;)

[sb9]

Held back dividends will be paid out eventually to shareholders in one way or the other, that's key message came out of today's ASM

[beetills]

According to a behind the paywall headline on Interest.co Heartland. are considering making their vehicle finance a stand alone subsidary.
Anybody able to elaborate on this?

[Greekwatchdog]

It was in yesterdays CEO address. No firm decisions have been made

[Greekwatchdog]

Brief Update from For Barr. Valuation increased to $1.45
UNDERPERFORM
Heartland Group Holdings (HGH) provided a brief trading update at its Annual General Meeting (AGM), reiterating its FY21
NPAT guidance of NZ$83m–NZ$85m and estimating NPAT to be tracking around NZ$30m for the first four months of FY21.
We increase our FY21 NPAT forecast to NZ$65m, raising group loan receivables from 6.4% to 9.7% in light of stronger than
expected motor loan receivable growth. Our FY21 NPAT estimate is lower than guidance due to 1) taking a more cautious
view on impairments; in contrast management expects to see no adverse impairment impacts as a result of COVID-19, 2) we
see risk of loan receivable growth softening in 2H21 given the group's 0.8% loan growth in 2H20, and 3) we expect to see
continued net interest margin (NIM) compression across the business, corroborated by comments made by the RBNZ in its
recent monetary policy statement. We do recognise there is upside risk to numbers in a bull case economic scenario.
Considering HGH's risk profile, the level of macroeconomic uncertainty remaining, exposure to unsecured loans through
Harmoney and the ongoing elevated expenditure related to 'digital' we retain our UNDERPERFORM rating.
What's changed?
RBNZ latest monetary policy statement suggestive of further NIM compression for smaller banks
The RBNZ’s Financial Stability Report released 25 November 2020, corroborates our view that a prolonged period of stimulatory
monetary policy is likely in its current form to create a number of headwinds for HGH. This is further underpinned by 1) sustained
ultra-low interest rates which will likely continue to apply pressure to HGH’s NIM (Net Interest Margin) through reduced retail
interest rates, 2) HGH not participating in the RBNZ’s Funding for Lending Program (FLP) — expected to be implemented early
December 2020, and 3) competitors (the big four NZ banks) receiving funding at the OCR, decreasing the average funding cost of the
NZ banking industry and further widening the funding gap between HGH and competitors. In its Financial Stability Report, the RBNZ
stated ‘Banks with high proportions of funding from retail sources, including most of the smaller banks in New Zealand, would see greater NIM
compression as their funding costs would not fall by as much as the interest rates they would be able to earn on their assets’.
NIM reflective of risk profile
The RBNZ dashboard reports HGH's NIM to be 4.5% against peer banks ANZ (1.9%), BNZ (2.0%), ASB (2.1%) and Westpac (1.9%). We
view the implication of a higher risk loan book to translate into higher impairment expenses. However, for HGH this may roll into
FY22 and beyond if HGH's 'Extend' product is used to re-finance non-performing

[winner69]

Forbar forecast puts HGH on a forward PE of 13ish

Seems about right --- even compared to Aussie banks

[LaserEyeKiwi]

Brief Update from For Barr. Valuation increased to $1.45
UNDERPERFORM
Heartland Group Holdings (HGH) provided a brief trading update at its Annual General Meeting (AGM), reiterating its FY21
NPAT guidance of NZ$83m–NZ$85m and estimating NPAT to be tracking around NZ$30m for the first four months of FY21.
We increase our FY21 NPAT forecast to NZ$65m, raising group loan receivables from 6.4% to 9.7% in light of stronger than
expected motor loan receivable growth. Our FY21 NPAT estimate is lower than guidance due to 1) taking a more cautious
view on impairments; in contrast management expects to see no adverse impairment impacts as a result of COVID-19, 2) we
see risk of loan receivable growth softening in 2H21 given the group's 0.8% loan growth in 2H20, and 3) we expect to see
continued net interest margin (NIM) compression across the business, corroborated by comments made by the RBNZ in its
recent monetary policy statement. We do recognise there is upside risk to numbers in a bull case economic scenario.
Considering HGH's risk profile, the level of macroeconomic uncertainty remaining, exposure to unsecured loans through
Harmoney and the ongoing elevated expenditure related to 'digital' we retain our UNDERPERFORM rating.
What's changed?
RBNZ latest monetary policy statement suggestive of further NIM compression for smaller banks
The RBNZ’s Financial Stability Report released 25 November 2020, corroborates our view that a prolonged period of stimulatory
monetary policy is likely in its current form to create a number of headwinds for HGH. This is further underpinned by 1) sustained
ultra-low interest rates which will likely continue to apply pressure to HGH’s NIM (Net Interest Margin) through reduced retail
interest rates, 2) HGH not participating in the RBNZ’s Funding for Lending Program (FLP) — expected to be implemented early
December 2020, and 3) competitors (the big four NZ banks) receiving funding at the OCR, decreasing the average funding cost of the
NZ banking industry and further widening the funding gap between HGH and competitors. In its Financial Stability Report, the RBNZ
stated ‘Banks with high proportions of funding from retail sources, including most of the smaller banks in New Zealand, would see greater NIM
compression as their funding costs would not fall by as much as the interest rates they would be able to earn on their assets’.
NIM reflective of risk profile
The RBNZ dashboard reports HGH's NIM to be 4.5% against peer banks ANZ (1.9%), BNZ (2.0%), ASB (2.1%) and Westpac (1.9%). We
view the implication of a higher risk loan book to translate into higher impairment expenses. However, for HGH this may roll into
FY22 and beyond if HGH's 'Extend' product is used to re-finance non-performing

What are these guys thinking??? Suggesting a FY21 NPAT of $65 million when heartland has already generated $30 million in first 4 months and describes there $83-$85 million NPAT as conservative already. (and that doesn't include positive NPAT impact from harmony IPO)

[Snow Leopard]

Not convinced that in this particular case FuBar know what they are talking about :t_down:

That or they are downramping :p

[Beagle]

What are these guys thinking??? Suggesting a FY21 NPAT of $65 million when heartland has already generated $30 million in first 4 months and describes there $83-$85 million NPAT as conservative already. (and that doesn't include positive NPAT impact from harmony IPO)

I think its well worth highlighting that HGH directors said yesterday they are ostensibly seeing no utilization of the Covid provisioning already provided for in FY20.
Forbar seem to have painted themselves into something of a corner here with their previous glum view and appear to be desperately trying to save face by doing a very slight upgrade to their forecast but at the same time reiterating their view that Covid provisioning is grossly inadequate. This seems incongruous with vaccine developments in recent weeks and the prospects of an economic recovery off the back of widespread vaccinations and reduced covid effect in early - mid 2021. I note for example a business confidence survey out yesterday saying business confidence had improved to the best level since Labour first got elected in 2017. That's an important lead indicator for how business's are feeling.

Who do you believe ? HGH directors working at the coal face of the business or Forbar's analyst who quickly and just to a minor extent tweaked their previously held glum view ?
My money is firmly on HGH directors with this one. I am on the same page as the Snow Leopard...should that worry me :eek2:

[Waltzing]

if your desperate and behind in your car payments you can either move to Aussi with a 2000 dollar incentive or pick kiwi fruit for a 1000 dollar incentive...

that should help anyone defaulting on there loans.

they are paying the locals to bring in the harvest... anyone thinking paintings of the harvest under the court of urbino, Count Montefeltro.

[percy]

My money is firmly on HGH directors with this one. I am on the same page as the Snow Leopard...should that worry me :eek2:[/QUOTE]

To add to your worries I concur with the directors and both of you ....lol.

[sb9]

What are these guys thinking??? Suggesting a FY21 NPAT of $65 million when heartland has already generated $30 million in first 4 months and describes there $83-$85 million NPAT as conservative already. (and that doesn't include positive NPAT impact from harmony IPO)

They're bit myopic with their analysis.

[winner69]

My money is firmly on HGH directors with this one. I am on the same page as the Snow Leopard...should that worry me :eek2:

To add to your worries I concur with the directors and both of you ....lol.[/QUOTE]

I’m more bullish than both of you and what directors are saying (with a smirk on their face if you knew what I knew like)

Proactive provisioning and that bottom drawer trick ...Jeff a master at that

[iceman]

What are these guys thinking??? Suggesting a FY21 NPAT of $65 million when heartland has already generated $30 million in first 4 months and describes there $83-$85 million NPAT as conservative already. (and that doesn't include positive NPAT impact from harmony IPO)

Agree. They are in lala land on this one

[iceman]

if your desperate and behind in your car payments you can either move to Aussi with a 2000 dollar incentive or pick kiwi fruit for a 1000 dollar incentive...

that should help anyone defaulting on there loans.

they are paying the locals to bring in the harvest... anyone thinking paintings of the harvest under the court of urbino, Count Montefeltro.

It was clear in the report yesterday that many of the loans that we were most worried about earlier in the year, cars and small businesses for example, did exactly the opposite of what we feared and have been repaid faster than what was expected. Much of it due to businesses taking advantage of interest free Government loans to pay up interest bearing loans with Heartland. This and the fact that they are limited in the dividends they can pay out, has left Heartland's coffers overflowing with cash.

[RTM]

It was clear in the report yesterday that many of the loans that we were most worried about earlier in the year, cars and small businesses for example, did exactly the opposite of what we feared and have been repaid faster than what was expected. Much of it due to businesses taking advantage of interest free Government loans to pay up interest bearing loans with Heartland. This and the fact that they are limited in the dividends they can pay out, has left Heartland's coffers overflowing with cash.

Recall this also from the Turners report..... "The division’s focus on high quality borrowers has seen record low levels of arrears reflecting the risk-pricing strategy over recent years". Hopefully Heartland are also seeing the same responsibility of borrowers,

[BlackPeter]

Jeez ... when all the gurus agree - isn't this when one should run for the hills?

Anyway - topped up yesterday during the AGM, holding less cash should make it easier to run :):.

[Beagle]

Jeez ... when all the gurus agree - isn't this when one should run for the hills?

Anyway - topped up yesterday during the AGM, holding less cash should make it easier to run :):.

LOL I was thinking exactly the same thing and we all concur with the directors that its great value here so that's got to be a worry but I am leading the pack attack so I better stay focused and buy even more...what could possibly go wrong lol

[RTM]

LOL I was thinking exactly the same thing and we all concur with the directors that its great value here so that's got to be a worry but I am leading the pack attack so I better stay focused and buy even more...what could possibly go wrong lol

What is your maximum portfolio % these days Beagle.
Just out of curiosity.......
RTM

[winner69]

What is your maximum portfolio % these days Beagle.
Just out of curiosity.......
RTM

Could be 10 stocks each at his self imposed max of 15% ;)

[Snoopy]

The results from FY2020 at last being in the public domain has allowed me to fine tune my Scenario model. I am continuing to use FY2019 as my 'base year' from which the changes outlined in the table below are made.



Three Revenue Forecast Scenarios
Pessimistic View Middle View Optimistic View


Reverse Mortgage Adjustment (Post 13708)
2.5% Growth => 6.7% + 2.5% = 9.2% compounding of loans
8% Growth => 6.7% + 8% = 14.7% compounding of loans
8% Growth => 6.7% + 10% = 16.7% compounding of loans



Motor Vehicle Finance Adjustment (New) (Post 13725)
25% reduction in new three year contracts => 8.333% reduction in annual revenue (FY2021) with an additive a 8.333% reduction in annual revenue (FY2022)
25% reduction in new three year contracts => 8.333% reduction in annual revenue (FY2021) with an additive a 8.333% reduction in annual revenue (FY2022)
25% reduction in new three year contracts => 8.333% reduction in annual revenue (FY2021) with an additive a 8.333% reduction in annual revenue (FY2022)


Motor Vehicle Finance Adjustment (Used) (Post 13715)
10% reduction (FY2021) with a further 10% reduction (FY2022)
10% reduction (FY2021) with a further 10% reduction (FY2022)
10% reduction (FY2021) with revenue stabilizing (FY2022)


Business Finance (Part 1) O4B Adjustment (Post 13770)
80% of loans wiped out for two months (FY2021). Reduction in remaining loan balances of 15%, not compounding (FY2021 & FY2022)
80% of loans wiped out for two months (FY2021). Reduction in remaining loan balances of 10%, not compounding (FY2021 & FY2022)
80% of loans wiped out for two months (FY2021). Reduction in remaining loan balances of 10%, not compounding (FY2021 & FY2022)


Business Finance (Part 2) 'Intermediated' and 'Relationship' Adjustment (Post 13771)
Relationship: 16% compounding loss over two years to EOFY2021, then stable
Intermediated: 10% loss from base level (not compounding)
Relationship: 16% compounding loss over two years to EOFY2021, then stable
Intermediated: 10% loss from base level (not compounding)
Relationship: One off 16% loss from base level to EOFY2021
Intermediated: 10% fall over FY2021, before recovering all of that fall in FY2022

]
Rural Finance Adjustment (Post 13747)]

Rural Relationship Loans - minus 8%, Livestock Loans - minus 5%


Rural Relationship Loans - minus 8%, Livestock Loans - minus 5%


Rural Relationship Loans - minus 8%, Livestock Loans - minus 5%



Harmoney and Other Consumer Lending Adjustment (Post 13749)
Collapse of Harmoney over a two year period
Harmoney halved in size from FY2021
Harmoney halved in size from FY2021



SNOOPY



As at the end of October, which is the first four months of FY21, NPAT is tracking at $29.9 million (versus full year guidance of $83 million - $85 million).

Margin and Costs have been maintained, with NIM and Cost Income Ratio both in line with expectations
FY 20 dividend of 7c per share but returning to “normal” in 2021. I expect 10c

Overall balance sheet growth has been flat.

Repayments from non-core area of Relationship Lending, Open for Business (O4B) and Harmoney have offset growth in core areas of Business 4 Intermediated (up 13% per annum); Motor is up 11.5% per annum; Reverse Mortgages are up 4.4% and 11% respectively per annum in New Zealand and Australia (excluding the FX impact).

Lower interest rates and customers utilising the government’s packages appear to have contributed to the level of repayments.
Impairments way down
Economic overlay of $9.6m not been used but kept for 2021
Intermediated (up 13% per annum); Motor is up 11.5% per annum; Reverse Mortgages are up 4.4% and 11% respectively per annum in New Zealand and Australia (excluding the FX impact). Livestock is also down due to seasonality reasons.

Time for a quick 'pit stop' at the four month mark, and a quick check on how my assumptions for FY2021 are tracking.

A trick to remember with Reverse Mortgages is that even with no new customers signed up in a year, the portfolio will still grow by 6.7%. Looked at in this light, the NZ portfolio is actually going backwards. Overall it looks like we are heading down my 'pessimistic scenario' road, which is disappointing.

Motor vehicle loans growing at 11.5%+ is way ahead of even my own optimistic scenario. However I always expected the first half to be much better than the second. That is because most of the Holden business I expect to be concluded in the first half. So I expect the full year result to drift back towards my optimistic scenario.

O4B and Harmoney are declining as I expected.

I was picking 'business intermediated lending' to fall by 10% when in fact it has grown by 13%. One interpretation of that is that third party funders are growing their businesses faster than Heartland who is supplying the capital for them to do their increased lending. The listed entity Zip (ZIP on the ASX) is one of those. The ZIP share price has tripled since Covid-19 lows, and is 50% above pre-covid levels. Meanwhile some of Heartland's other intermediated loan partners are vehicle distributors, which would tie in with motor vehicle loans performing much better than I expected.

The reduction in livestock lending on the books is seasonal, and so not reflective of what will happen in the full year. The reduction of 'Relationship Loans' (largely including rural?) I had budgeted for.

Overall I am a little concerned at how weak the Reverse Mortgage lending is compared to what I had thought. Although it may be true that this four month period has put many pensioners into a 'stunned mullet' trance, with normal reverse mortgage lending to resume shortly. It really is too early to make a good guess on the FY2021 year result. Despite the bolting motor vehicle loan portfolio in the year so far, I still think it could slow. I am happy to be able to have used the 'Covid panic' to get my HLG average entry price down to $1.30. In the process I boosted by HGH portfolio position from 'very underweight' to just 'slightly underweight'. With the share now trading at $1.47 I certainly won't be selling. But neither will I be chasing the price up further. There are still enough market risks around to keep me from further topping up at today's prices.

SNOOPY

[nztx]

To add to your worries I concur with the directors and both of you ....lol.

I’m more bullish than both of you and what directors are saying (with a smirk on their face if you knew what I knew like)

Proactive provisioning and that bottom drawer trick ...Jeff a master at that

I'm with Winner & a good number of you others here ..

Still filling up the truck with this one & plenty more spare space left for more ;)

IMO very very good value in a market where others have already risen, somewhat leaving HGH behind..

The believers may be well rewarded, perhaps in 2021..

[winner69]

Close over $1.50 today?

That's at least back to what it was early March

I see $2.20 coming soon

That'll be when real value investors will sell .... buy low (undervalued) sell high (when over valued)

[King1212]

Sound like me master winner..lol

[nztx]

Close over $1.50 today?

That's at least back to what it was early March

I see $2.20 coming soon

That'll be when real value investors will sell .... buy low (undervalued) sell high (when over valued)

Agree

I look at it this way - where can one 'Buy the Bank' @ 1.50 a shot for a good Div Paying stock that can only
see further increased DPS pay out - when banks are released from Govt imposed straight jackets ?

Compared to others - even non dividend paying companies at current levels suggests reasonable value IMO .. ;)

[Beagle]

What is your maximum portfolio % these days Beagle.
Just out of curiosity.......
RTM

I have adapted my approach and will now buy up to an absolute maximum of 15% for very high conviction positions. If something then heads materially above 15% I rebalance after that on a case by case basis but generally won't allow anything to be more than 20% of my listed net worth.

I prefer to hold positions of 10% or less but if there's a decent size feed involved I am happy to back myself but set limits just in case I am wrong because...well, you don't know what you don't know. FWIW I am 11.5% in HGH at this point. I want more but would prefer to buy any more on a slight dip, (wish me luck with that, I think I might need it lol).

[Cyclical]

Time for a quick 'pit stop' at the four month mark, and a quick check on how my assumptions for FY2021 are tracking.

A trick to remember with Reverse Mortgages is that even with no new customers signed up in a year, the portfolio will still grow by 6.7%. Looked at in this light, the NZ portfolio is actually going backwards. Overall it looks like we are heading down my 'pessimistic scenario' road, which is disappointing.

Motor vehicle loans growing at 11.5%+ is way ahead of even my own optimistic scenario. However I always expected the first half to be much better than the second. That is because most of the Holden business I expect to be concluded in the first half. So I expect the full year result to drift back towards my optimistic scenario.

O4B and Harmoney are declining as I expected.

I was picking 'business intermediated lending' to fall by 10% when in fact it has grown by 13%. One interpretation of that is that third party funders are growing their businesses faster than Heartland who is supplying the capital for them to do their increased lending. The listed entity Zip (ZIP on the ASX) is one of those. The ZIP share price has tripled since Covid-19 lows, and is 50% above pre-covid levels. Meanwhile some of Heartland's other intermediated loan partners are vehicle distributors, which would tie in with motor vehicle loans performing much better than I expected.

The reduction in livestock lending on the books is seasonal, and so not reflective of what will happen in the full year. The reduction of 'Relationship Loans' (largely including rural?) I had budgeted for.

Overall I am a little concerned at how weak the Reverse Mortgage lending is compared to what I had thought. Although it may be true that this four month period has put many pensioners into a 'stunned mullet' trance, with normal reverse mortgage lending to resume shortly. It really is too early to make a good guess on the FY2021 year result. Despite the bolting motor vehicle loan portfolio in the year so far, I still think it could slow. I am happy to be able to have used the 'Covid panic' to get my HLG average entry price down to $1.30. In the process I boosted by HGH portfolio position from 'very underweight' to just 'slightly underweight'. With the share now trading at $1.47 I certainly won't be selling. But neither will I be chasing the price up further. There are still enough market risks around to keep me from further topping up at today's prices.

SNOOPY

Typically excellent post from whom I consider to be the master of the sector.

Snoopy, regarding the reverse mortgage sector not performing to your expectations, could this just be the quiet before the storm, before this low interest rate environment means the oldies burn through their remaining liquid capital (stuff all interest in addition to reduced buying power), but enjoy the gains on their property value? How's the NIM likely to hold up in this part of the business?

[iceman]

I am not concerned about the reverse mortgage business at all. It has been showing great strength in Australia and I have no doubt it will do so again post COVID, in Australia at least. NZ seems much slower on the uptake.
We need to remain mindful of the fact that these numbers are for 4 months only and during a pandemic when large parts of the target market for this product, has been in lockdown or self imposed social isolation.
The RMs are mainly used for "nice to haves" such as housing upgrades, vehicle upgrades or travel, all of which require interactions with people outside of one's bubble. Clearly that has had negative effect on the RM business for obvious reasons, but in my view it is a temporary blip that will quickly return to normal once COVID is dealt with next year.

[Snoopy]

Snoopy, regarding the reverse mortgage sector not performing to your expectations, could this just be the quiet before the storm, before this low interest rate environment means the oldies burn through their remaining liquid capital (stuff all interest in addition to reduced buying power), but enjoy the gains on their property value? How's the NIM likely to hold up in this part of the business?


Cyclical, yes, now that NZ is (touch wood) out of lock down, I would expect the reverse mortgage business to pick up. Both the booming property market and collapse of the traditional pensioners means of income supplementation of 'bank interest' should help. The decrease in the NZ reverse mortgage market business (and I mean decrease on a net contract operational business - the beauty of reverse mortgages is that an existing REL customer not borrowing more capital continues to boost HGH group profits via interest charges) should stop. Increased competition (that means 'some' competition because Heartland have been the only active nationwide player in both Australia and NZ for a while) from SBS in NZ and 'Household Capital' in Australia is not all bad. It can raise the profile of the whole sector and so boost business for everyone.

NIM I expect will reduce, although I am not modelling this directly for now. I have been using relatively conservative NIMs anyway. The NIM for Reverse Mortgages have always been lower than that for motor vehicle loans for instance.

Personally I am more concerned about 'net profit margin' of which 'net interest margin' is but one component. And if you look at the 'profit equation':

NPAT = (Net Profit Margin) x (Revenue)

we can still expect rising profits from a decreasing net profit margin - provided revenue is increasing to compensate. And once an REL customer is all signed up there is very little work from HGH staff required to keep those REL profits rolling in.

I am not saying the super bullish predictions from Beagle, Winner et all are wrong. I am saying there are alternative more muted alternative futures ahead. And if those scenarios wash through then at $1.45, HGH is looking fully priced, for now.

SNOOPY

[Scrunch]

Not convinced that in this particular case FuBar know what they are talking about :t_down:

That or they are downramping :p

I suspect they may have copied code developed from their analysis of the big banks and forgot that the vast majority of hgh's margin is made on the lending side. Squeezing the deposit margin with super low rates isn't going to stuff up hgh's nim the same way it impacts banks. If you took the model building shortcut noted above you would expect a substantially worse result and be referencing the rbnz work on a available deposit margins, exactly as fubar are.

[Beagle]

Pretty clear Forbar have made a big phopar. I managed to get a few more at $1.49 on the open this morning and am very pleased I did.

Alas...I am going to have to take a more "dogged" approach to get up to a 15% portfolio allocation.

[nztx]

Grabbed some more here today -- getting close to the 15% notional, but *just may* choose to ignore that yardstick .. ;)

HLG is already well above that % too (but hey at +47% + ignoring Div's - why not)

[winner69]

Pretty clear Forbar have made a big phopar. I managed to get a few more at $1.49 on the open this morning and am very pleased I did.

Don’t you like the French this week?

[Beagle]

Don’t you like the French this week?

LOL https://www.goodreturns.co.nz/article/976517908/nz-shares-flat-as-strong-kiwi-saps-rally.html?utm_source=GR&utm_medium=email&utm_campaign=GoodReturns+Market+Report+for+2+Dec+2 020
Contains observations regarding Heartland.

[winner69]

LOL https://www.goodreturns.co.nz/article/976517908/nz-shares-flat-as-strong-kiwi-saps-rally.html?utm_source=GR&utm_medium=email&utm_campaign=GoodReturns+Market+Report+for+2+Dec+2 020
Contains observations regarding Heartland.

Demerging Marac would be cool move ..that wouldn’t be a faux pas.

[Beagle]

Demerging Marac would be cool move ..that wouldn’t be a faux pas.

You got me...I'm no good at Te Reo either...ask me if I am worried about it :p

[Habits]

You got me...I'm no good at Te Reo either...ask me if I am worried about it :p

I won't ask you about that Beagle :D ... yes dived into HGH yesterday sensing it will only get more expensive, not that it is expensive the share price could be a lot higher probably.... I don't really know, am first time shd for this stock

[SCOTTY]

I won't ask you about that Beagle :D ... yes dived into HGH yesterday sensing it will only get more expensive, not that it is expensive the share price could be a lot higher probably.... I don't really know, am first time shd for this stock

Welcome aboard - enjoy the ride :)

[Habits]

Thanks Scotty
Bit of luck.... SP up 6 cents today :t_up:

[iceman]

Demerging Marac would be cool move ..that wouldn’t be a faux pas.

winner what would you see as the main benefit of splitting Marac out of HGH and set it up as a standalone business ?

[mondograss]

Well one good thing about the terrible Jarden portal is that they gave me a free trade for signing up, so I used that to buy more HGH this morning, saved myself $200 which is not to be sniffed at. That's probably me fully in to HGH for the present time, now to just let it run.

[winner69]

winner what would you see as the main benefit of splitting Marac out of HGH and set it up as a standalone business ?

They seem to think that the Motor business as a separate entity may assist in highlighting any intrinsic value which may not be reflected in current bank-based benchmarking.

Fair enough

Demerger is one way. Demergers were popular in Australia a few years ago and there’s been the odd one on the NZX

One I was involved in was Orica. They had explosives and chemical businesses as well as a paint company in Dulux. They reckoned Dulux was the cause of the Orica share price not being what ‘it should be’

Dulux was demerged ....every Orica shareholder got shares in DLX at $2.50 ....DLX share price kept rising and was eventually taken over close to $10

The Orica share price is less than what it was but that’s another story.

[winner69]

Wow ...hit $1.60

[Ltw]

Its got a head of steam under it.
I had a massive "fail" this morning an old Sell order at $1.55 sold on opening this morning and I'm sure I changed it yesterday to a higher value very disappointed to say the least.
Brought back in this arvo and hoping it continues on this bullish run

[nztx]

The SP graphs certainly suggest that the market is rerating HGH - & probably catching up
on overall market rise in recent months, which HGH seems to mostly have missed out on ..

The premium in the SP which HGH deserves above overall market rise could be interesting to see

[Ltw]

Out of interest is anyone keep to put there predictions up on where they think the stock will be come Christmas?
$1.85 or am I being optimistic :t_up:

[Beagle]

Financials do have a very high Covid beta as they are very sensitive to the economic effects of Covid on their customers and the opposite, to the recovery prospects that vaccines give hope for so its is very surprising to note that while many US, European and Australian financials have rebounded strongly on the hopes of the Pfizer vaccine and yesterday's Modera vaccine with an even higher efficacy at 94.5% HGH has been stuck pretty much in the doldrums.

For many years now I have compared the forward metrics to HGH's peers in Australia and found a very close correlation. Its not often that HGH's forward PE is more or less than 2 different to the average of its peers so imagine my surprise when I noted yesterday that based on HGH's official forecast at the midpoint of $84m = 14.4 cps HGH are currently on a forward FY21 PE of just 9.4 !
This compares with peers as follows, (all figures are average analyst forecasts off market screener)
ANZ 13.3
WBC 13.4
NAB 15.8
BEN 14.3
BOQ 14.4
CBA 18.2
Peer Group Average 14.9

Leaving aside the outlier of this group CBA which for reasons unknown is also trading at about twice NTA this still gives an average forward PE for the Australian banks of 14.25.
In my experience HGH's normal trading range on a forward PE basis is 11 - 17.5 with the mid point also being 14.25.

I have never seen HGH trade at a discount of this size to its peer group, nothing remotely like it so this presents as a real overlooked recovery story.

I think as 2021 unfolds and the recovery story and vaccinations get rolled out HGH has excellent prospects to recover towards the mid point of its historical PE range which is where the Australian banks already are.

14.25 x officially forecast of 14.4 cps = Target Price of $2.05. I think HGH has excellent prospects to make a strong recovery in 2021. I already have a sizeable position and added some more this morning.

I note the RBNZ dividend restrictions still apply so I am only expecting 5 cps (6.94 cps gross) in fully imputed dividends in the year ahead which gives a gross yield of 6.94 / 137 = 5.1% but I am expecting that to approximately double for FY22 and beyond and on a look through Covid recovery basis HGH could give a 10% Gross Yield in FY22

I'm not going to try and predict the price at Christmas 2020, that's way too short a timeframe but I stand by this post of 18/11/20 when the shares were in the mid $1,30's. I think $2 is quite plausible sometime next year. Very happy with the recent share price action buts its early days and I think this has quite some distance further to go but as the ol mainland cheese advertisement jingle goes "good things take time" I've been comparing this peer group relativity for many years and have a very high confidence level because of what I know I have seen regarding the correlation in their forward metrics.

[Baa_Baa]

Wow ...hit $1.60

Here's why ...

12126

Kia kaha, Kia mia, Kia manawanui

[Beagle]

I'd love to know. Do they pay these interns anything ? One online dictionary definition follows :-
internship
[ˈɪntəːnʃɪp]
NOUN
the position of a student or trainee who works in an organization, sometimes without pay, in order to gain work experience or satisfy requirements for a qualification.
"they encouraged students to apply for newspaper internships"
NORTH AMERICAN
the position of a medical intern in a hospital.
"he served his medical internship at Southern Pacific Hospital"

What do you think Winner. Marvelous cultural ESG or just a way to hire free or very cheap labour ?

[Baa_Baa]

Marvelous cultural ESG or just a way to hire free or very cheap labour ?

Follow Heartland on LinkedIn https://www.linkedin.com/company/heartland-bank-nz/ , you can keep up with their fantastic work in Manawa Ako, Diversity, Rainbow and Maori Language. Very progressive they are.

[winner69]

I'd love to know. Do they pay these interns anything ? One online dictionary definition follows :-
internship
[ˈɪntəːnʃɪp]
NOUN
the position of a student or trainee who works in an organization, sometimes without pay, in order to gain work experience or satisfy requirements for a qualification.
"they encouraged students to apply for newspaper internships"
NORTH AMERICAN
the position of a medical intern in a hospital.
"he served his medical internship at Southern Pacific Hospital"

What do you think Winner. Marvelous cultural ESG or just a way to hire free or very cheap labour ?

I’m pretty certain they’d be paid .....in Heartlands case at least the living wage I’d say

Not slave labour or anything

Good on them for doing this ....other banks do it but probably not the focus on Maori kids

[iceman]

They seem to think that the Motor business as a separate entity may assist in highlighting any intrinsic value which may not be reflected in current bank-based benchmarking.

Fair enough

Demerger is one way. Demergers were popular in Australia a few years ago and there’s been the odd one on the NZX

One I was involved in was Orica. They had explosives and chemical businesses as well as a paint company in Dulux. They reckoned Dulux was the cause of the Orica share price not being what ‘it should be’

Dulux was demerged ....every Orica shareholder got shares in DLX at $2.50 ....DLX share price kept rising and was eventually taken over close to $10

The Orica share price is less than what it was but that’s another story.

Thanks winner. I'm not convinced it'd be a good idea for HGH at this point

[nevchev]

These are been tightly held on the asx.There are none for sale and wasnt a single share traded yesterday.Smart money certainly holding firm

[winner69]

These are been tightly held on the asx.There are none for sale and wasnt a single share traded yesterday.Smart money certainly holding firm

You could draw that conclusion but ....


HGH might be listed on ASX but essentially doesn't trade on it -- a handful of trades (literally) over the last year

[peat]

These are been tightly held on the asx.There are none for sale and wasnt a single share traded yesterday.Smart money certainly holding firm

Or NOT HELD as the case may be....


You could draw that conclusion but ....



conclusions can be a bit like opinions huh?

[Beagle]

Thanks winner. I'm not convinced it'd be a good idea for HGH at this point

I'm struggling a bit with the attempted financial re-engineering as well. Perhaps they should simply focus on fine tuning the business to give the very best earnings per share and growth in same and in the due course of time the share price will look after itself, like its started too in the last couple of weeks.

[winner69]

They obviously believe that Motor should be valued at higher multiples than a bank

Sum of the parts more than the whole seems to be in their thinking

[Beagle]

They obviously believe that Motor should be valued at higher multiples than a bank

Sum of the parts more than the whole seems to be in their thinking

They could be right...just look at the forward metrics Hamoney was floated on ! Works wonders dressing up new floats with a fintech label. People just lap up that sort of "lipstick" marketing.
Maybe they could float Heartland vehicle finance off at a PE of 20 !

[winner69]

They could be right...just look at the forward metrics Hamoney was floated on ! Works wonders dressing up new floats with a fintech label. People just lap up that sort of "lipstick" marketing.
Maybe they could float Heartland vehicle finance off at a PE of 20 !

Whatever ‘vehicle’ they use reflects that reflects a PE of 20 plus for Motor will be good

A demerger at least means you would own it ...until you sell,

[winner69]

They could be right...just look at the forward metrics Hamoney was floated on ! Works wonders dressing up new floats with a fintech label. People just lap up that sort of "lipstick" marketing.
Maybe they could float Heartland vehicle finance off at a PE of 20 !

From memory Harmoney was touted as being valued at 3.5 times income

Heartland on same multiple would be $1.70 to $2.00 on how you treat cash

[iceman]

They could be right...just look at the forward metrics Hamoney was floated on ! Works wonders dressing up new floats with a fintech label. People just lap up that sort of "lipstick" marketing.
Maybe they could float Heartland vehicle finance off at a PE of 20 !

But if the Marac business is that profitable (which I believe it is) and undervalued, why not just keep it and pay out the big dividends for years to come. That is my preference.

[Beagle]

But if the Marac business is that profitable (which I believe it is) and undervalued, why not just keep it and pay out the big dividends for years to come. That is my preference.

Agreed.
Actually, ever since they put a Beagle on their homepage the share price has been going great https://www.heartland.co.nz/
Imagine if they put a younger more attractive one on there or better still a whole litter of Beagle puppies instead ;)
Think Dog's don't make a difference for business ? Think again ! https://www.scoop.co.nz/stories/CU0008/S00053.htm

[nztx]

Best to wait until the dust settles with HMY - the downwards spiral from NZ 3.75 IPO price has already seen SP shrink to NZ 3.17 at close today ;)

[Peter Stewart]

I am not concerned about the reverse mortgage business at all. It has been showing great strength in Australia and I have no doubt it will do so again post COVID, in Australia at least. NZ seems much slower on the uptake.
We need to remain mindful of the fact that these numbers are for 4 months only and during a pandemic when large parts of the target market for this product, has been in lockdown or self imposed social isolation.
The RMs are mainly used for "nice to haves" such as housing upgrades, vehicle upgrades or travel, all of which require interactions with people outside of one's bubble. Clearly that has had negative effect on the RM business for obvious reasons, but in my view it is a temporary blip that will quickly return to normal once COVID is dealt with next year.

Not sure about Iceman's assessment of RMs in OZ - there are 3 new lenders in past 12 months, all with better pricing and access to third party distribution. Would need a revamp of Australian operations to get into the game

[LaserEyeKiwi]

Best to wait until the dust settles with HMY - the downwards spiral from NZ 3.75 IPO price has already seen SP shrink to NZ 3.17 at close today ;)

At $3.17, Heartlands Harmoney stake is valued at $27 million. It's never going to be more than a tiny part of Heartland's valuation, but the initial revaluation could be a meaningful one time impact for next earnings report - depending of course on where the Harmoney share price settles at (like you point out).

[Sideshow Bob]

From the Business Desk Daily free email today:

Forsyth Barr analysts doubt Heartland's profit guidance (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=71aeb107d8&e=3b6f9185d3)Forsyth Barr analysts are dubious about Heartland Group Holdings' ability to meet its full-year guidance, even though the company told the annual shareholders' meeting it is tracking (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=0e7948192a&e=3b6f9185d3) ahead of expectations.
Heartland told the meeting net profit for the four months ended October was $29.9 million. If one assumed that represented an average monthly performance, the implied full-12 months result would be $89.7 million.
Read the full story at BusinessDesk — subscribe now (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=4359570b68&e=3b6f9185d3)

[King1212]

Forsyth crook...lol. that means the analyst saying the management is lying? Or misleading?

[winner69]

Forsyth crook...lol. that means the analyst saying the management is lying? Or misleading?

Always better to believe what you read on sharetrading forums

[Beau]

Where would Forsyth be getting informative information from to come up with their analysis is that behind paywall?

[Beagle]

Its a simple choice.
Who are you going to believe ?
1. The company directors and management working at the coalface who released year to date financial performance that's tracking ahead of earlier guidance
2. An analyst at Forbar who has had a dim view on HGH for quite some time and does not appear to have updated that view for a range of emerging factors including but not necessarily limited to:-
a) Recent Covid Vaccine news and the possibility of widespread vaccinations in 2021
b) Success in by and large keeping Covid 19 out of the community
c) Improving business confidence
d) Lower than expected defaults
e) HGH stating they have not had to dip into their previously provisioned Covid overlay reserve.

[thegreatestben]

I'm with ST team :)

[mike2020]

Personally I wanted to move some of my OCA to HGH after Jan results so go team FB!

[sb9]

From the Business Desk Daily free email today:

Forsyth Barr analysts doubt Heartland's profit guidance (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=71aeb107d8&e=3b6f9185d3)

Forsyth Barr analysts are dubious about Heartland Group Holdings' ability to meet its full-year guidance, even though the company told the annual shareholders' meeting it is tracking (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=0e7948192a&e=3b6f9185d3) ahead of expectations.
Heartland told the meeting net profit for the four months ended October was $29.9 million. If one assumed that represented an average monthly performance, the implied full-12 months result would be $89.7 million.
Read the full story at BusinessDesk — subscribe now (https://businessdesk.us20.list-manage.com/track/click?u=786ac0b2dc4f2240875208882&id=4359570b68&e=3b6f9185d3)


Ahh..the guru analysts and their hidden agendas, next....

[winner69]

Suppose the analysts at Forbar get paid a fair bit ....$150k to $200k?

Quite a responsible and tasking job

That Chelsea seems highly regarded ..

[winner69]

Strong end to week with a $1.60 close .... highest close since share price collapsed when covid struck

Getting closer by the week to beagles target of $2.05

Close over $1.50 today?

That's at least back to what it was early March

I reckon the market will get a bit irrational and exuberant after Christmas and we will see $2.30 which would make it really overvalued

That'll be when real value investors will sell .... buy low (undervalued) sell high (when over valued) .....and then come back for more when sensibility returns and share price back to 180 or something.

Enjoy the next few months anyway ....unless Forbar are right and then we are for a big disappointment

[King1212]

Happy with the current sp...

HGH is my biggest income stock together with KPG.

Happy to get 8 to 9 c a year dividend per share n continue to increase.

Need a good income at current time..

[Joshuatree]

Yes ,me too. it's good to be back @$1.42 in an old fave.Thought I'd missed my limit price ,but the contract note was late,so nicely surprised to see i'dcaught the rise.

[winner69]

Jeff says F21 NPAT is going to be about $85m.

He seems to be a bit vague about how he gets there. All we know is that it doesn't include whatever the increased value of Harmoney is.

F20 NPAT was reported as $72.0m but included that $6.9m covid overlay so I think in Jeff's mind real NPAT was $78.9m

So the $85m F21 guidance is 7.7% up on the $78.9m - seems a pretty realistic growth as F20 growth was 7.2%

Growth from $72.0m to $85m is an outrageous 19.4% - Jeff would never be that bullish in a mllion years.

So it seems that they think the covid overlay is not needed in F21 (not used to date they said the other day). Does this imply that the forecast $85m is F20 NPAT $72.0m plus wrteback of covid overlay of $6.9 plus continued normal growth of $6.1m. (I don't think you can assume guidance of $85m and add on $6.9m covid overlay to come up with a 'likely' guidance of $91.9m)

That's how I see F21 - another year of steady 7%/8% growth - but I may be wrong reading between the lines of what Jeff is saying (he is pretty vague)

[Scrunch]

Jeff says F21 NPAT is going to be about $85m.

He seems to be a bit vague about how he gets there. All we know is that it doesn't include whatever the increased value of Harmoney is.

F20 NPAT was reported as $72.0m but included that $6.9m covid overlay so I think in Jeff's mind real NPAT was $78.9m

So the $85m F21 guidance is 7.7% up on the $78.9m - seems a pretty realistic growth as F20 growth was 7.2%

Growth from $72.0m to $85m is an outrageous 19.4% - Jeff would never be that bullish in a mllion years.

So it seems that they think the covid overlay is not needed in F21 (not used to date they said the other day). Does this imply that the forecast $85m is F20 NPAT $72.0m plus wrteback of covid overlay of $6.9 plus continued normal growth of $6.1m. (I don't think you can assume guidance of $85m and add on $6.9m covid overlay to come up with a 'likely' guidance of $91.9m)

That's how I see F21 - another year of steady 7%/8% growth.

However the reported result could be north of $100m once the one-off benefits of a useful revaluation of Harmoney and some covid-19 overlay reductions are added back.

[winner69]

Must be something wrong in my Heartland spreadsheet --- must look for the bug

It says that if F21 NPAT is only $$84m (mid point of guidance) it will the 8th successive year of slowing growth (ie growth lower than prior year)

Can't be right

[Beagle]

Strong end to week with a $1.60 close .... highest close since share price collapsed when covid struck

Getting closer by the week to beagles target of $2.05



I reckon the market will get a bit irrational and exuberant after Christmas and we will see $2.30 which would make it really overvalued. Is it really overvalued there ?, see below...I know you think they trade based on relativity to NTA but I will stick with earnings because I will always believe that's what really matters. Assets are only worth what they earn and NTA is useless as a relativity measure if you're not getting an adequate ROI

That'll be when real value investors will sell .... buy low (undervalued) sell high (when over valued) .....and then come back for more when sensibility returns and share price back to 180 or something.

Enjoy the next few months anyway ....unless Forbar are right and then we are for a big disappointment


Financials do have a very high Covid beta as they are very sensitive to the economic effects of Covid on their customers and the opposite, to the recovery prospects that vaccines give hope for so its is very surprising to note that while many US, European and Australian financials have rebounded strongly on the hopes of the Pfizer vaccine and yesterday's Modera vaccine with an even higher efficacy at 94.5% HGH has been stuck pretty much in the doldrums.

For many years now I have compared the forward metrics to HGH's peers in Australia and found a very close correlation. Its not often that HGH's forward PE is more or less than 2 different to the average of its peers so imagine my surprise when I noted yesterday that based on HGH's official forecast at the midpoint of $84m = 14.4 cps HGH are currently on a forward FY21 PE of just 9.4 !
This compares with peers as follows, (all figures are average analyst forecasts off market screener)
ANZ 13.3 14.2
WBC 13.4 14.1
NAB 15.8 16.4
BEN 14.3 16.7
BOQ 14.4 15.0
CBA 18.2 18.5
Peer Group Average 14.9 15.8

Leaving aside the outlier of this group CBA which for reasons unknown is also trading at about twice NTA this still gives an average forward PE for the Australian banks of 14.25.
In my experience HGH's normal trading range on a forward PE basis is 11 - 17.5 with the mid point also being 14.25.

I have never seen HGH trade at a discount of this size to its peer group, nothing remotely like it so this presents as a real overlooked recovery story.

I think as 2021 unfolds and the recovery story and vaccinations get rolled out HGH has excellent prospects to recover towards the mid point of its historical PE range which is where the Australian banks already are.

14.25 x officially forecast of 14.4 cps = Target Price of $2.05. I think HGH has excellent prospects to make a strong recovery in 2021. I already have a sizeable position and added some more this morning.

I note the RBNZ dividend restrictions still apply so I am only expecting 5 cps (6.94 cps gross) in fully imputed dividends in the year ahead which gives a gross yield of 6.94 / 137 = 5.1% but I am expecting that to approximately double for FY22 and beyond and on a look through Covid recovery basis HGH could give a 10% Gross Yield in FY22

Updated with yesterday's closing metrics and as you'd expect with a few weeks since the previous post on 18 November with ongoing positive news of covid vaccines the Australian Peer group I follow have now moved up into a multiple that I would describe as a Covid recovery level and shareholders are obviously expecting good ongoing growth as we head towards higher earnings in FY22 and beyond. Interestingly the PE multiple of all this group have expanded with the average expansion moving up from 14.9 to 15.8, (0.9 increase)

Against this backdrop over the same timeframe HGH's multiple has expanded from the ridiculously low 9.4 to a still very low 11.1, an expansion of 1.7 multiple, (up 25 cents, ~ 18.5%) so my position that HGH was VERY cheap on a relative basis to its peers has been somewhat validated to date, (but its very early days). I expect HGH to continue to significantly outperform its peer group in the near term.

Looking ahead I see no reason why in the foreseeable future HGH won't move up into a covid recovery based earnings multiple at a similar level therefore I see scope for considerable ongoing outperformance. My high end scenario for this time next year is HGH trading on a forward multiple of 15.8 times estimated FY22 earnings of $100m = 16.3 cps = $2.58
We probably won't get that high but I think HGH has very strong potential to considerably outperform the NZX50 over 2021.
I expect normalized earnings this year of about $93m. On top of that could be one off's of some covid provisioning recovery from FY20 and the possible recognition of some unrealized profit on the harmoney stake.

[winner69]

You guys have forgotten Percy’s great observation / piece of advice. It needs to be repeated.

Heartland always do what they say they will do (I’m sure it was Heartland he was meaning when he came up with wisdom.)

When announcing F19 result Jeff said F20 would be $77m-$80m ....delivered $78.9m

Previous years you will find they delivered pretty close to what they said they would do

F21 npat will be between $83m and $85m ...Jeff will deliver on what he/they say they will be do.

Talk of big numbers above that that are being thrown about is just wishful thinking.
And pie in the sky stuff.

Remember the wisdom of the wise Percy

[winner69]

FACT CHECK: Heartland always do what they say they will do

As the table below shows over the years NPAT guidance has been spot on, and generally stays unchanged through the year. Impressive.

Only one 'downgrade' and we'll forgive them for that (restructuring costs etc) and once they delivered slightly more than what they said they would do.

Jeff has his finger on the pulse of the business.

Note: F20 NPAT excludes the $6.9m covid overlay (ie their normalised NPAT). I get the impression that in Jeff's mind it isn't real but only something he was made to do.

[Beagle]

Fair comment Winner and thanks for your work on that looking back at recent years. At mid point of guidance $84m and if one assumes 7% growth for FY22 that's a forecast of $90m for FY22, (I'll leave others to judge for themselves whether that's reasonable or not but remember they just declared a net profit of $29.9m for the last 4 months so that annualized is already $90m) and eps for FY22 of 14.67 cps. Put a covid recovery forward PE of 15.8, (average of what the peer group I follow is already on) suggests a fair target price for Christmas 2021 of $2.32.

Maybe Santa will come for HGH shareholders in 2021 ? (Its been a tough 2020 with the shares still well down on the $1.85 they started the year at)

[King1212]

Loved it when the price went down 90c....wished that I sold all my belongings...house n undies...n bought HGH

[nztx]

Loved it when the price went down 90c....wished that I sold all my belongings...house n undies...n bought HGH

Likewise .. & loaded up with even more HGH & HLG ;)

[RTM]

Loved it when the price went down 90c....wished that I sold all my belongings...house n undies...n bought HGH

Yep....20 20 hindsight. Can't beat it.

[winner69]

Beagle posted - ...I know you (winner) think they trade based on relativity to NTA but I will stick with earnings because I will always believe that's what really matters. Assets are only worth what they earn and NTA is useless as a relativity measure if you're not getting an adequate ROI

Insofar as Heartland goes that last bit is relevant. Jeff’s presentations show Heartland lags your peer group on ROE and norwest pointed out Heartlands capital ratios weren’t as strong as Aussie banks
https://www.sharetrader.co.nz/showth...l=1#post845234

I tend to agree with norwest when he says the one thing that would certainly re-rate HGH's Shareprice higher is improving these capital ratios.

While I am here I’ll mention that PE and Price/Book ratios are inextricably linked and both reflect what assets (capital) are expected to earn in the future. Doing some algebra around both formulas and even throwing in payout ratios is an interesting exercise.

How many think of HGH share price on of $1.60 at a PE of 11.8 is actually calculated as - $1.20 (Equity per share / Book Value) X 11.3% (ROE) X 11.8 (PE) = $1.60

Putting ROE in there reminds how important it is ... companies returning excessive returns on capital often are rewarded with higher shareprices than ‘lesser performing’ companies

[Beagle]

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HGH/364920/337285.pdf

Huge growth in home equity loans for older folks coming in the years ahead. I am happy with ~ $2.30 as my price target, if not late 2021, then sometime in 2022 and there should be pretty decent yield in the meantime. Happy holder after backing up the truck at $1.35 last month.

[winner69]

Beagle - did you see that bit on the news about the ageing Maori population and housing needs in future

Heartland could get their teams together and brainstorm ideas to come up with some unique way that Heartland can play a role in this.

[Beagle]

Beagle - FDIC’s you see that bit on the news about the ageing Maori population and housing needs in future

Heartland could get their teams together and brainstorm ideas to come up with some unique way that Heartland can play a role in this.

Yeap, good for those young interns to think about how they can help their elders. We need to foster a more caring society where old people are not left on the scrap heap of society, alone and really lonely.

[JohnnyTheHorse]

Strong breakout from the previous daily high - continuation of uptrend. Onwards and upwards.

[winner69]

Strong breakout from the previous daily high - continuation of uptrend. Onwards and upwards.

Looking good eh

Be in the 180s next week

And beagle will see his 220 at half year .....or before if a few brokers put it their Top 5 for 2021 the Herald runs ....mum and dads always pile into these top picks

No worries

[winner69]

Jeez ...might get into 180’s THIS WEEK at this rate

[Habits]

Beagle - did you see that bit on the news about the ageing Maori population and housing needs in future

Heartland could get their teams together and brainstorm ideas to come up with some unique way that Heartland can play a role in this.

Seriously HGH should work to develop partnerships with progressive and supportive iwi tribes that have good land-holdings they can use to develop affordable housing for their tribe members in particular. Tainui alone have 67000 members a big percentage live in rentals, private/state housing, not all live in the waikato, at the same time the tribe owns massive amounts of land. We all know that homeownership helps break the poverty cycle and creates stronger families. A lot do not have enough deposit for a home to satisfy LVR but that maybe where the iwi comes in. Obviously there has to be the structure that allows for freehold ownership but that shouldn't be too much problem. This sort of partnership could probably be a huge boost for HGH and a win win for all parties.

[Beagle]

Looking good eh

Be in the 180s next week

And beagle will see his 220 at half year .....or before if a few brokers put it their Top 5 for 2021 the Herald runs ....mum and dads always pile into these top picks

No worries
Yeah they do...but I feel HGH has momentum all of its own as a real value stock, still trading well below where it started the year. (Rated an average of Hold by 4 analysts).
Might be interesting how many brokers pick OCA and the effect on its share price. 3 BUY's and 1 Accumulate gives an interesting clue into possible Herald broker selections forthcoming soon. https://www.marketscreener.com/quote/stock/OCEANIA-HEALTHCARE-LIMITE-103506268/consensus/


Seriously HGH should work to develop partnerships with progressive and supportive iwi tribes that have good land-holdings they can use to develop affordable housing for their tribe members in particular. Tainui alone have 67000 members a big percentage live in rentals, private/state housing, not all live in the waikato, at the same time the tribe owns massive amounts of land. We all know that homeownership helps break the poverty cycle and creates stronger families. A lot do not have enough deposit for a home to satisfy LVR but that maybe where the iwi comes in. Obviously there has to be the structure that allows for freehold ownership but that shouldn't be too much problem. This sort of partnership could probably be a huge boost for HGH and a win win for all parties.

Well said.

[sb9]

Hit $1.70, wonder how that Forbar Analyst feeling now :eek2:

[winner69]

HGH down 9% since Jan31st

ANZ, NAB and BEN still down about the same

REst of beagles peer group outliers - BOQ up 2%, CBA down 2% and WBC seem to be down 20%

So HGH keeping in step with their 'peers' .....but weren't they meant to be getting ahead, like catching up

Anyway Heartland in the 180's by end of week and over 2 bucks early January

Do you like my new signature? Cool eh

[winner69]

Hit $1.70, wonder how that Forbar Analyst feeling now :eek2:

The 145 was a target - presumably a year out ......still might be correct;)

[Snoopy]

How many think of HGH share price on of $1.60 at a PE of 11.8 is actually calculated as - $1.20 (Equity per share / Book Value) X 11.3% (ROE) X 11.8 (PE) = $1.60

Putting ROE in there reminds how important it is ... companies returning excessive returns on capital often are rewarded with higher share prices than ‘lesser performing’ companies


This is a very interesting way of thinking of how HGH should be priced Winner. I keep going back to Jeff's slide 15 from AGM2019, where he highlighted the ROE available from each category of loan. Of those classed as 'superior' returns ( ROE >15%) , motor loans are going gangbusters (although I expect the death of Holden to be a heavy handbrake on those going forwards). O4B loans are not doing well (pretty hard to compete with 0% loans from the government). And Harmoney is certainly under pressure. Of these three categories Motor Loans are by far the largest. But I would expect motor loan growth to slow sharply in the second half, making it hard to build on the momentum of the first six months. I don't expect O4B or Harmoney to recover over the remainder of the year.

Moving onto the 'in line returns' ( 11%<ROE<15% ) this is where the reverse mortgages sit. With margins set to reduce, from both sliding interest rates and competition, I wouldn't be surprised if Heartland's overall ROE of 11.8% is sitting near the benchmark for this part of the business as well. REL loans in Australia is the biggest loan category here. So I can't see how ROE will improve for HGH going forwards. An ROE for HGH of 11.8% could yet be the cyclical high point. Of course, HGH can generate more profits by writing more business. But REL returns over the last reported six months (admittedly including the Covid-19 shock) are below where I was modelling them. The market might anticipate more business going forwards by according HGH a higher PE ratio. But that also means more loan capital must be acquired to be loaned out. And that -presumably- means more retained earnings for the company and consequently lower dividends. I say 'presumably' because I do not fully understand who regulates the capital requirements of HGH Australia. HGH in Australia seem to have pulled off the 'deal of the decade' by borrowing lots of European money at a low interest rate and instantly redeploying that money at a much higher charge out return. What is the equity required inside HGH to back this arrangement up?

So to summarize, if the share price goes up, but ROE stays more or less the same, this implies all the 'growth' must come from the growth in the number of new loans being written. I haven't seen any evidence that such a large increase in loan writing, to warrant the HGH share price going from $1.30 to $1.70 (a 30% rise in business in a year, or is Mr Market pricing in FY2022 growth as well?) has in fact occurred or is likely to occur. This would suggest to me that at $1.70, the HGH share price has now got a little ahead of itself.

As further evidence of this look at he recovery of the share price of that other listed motor finance company TRA which is up 70% from April/May. Heartland is up 54% over the same period but with a far lesser proportion of their loans being the top performing motor vehicle loan category. To my mind it doesn't add up.

SNOOPY

discl: Holding Heartland at an average $1.30 acquisition price, mostly accumulated this year.

[King1212]

Damm u snoopy! Sp lost 7c since your post...cannt u just enjoy the party??? Lol

[Beau]

He does seem to want to keep share price back .

[nztx]

The 145 was a target - presumably a year out ......still might be correct;)

I'd be interested in what sort of darts & dartboard they are using to come up with weird & wonderful future gazing results
on the same info any man & his dog out there get to do their own analysis on .. ;)

The neighbour's cat seems to be more on the money than some of the advisor 'experts' .. ;)

[Beagle]

Snoopy me ol Beagle mate...I am sorry but you get the wooden spoon award of the day for party pooping.
You need lessons on when and where to poop... https://www.youtube.com/watch?v=5Y-OG9fR1mk

[peat]

Hahahahah
first lesson dont sh*t in your own kennel.

[Snow Leopard]

looks like today was one of those peak things that has some weird name like 'exhausted pooping Beagle' and I am sure it will be all downhill from tomorrow.

Still it was nice while it lasted :t_up:

[peat]

looks like today was one of those peak things that has some weird name like 'exhausted pooping Beagle' and I am sure it will be all downhill from tomorrow.



where have we seen this before ?

12144

[winner69]

where have we seen this before ?

12144


As Sgt Schultz said ‘I see nothing’ ......but that chart is really spooky eh peat

Hope it’s not setting up a blow off top

[JohnnyTheHorse]

As Sgt Schultz said ‘I see nothing’ ......but that chart is really spooky eh peat

Hope it’s not setting up a blow off top

I don't think there was anywhere enough volume for that.

[Beagle]

looks like today was one of those peak things that has some weird name like 'exhausted pooping Beagle' and I am sure it will be all downhill from tomorrow.

Still it was nice while it lasted :t_up:

If you're a pussy then sell and be gone :p It won't surprise you that I am taking a "dogged" approach to holding.

[King1212]

Why sell...can not find good value company any more at NZX...HGH is a keeper

[Baa_Baa]

Why sell...can not find good value company any more at NZX...HGH is a keeper

Never buy over value just because everything else is over value. Those that got in early, well done. Plenty are still well under water. The proponents encouraging this will be gone as quickly as they got in. After that there’s a couple of years of doldrums while the board lament their suppressed share prices and do another strategic review to unlock value. Ride the wave, but don’t ride it into the beach, it’s a long time before the next wave.

Disc … gone, gltah, not interested in trading this anymore.

[Beagle]

I couldn't agree more King1212.

Mid point of the companies own forecast is $84m which gives 14.398 cps in earnings for FY21. At today's close of $1.63 that's a forward PE of 11.32. This is well below the Australian peer group I follow which current stands at ~ 16. Over the many years I have followed this stock it ranges between 11 - 17.5 and that was when interest rates were much higher.

One of the best value stocks on the NZX in my opinion and a very high conviction hold and also a definite inclusion in my top 5 picks list for 2021.

TA also looks good. Why anyone would sell in a clear uptrend when the fundamental's are also so compelling is beyond my comprehension but good luck to them with finding better opportunities, they'll need it !

[kiora]

Well said Baa Baa
"Ride the wave, but don’t ride it into the beach, it’s a long time before the next wave."

and don't ride it until it closes out or you will end up with a coral tattoo or paralyzed

[Habits]

TA also looks good. Why anyone would sell in a clear uptrend when the fundamental's are also so compelling is beyond my comprehension but good luck to them with finding better opportunities, they'll need it !

Fully agree, uptrend established not downtrend... what's the game the others are playing.

[Joshuatree]

Why sell...can not find good value company any more at NZX...HGH is a keeper

Remembering there are Investors, short term traders and swing traders on here.Different horizons, stratagies and agendas , some hidden some not.

[winner69]

Nztx says HMY shareprice down to $2.75

Maybe Heartland won’t be booking that much of a gain after all

[King1212]

Hmy only HGH cake icing...it is always on HGH book .. even pre covid-19 when sp hit $2.

Now the market values HMY....it will take time

[winner69]

Hmy only HGH cake icing...it is always on HGH book .. even pre covid-19 when sp hit $2.



Now the market values HMY....it will take time

But my lord ...some that it would $20m to profit ...about 3.5 cents / share .....and then hope that the market wouldn’t really understand and apply a 15 multiple to earnings thereby adding 50 cents to share price

[Beagle]

But my lord ...some that it would $20m to profit ...about 3.5 cents / share .....and then hope that the market wouldn’t really understand and apply a 15 multiple to earnings thereby adding 50 cents to share price

With all due respect mate I think almost everyone on here knows that any profit will be unrealized and a one-off and are ignoring it in their valuation calculations.
Just a reminder that 16 times the companies own forecast of 14.4 cps = $2.30, (not including any increase from aforementioned one-off Harmoney unrealized gain, the fact that they're trading ahead of current year forecast YTD and not seeing any utilization of previous FY20 Covid provisioning so some of that might come back as a one off restatement of prior year profit).

[KJMLimited]

Going by ANZ's AGM update today, there's every chance that HGH FY 20 Covid provisioning will be restated (upwards) at the interim if not before if it is material.

[Beagle]

I suggest you have a read of what Heartland themselves said just 16 days ago here http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HGH/364198/336436.pdf
For the time poor I cut and posted this excerpt :-
Impairments to date have been much lower than anticipated, tracking well below budget.
This reflects releases due to repayments, but also an improving profile and reduction in nonperforming loans.
The economic overlay we took in FY20 of $9.6 million pre-tax has not been utilised.

[KJMLimited]

Ha ha. By 'restatement (upwards)' I actually meant that in a positive sense ie that earnings will be restated upwards. In other words, provisioning will go down. Just my bad. We are in agreement. But thanks for the suggestion which I didn't take up having read the AGM notes already.

[winner69]

I think that in Jeff’s mind the covid cover doesn’t really exist and that’s why he talks about F20 npat being $78.9m ....and because it doesn’t really exists expects it to be reversed and the reversal is included / assumed in the $85m forecast for F20

So reported NPAT improving from $72m to $85m in F21 (not counting HMY)

[Beagle]

I think that in Jeff’s mind the covid cover doesn’t really exist and that’s why he talks about F20 npat being $78.9m ....and because it doesn’t really exists expects it to be reversed and the reversal is included / assumed in the $85m forecast for F20

So reported NPAT improving from $72m to $85m in F21 (not counting HMY)
Pretty astonishing earnings growth then isn't it of 18% !...with clear potential for an upgrade seeing as they did ~ $30m in the first 4 months
Note this bit of the speech, emphasis added :-
Some commentators maintain that the economic ramifications of the pandemic are yet to be
fully felt, and due to this remaining uncertainty, and despite running ahead of the forecast run
rate, we don’t propose currently to change the current NPAT guidance of $83 million to $85
million for FY21.

Not changing it currently is conservative and certainly doesn't mean they won't change it later in the year as more clarity emerges so I therefore see 3 potential sources of an upgrade
1. Reversal of some or all of FY20's Covid provisioning - (one off event I will ignore for my valuation considerations)
2. Upgrade of current year\s forecast as no need for current year Covid provisioning (ongoing implications for enhanced profitability that's definitely relevant to valuation considerations)
3. One off recognition of unrealized value accrual for Harmoney stake - (one off event I will ignore for my valuation considerations).

Without any of the above I see fair value at about $2.30 a year from now.

[King1212]

That will do me master Beagle...$2.30

Brand new car...plus holiday in Thailand...with Singha beer and two thai girl....not a lady boy of course... bloody mr.chow...

[winner69]

Pretty astonishing earnings growth then isn't it of 18% !...with clear potential for an upgrade seeing as they did ~ $30m in the first 4 months
Note this bit of the speech, emphasis added :-
Some commentators maintain that the economic ramifications of the pandemic are yet to be
fully felt, and due to this remaining uncertainty, and despite running ahead of the forecast run
rate, we don’t propose currently to change the current NPAT guidance of $83 million to $85
million for FY21.

Not changing it currently is conservative and certainly doesn't mean they won't change it later in the year as more clarity emerges so I therefore see 3 potential sources of an upgrade
1. Reversal of some or all of FY20's Covid provisioning - (one off event I will ignore for my valuation considerations)
2. Upgrade of current year\s forecast as no need for current year Covid provisioning (ongoing implications for enhanced profitability that's definitely relevant to valuation considerations)
3. One off recognition of unrealized value accrual for Harmoney stake - (one off event I will ignore for my valuation considerations).

Without any of the above I see fair value at about $2.30 a year from now.

With all due respect your 1. and 2. are a bit confusing and to me seem to be the same thing - and it seems you sort of agree with me when I say the whole $6.9m after tax covid overlay in F20 was a cosmetic thing and will be reversed in full in F20 and that reversal is included in Jeff’s $85m forecast

This means F21 result will likely be about $85m ..an increase of 8% over F20 normalised $78.9m ....and whatever might happen between now and year end will be subject to proactive provision to ensure it all ends up at about $85m...no more and no less, Jeff will ensure that happens.

[Beagle]

Lets be clear. Firstly they issued the forecast of $83-85m, (mid point $84m for FY21) at the same time as announcing their FY20 result (which was impacted by the Covid overlay). I see this as their core current year earnings unsullied by any one off Covid or Harmoney items.
The fact that subsequently they are talking about not needing earlier Covid provisioning taken in FY20 based on evidence to date suggests a partial of full reversal of this provisioning on top of earlier guidance of $84m, (total could be over $90m inclusive of full reversal of FY20 provisioning plus any upgrade of current year forecast). i.e. $90m for full year, (3 x $29.9m) plus reversal of previous over provisioning for Covid plus possible Harmoney one-off.

Some commentators maintain that the economic ramifications of the pandemic are yet to be
fully felt, and due to this remaining uncertainty, and despite running ahead of the forecast run
rate, we don’t propose currently to change the current NPAT guidance of $83 million to $85
million for FY21.

My interpretation of this is that they are acknowledging that the $29.9m core operating earnings for the 4 months to 31/10/20, (annualized run rate of ~ $90m), is currently ahead of forecast but they are effectively saying that because the effects of the pandemic may not be fully felt yet they are leaving their core earnings at $84m forecast as is for the present time. This certainly does not preclude them from raising it later this financial year.

I share your cynicism about proactive provisioning and suspect core operating earnings for the year will meet forecast and be about 14.4 cps and I think a fair Covid recovery PE going forward is in the range of 15-16 so am sticking with my target of $2.30. I think the dividends will be about 11 cps fully imputed once the RBNZ restrictions come off so that's 11 / 0.72 = 15.28 cps gross and on $1.63 gives a prospective FY22 yield of 9.4% gross. Just a "little" better than their term deposit rates ;)

Hopefully this post clarifies my thinking of how this all fits together.

[winner69]

I think we have to agree to disagree - because I reckon you are double counting the covid overlay. Never mind disagreement is healthy.

For what's worth my 'valuation' of HGH for June 2021 is about $1.97

June 20 Book Value is $1.20 /share. Add F21 earnings of 13.4c ($85m) less divies paid 8 cents plus DRIP 2.2 cents plus HMY revaluation 3.4 cents gives June 21 Book Value of $1.31 / share

Apply the long term P/B of 1.5 and gives you share price of $1.97

Let's say $2.00 and add a 15% hype / exuberance / irrationality factor and one gets $2.30

Same as you at $2.30 ---- Golly gosh we do agree - let's hope the hype etc plays out

[King1212]

$2 will do...master winner.bi will get one tiger rather than two...lol

[Baa_Baa]

I think we have to agree to disagree - because I reckon you are double counting the covid overlay. Never mind disagreement is healthy.

For what's worth my 'valuation' of HGH for June 2021 is about $1.97

June 20 Book Value is $1.20 /share. Add F21 earnings of 13.4c ($85m) less divies paid 8 cents plus DRIP 2.2 cents plus HMY revaluation 3.4 cents gives June 21 Book Value of $1.31 / share

Apply the long term P/B of 1.5 and gives you share price of $1.97

Let's say $2.00 and add a 15% hype / exuberance / irrationality factor and one gets $2.30

Same as you at $2.30 ---- Golly gosh we do agree - let's hope the hype etc plays out


And then you'll both sell. Maybe not at the same time, but close. You momentum traders (however long it takes) imho are the most impressive investors able to actually 'time the market' which common wisdom says is impossible. Common wisdom though is not all that common.

Impressive sustained performance and enjoyable banter along the journey, we have much to learn about active portfolio management.

[Scrunch]

June 20 Book Value is $1.20 /share. Add F21 earnings of 13.4c ($85m) less divies paid 8 cents plus DRIP 2.2 cents plus HMY revaluation 3.4 cents gives June 21 Book Value of $1.31 / share

Apply the long term P/B of 1.5 and gives you share price of $1.97

Let's say $2.00 and add a 15% hype / exuberance / irrationality factor and one gets $2.30

Same as you at $2.30 ---- Golly gosh we do agree - let's hope the hype etc plays out


Is the DRIP going to be able to add that much to the NTA? I can see the DRP increasing equity by 2%+ quite easily. Its also going to add to the shares on issue so I'm not sure the NTA impact will be as large as 2.2c. Does that mean that Beagle now has a more aggressive forecast than you?

[Snow Leopard]

So much poo, mainly dog poo on this thread :(.

The definitive current value of HGH is $1.806 and the one year is $1.860.


Speaking of poo I heard this joke the other day, stop me if you already know it:

A young boy goes up to his dad and asks:
"Daddy, where does poo come from?"

Dad slightly taken aback decides to give his son the best version of the truth that he thinks a four year old will be able to understand.

As his explanation progresses the young boy's face becomes sadder and sadder;

Dad gamely carries on;
The boy bursts into tears;

Dad wraps up with:
"and that is how it is, son."



The boy wiping the tears from his eyes, looks up at his father, and in a timid voice cautiously asks:
"and Tigger too?"

[tuaman]

Ha ha funny. BTW are the boy YOU. Must be a very traumatic event still affecting your investment decision. Keep up the good work.:D:D:D


So much poo, mainly dog poo on this thread :(.

The definitive current value of HGH is $1.806 and the one year is $1.860.


Speaking of poo I heard this joke the other day, stop me if you already know it:

A young boy goes up to his dad and asks:
"Daddy, where does poo come from?"

Dad slightly taken aback decides to give his son the best version of the truth that he thinks a four year old will be able to understand.

As his explanation progresses the young boy's face becomes sadder and sadder;

Dad gamely carries on;
The boy bursts into tears;

Dad wraps up with:
"and that is how it is, son."



The boy wiping the tears from his eyes, looks up at his father, and in a timid voice cautiously asks:
"and Tigger too?"

[Beagle]

I think we have to agree to disagree - because I reckon you are double counting the covid overlay. Never mind disagreement is healthy.

For what's worth my 'valuation' of HGH for June 2021 is about $1.97

June 20 Book Value is $1.20 /share. Add F21 earnings of 13.4c ($85m) less divies paid 8 cents plus DRIP 2.2 cents plus HMY revaluation 3.4 cents gives June 21 Book Value of $1.31 / share

Apply the long term P/B of 1.5 and gives you share price of $1.97

Let's say $2.00 and add a 15% hype / exuberance / irrationality factor and one gets $2.30

Same as you at $2.30 ---- Golly gosh we do agree - let's hope the hype etc plays out

Okay so lets just keep this really simple. Just forget ALL the one off's. Official forecast mid point is $84m = 14.4 cps. When it hits $2.14 this time it will be on a PE of 14.8, (last time it was nearly on 18 times forward earnings). Not many growth stocks on the NZX on around a modest PE of that level - Jarden reckon the market average is currently 32.

[winner69]

Heartland's npat growth rate over the years is interesting

Growth is consistently slowing

Spot the trend in the numbers below - almost has a A2 growth profile look to it

Heartland NPAT growth:
2013 74.3%
2014 47.5%
2015 33.3%
2016 12.9%
2017 12.2%
2018 11.0%
2019 9.0%
2020 7.2% on normalised $78.9m otherwise it would be negative
2021 6.5% forecast $84 midpoint

One needs to bear in mind that EPS growth is generally less than NPAT because of capital raises and DRIP

So growth not as flash as the hype makes it out to be - if share price gets to 15 times EPS than it would be on a PEG over 2 - some say that's quite a high PEG and indicates expensive and not good value.

[winner69]

Is the DRIP going to be able to add that much to the NTA? I can see the DRP increasing equity by 2%+ quite easily. Its also going to add to the shares on issue so I'm not sure the NTA impact will be as large as 2.2c. Does that mean that Beagle now has a more aggressive forecast than you?

I guessed a DRIP uptake of about 25%

And then forgot about the new DRIP and exec incentive shares in my calculation (bad eh)

Projected book value then $1.30 at say P/B of 1.4/1.5 is shareprice of $1.82/$1.95 next June - say about $1.75/$1.85

Closer to Snow Leopards numbers than Beagles ....and answering your question Beagles forecast is more aggressive than mine.

[Scrunch]

I guessed a DRIP uptake of about 25%

And then forgot about the new DRIP and exec incentive shares in my calculation (bad eh)

Projected book value then $1.30 at say P/B of 1.4/1.5 is shareprice of $1.82/$1.95 next June - say about $1.75/$1.85

Closer to Snow Leopards numbers than Beagles ....and answering your question Beagles forecast is more aggressive than mine.

But a good honest reply, and a valuation estimate thats still above the current price.

[Beagle]

Heartland's npat growth rate over the years is interesting

Growth is consistently slowing

Spot the trend in the numbers below - almost has a A2 growth profile look to it

Heartland NPAT growth:
2013 74.3%
2014 47.5%
2015 33.3%
2016 12.9%
2017 12.2%
2018 11.0%
2019 9.0%
2020 7.2% on normalised $78.9m otherwise it would be negative
2021 6.5% forecast $84 midpoint

One needs to bear in mind that EPS growth is generally less than NPAT because of capital raises and DRIP

So growth not as flash as the hype makes it out to be - if share price gets to 15 times EPS than it would be on a PEG over 2 - some say that's quite a high PEG and indicates expensive and not good value.

I'm talking December 2021...think you're talking June 21 so there's some difference there.
No growth PE is about 12 in my book with 10 year Govt stock at ~ 1% so currently priced at 11.4 times FY21 earnings like its never going to grow in the future.
Looking at that track record of growth that doesn't seem plausible in any way so we both agree its cheap and likely headed north.
In terms of paying a forward PE of 15 with a track record of growth like that, I think that marks the company out as arguably the best GARP stock on the NZX, certainly a vastly better growth track record than any of the Aussie banks I follow and they're currently on a forward PE of ~ 16. Then there's the not so small matter of this paying fully imputed dividends and the Aussie banks offering partial or no imputation credits. Hmmm

[winner69]

Heartland's npat growth rate over the years is interesting

Growth is consistently slowing

Spot the trend in the numbers below - almost has a A2 growth profile look to it

Heartland NPAT growth:
2013 74.3%
2014 47.5%
2015 33.3%
2016 12.9%
2017 12.2%
2018 11.0%
2019 9.0%
2020 7.2% on normalised $78.9m otherwise it would be negative
2021 6.5% forecast $84 midpoint

..
.

Maybe I should not have mentioned A2 .......maybe tempting fate and preempting something :scared:

[Bjauck]

Maybe I should not have mentioned A2 .......maybe tempting fate and preempting something :scared: if only it had kept up 74.5% annual growth it had in 2013....its NPAT would now be about 86 times that of 2012. Back in March, 6.5% growth for 2021 would have seemed fantastic.

Happy long term holder.

[winner69]

Occupied myself while looking at cricket last night by converting my old Heartland P/B chart into a PE one to see what PE Heartland has traded on over the years. Of course the P/B and PE charts are the same shape because they are inextricably linked.

For what it's with HGH's PE over the 5 years up to Feb 2010 has averaged 13.1 (so covid impact excluded. The longer term average is 12 something. Majority of the time it has ranged between 11 and 14.

As the market is a 'voting machine' the PE ratio gets way out of kilter at times. HGH was over hyped in 2017 and the inevitable happened - the share price collapsed and it's PE reverted to a point below the mean. And Covid stuffed things up and shareprice collapsed with it's PE but is recovering to it's (prob overshoot)

At recent average PE of 13.1 HGH would be about $1.85 (that's good) but maybe even overshoot past 2 bucks - definitely the time for those who don't buy and hold to sell

A PE of 13 odd ties in with what I have said about P/B ratio - they are inextricably linked, especially when you throw in ROE, payout %ages, growth rates and risk free rates into the study as finance gurus (academics?) love doing.

Sorry for the indulgence in posting such stuff but I found it interesting - pity Kohli got run out, he was going well but just shows you one never knows what can happen next.

[percy]

Thanks for your post W69.
I found it very interesting.Good to know when HGH are over/under valued.

[winner69]

Thanks for your post W69.
I found it very interesting.Good to know when HGH are over/under valued.

Thanks PERCY

By the way some the rata we planted a few years ago are flowering this year ......percy rata got flower buds so soon but snoopy rata no sign of flowers yet

Merry Christmas and happy new year to you and your family.

[Snow Leopard]

So all the smart people agree that $1.8X is a fair price for HGH :cool:.

[Beagle]

Occupied myself while looking at cricket last night by converting my old Heartland P/B chart into a PE one to see what PE Heartland has traded on over the years. Of course the P/B and PE charts are the same shape because they are inextricably linked.

For what it's with HGH's PE over the 5 years up to Feb 2010 has averaged 13.1 (so covid impact excluded. The longer term average is 12 something. Majority of the time it has ranged between 11 and 14.

As the market is a 'voting machine' the PE ratio gets way out of kilter at times. HGH was over hyped in 2017 and the inevitable happened - the share price collapsed and it's PE reverted to a point below the mean. And Covid stuffed things up and shareprice collapsed with it's PE but is recovering to it's (prob overshoot)

At recent average PE of 13.1 HGH would be about $1.85 (that's good) but maybe even overshoot past 2 bucks - definitely the time for those who don't buy and hold to sell

A PE of 13 odd ties in with what I have said about P/B ratio - they are inextricably linked, especially when you throw in ROE, payout %ages, growth rates and risk free rates into the study as finance gurus (academics?) love doing.

Sorry for the indulgence in posting such stuff but I found it interesting - pity Kohli got run out, he was going well but just shows you one never knows what can happen next.

Even if I don't agree with you its good you're basing your opinion on something unlike last time when you were ramping it for all you were worth saying it was worth $2.50 :p
What you're suggesting is that this time when its hits $2.14 it will also be a sell. Not sure I agree but I will survey the landscape when it gets there in due course.

[LaserEyeKiwi]

Occupied myself while looking at cricket last night by converting my old Heartland P/B chart into a PE one to see what PE Heartland has traded on over the years. Of course the P/B and PE charts are the same shape because they are inextricably linked.

For what it's with HGH's PE over the 5 years up to Feb 2010 has averaged 13.1 (so covid impact excluded. The longer term average is 12 something. Majority of the time it has ranged between 11 and 14.

As the market is a 'voting machine' the PE ratio gets way out of kilter at times. HGH was over hyped in 2017 and the inevitable happened - the share price collapsed and it's PE reverted to a point below the mean. And Covid stuffed things up and shareprice collapsed with it's PE but is recovering to it's (prob overshoot)

At recent average PE of 13.1 HGH would be about $1.85 (that's good) but maybe even overshoot past 2 bucks - definitely the time for those who don't buy and hold to sell

A PE of 13 odd ties in with what I have said about P/B ratio - they are inextricably linked, especially when you throw in ROE, payout %ages, growth rates and risk free rates into the study as finance gurus (academics?) love doing.

Sorry for the indulgence in posting such stuff but I found it interesting - pity Kohli got run out, he was going well but just shows you one never knows what can happen next.

Most equities around the world have P/E & Dividend yield ratios that change with adjustments in central bank interest rates, but curiously New Zealand equities don't seem to have had their earnings multiples repriced higher to what would be expected for such a large fall in central bank interest rates (and the reduced retail bank interest rates that follows).

With Interest rates below 1%, solid dividend paying companies should have yields around 3% (giving a 2% risk premium above the "risk free" bank deposit rate). The fact that many solid New Zealand companies are paying between 5%-9% forward dividend yields is mind blowing - they are absolutely screaming bargains.

[Beagle]

Most equities around the world have P/E & Dividend yield ratios that change with adjustments in central bank interest rates, but curiously New Zealand equities don't seem to have had their earnings multiples repriced higher to what would be expected for such a large fall in central bank interest rates (and the reduced retail bank interest rates that follows).

With Interest rates below 1%, solid dividend paying companies should have yields around 3% (giving a 2% risk premium above the "risk free" bank deposit rate). The fact that many solid New Zealand companies are paying between 5%-9% forward dividend yields is mind blowing - they are absolutely screaming bargains.

In my experience, notwithstanding the PE range Winner has suggested above, I have noted Heartland to have a PE range of 11-17.5, mid point 14.25 when the risk free rate was significantly higher than currently prevailing. I think you have an excellent point which isn't lost on me. With interest rates where they are now you could easily make the case that this range should be 150-200 basis points higher.

I'm very comfortable with a PE in the 15-16 range and earnings in the same numerical range for FY22 and seeing as the market is always a forward looking beast somewhere in the low $2's this time next year seems more than plausible to me and I have always been happy to sail my own race....speaking of which it must be time for the America's cup...

[winner69]

Most equities around the world have P/E & Dividend yield ratios that change with adjustments in central bank interest rates, but curiously New Zealand equities don't seem to have had their earnings multiples repriced higher to what would be expected for such a large fall in central bank interest rates (and the reduced retail bank interest rates that follows).

With Interest rates below 1%, solid dividend paying companies should have yields around 3% (giving a 2% risk premium above the "risk free" bank deposit rate). The fact that many solid New Zealand companies are paying between 5%-9% forward dividend yields is mind blowing - they are absolutely screaming bargains.

May NZ equitymarket is more ‘sensible’ and not followed the rest of the world to the same extent (even it is trading on a much higher multiple than a few years ago)

Govt bonds might get you next to nothing these days. But have you though that "justifying" extreme valuations in other assets is identical to "justifying" zero long-term returns.

That’s what’ll happen here ...one day we will have to sell today’s ‘screaming bargains’ to lock in gains and preserve ones capital......holding for 5 to 10 years likely to end in tears

[King1212]

I agree...just look at Airbnb ....it priced 95 b us dollar...holly molly....

[Snoopy]

May NZ equitymarket is more ‘sensible’ and not followed the rest of the world to the same extent (even it is trading on a much higher multiple than a few years ago)

Govt bonds might get you next to nothing these days. But have you thought that "justifying" extreme valuations in other assets is identical to "justifying" zero long-term returns.

That’s what’ll happen here ...one day we will have to sell today’s ‘screaming bargains’ to lock in gains and preserve ones capital......holding for 5 to 10 years likely to end in tears


Exactly right Winner. Send your grand kid out to the end of the driveway to sell 50c glasses of lemonade. Float the venture on the sharemarket and justify the yield as a bargain by comparing it with long term government interest rates of 0.000000000001%. That should justify a PE ratio of 65,000,000,000. Forget the pension. Having a kid selling lemonade at the end of your driveway could be worth hundreds of millions of dollars under this current low interest rate paradigm.

SNOOPY

[LaserEyeKiwi]

May NZ equitymarket is more ‘sensible’ and not followed the rest of the world to the same extent (even it is trading on a much higher multiple than a few years ago)

Govt bonds might get you next to nothing these days. But have you though that "justifying" extreme valuations in other assets is identical to "justifying" zero long-term returns.

That’s what’ll happen here ...one day we will have to sell today’s ‘screaming bargains’ to lock in gains and preserve ones capital......holding for 5 to 10 years likely to end in tears

Can you elaborate?

I'm not in anyway trying to justify any sort of "extreme valuations" - I'm using the simple equations used by value investors and discounted cashflow analysts for decades to price equities & corporate bonds, which along with other fundamental analysis uses a basis point spread above the risk free rate of return offered by government bonds to assign an expected valuation. It works the opposite way as well, when interest rates rise at some point in the future, the P/E ratios on equities should fall (& dividend yields increase).

All else being equal - eg if there are no other underlying changes to company fundamentals - then a fall in the risk free return from government bonds should move a company's dividend yield down by a similar amount (by the equity value being priced higher).

[Beagle]

Can you elaborate?

I'm not in anyway trying to justify any sort of "extreme valuations" - I'm using the simple equations used by value investors and discounted cashflow analysts for decades to price equities & corporate bonds, which along with other fundamental analysis uses a basis point spread above the risk free rate of return offered by government bonds to assign an expected valuation. It works the opposite way as well, when interest rates rise at some point in the future, the P/E ratios on equities should fall (& dividend yields increase).

All else being equal - eg if there are no other underlying changes to company fundamentals - then a fall in the risk free return from government bonds should move a company's dividend yield down by a similar amount (by the equity value being priced higher).

I wouldn't be concerned mate. What you are saying is perfectly logical. HGH should provide a return well above the NZX50 in 2021. Growth stocks on a current year PE of 11.25 are a very rare thing in our market.

[Bjauck]

Most equities around the world have P/E & Dividend yield ratios that change with adjustments in central bank interest rates, but curiously New Zealand equities don't seem to have had their earnings multiples repriced higher to what would be expected for such a large fall in central bank interest rates (and the reduced retail bank interest rates that follows).

With Interest rates below 1%, solid dividend paying companies should have yields around 3% (giving a 2% risk premium above the "risk free" bank deposit rate). The fact that many solid New Zealand companies are paying between 5%-9% forward dividend yields is mind blowing - they are absolutely screaming bargains.I wonder if one of the reasons is the comparative size of the sharemarkets. In relation to its population, NZ has a small pension and managed fund sector and a very small share market capitalisation (and many kiwi funds invest more in overseas equities anyway.) The value of investor residential housing exceeds the share market capitalisation in NZ. So a greater % of the investment in NZ, stimulated by the drop in interest rates, probably ends up in residential housing.

So perhaps the yield on investor residential housing would be an equally apt figure to use for NZ when making a comparison with yields from overseas sharemarkets, affected by increased investor demands a result of lower interest rates.

There are a small number of listings on the NZ market and some business sectors are not well represented. Maybe that could also explain some of the divergence from what has happened on overseas share markets and it may also explain a greater inelasticity in yield on the local market.

[Mr Slothbear]

Give it two years with economic conditions like 2nd half of 2020 and interest rates will be rising again and quick. Highly doubt NZ will have decade long, rock bottum rates like Japan or europe. These rates in NZ are a blip rather than the new norm IMO. Very hard to keep a lid on immigration here and when the floodgates are open thats big demand pressure. Japand and europe have long term, secular trends of low birth rate, aging populations and much lower migration than here.

Add to that NZ companies have always paid higher div yields than those in US.

[Bjauck]

...Very hard to keep a lid on immigration here and when the floodgates are open thats big demand pressure. Japand and europe have long term, secular trends of low birth rate, aging populations and much lower migration than here.

Add to that NZ companies have always paid higher div yields than those in US. Certainly a greater proportion of earnings tend to be paid out as dividends instead of being reinvested in the business, for various reasons.

Why is it hard to control immigration? NZ has control over its borders and its immigration policy as ar as I am aware. I think NZ governments have relied too much on immigration instead of introducing fundamental changes to the investment and tax environment to encourage investment in business which could help increase productivity from existing employees.

Continued immigration does help increase the price of a our supply-constrained residential housing which in turn makes an influential part of the electorate happy! I imagine Ardern knows this and realises that it will help keep her in power.

[winner69]

Global Dairy Trade prices up again last night ....that’s good

GDT prices been trending up strongly since early November .....and the HGH shareprice has followed (as it generally does)

Weird eh ...but a ‘correlation’ that’s been in place for some time .....but a good sign for HGH shareprice next month or so.

[King1212]

Dairy prices up 3.9% in global auction https://a.msn.com/r/2/BB1cve9K?m=en-nz&a=0

[RTM]

Global Dairy Trade prices up again last night ....that’s good

GDT prices been trending up strongly since early November .....and the HGH shareprice has followed (as it generally does)

Weird eh ...but a ‘correlation’ that’s been in place for some time .....but a good sign for HGH shareprice next month or so.

Yes. Additionally, all those MEL holders, many probably quite conservative dividend seekers, will be looking for somewhere to invest their gains.

[winner69]

Wonder if Jeff and/or his advisors did some thinking over the break and came up with a brilliant plan to extract full value for the motor division.

[King1212]

Master winner...if interest rate going up...will it benefits big banks?

[KJMLimited]

My answer is that it does. When interest rates decline, NIM goes down, because lending rates decline quicker than deposit rates. The reverse is true when rates rise.

[Ltw]

Someone just got 1.4 million worth. I wouldn't have minded that

[King1212]

Thanks. Cnbc analyst said.... interest rate will slowly raise from now on

[Scrunch]

My answer is that it does. When interest rates decline, NIM goes down, because lending rates decline quicker than deposit rates. The reverse is true when rates rise.

I had the impression that the problem was that certain deposit rates can't easily fall below zero. As rates fall more account types hit this barrier. This squeezes the deposit margin achieved. Its a lot less of an issue for finance companies because most of their NIM is made on the lending side and zero interest deposits are not a big source of funding for their loans.

[KJMLimited]

I had the impression that the problem was that certain deposit rates can't easily fall below zero. As rates fall more account types hit this barrier. This squeezes the deposit margin achieved. Its a lot less of an issue for finance companies because most of their NIM is made on the lending side and zero interest deposits are not a big source of funding for their loans.You're right on this one for HGH, but I think it trades in line with AU banks, and their shares prices move up and down in line with their NIMs. Not a perfect relationship though. However I have seen short-term rates move up this week at two banks - 0.25 bps in one case, with the same bank offering a record low mortgage rate. Mayne just a short-term attempt to capture market share.

[JohnnyTheHorse]

Bull break of the 170 resistance. US financials have been performing very strongly in the last week so suspect this is a catalyst. Next strong resistance level is around 190.

[winner69]

Back to 180 plus next week

That’s good

[LaserEyeKiwi]

I wonder when Reserve bank will allow NZ banks to start issuing dividends again. We might not be too far away from that given vaccines are close to being deployed (minimising chances of another lockdown).

[King1212]

APPRA restrictions are removed on big oz banks

[Greekwatchdog]

I think ours are on till end of March then who knows..

[nztx]

I think ours are on till end of March then who knows..

Sounds about right

wonder if HGH will defer the next Div by a few weeks to April or pay a Special to deliver up the
promised intended ? ;)

[winner69]

Share price back to the 180’s ....ST ‘smart money’ said this about true value

Would like to have said the rise due to Heartland doing something special but the share price just seems to be following the Oz banks up

Can’t complain ...it’s going up .....even though NZX says share price still lower than 52 weeks ago.

[Greekwatchdog]

This is For Bars preview. Lifted target from $1.41 to $1.61 - Lets hope HGH management are right.
1H21 Preview — Headwinds Remain


UNDERPERFORM
Preceding HGH's 1H21 result in February, we adjust our near-term forecasts in light of the improving domestic economic
backdrop. In recent months New Zealand's domestic economy has recovered faster than expected, with the 2020 trough
shallower than economists anticipated earlier in the year. HGH's stock has rallied in recent months consistent with the
recovery of Australasian banking peers and other cyclical stocks. We maintain our UNDERPERFORM rating given 1) HGH's
high risk profile in comparison to international banking peers, 2) HGH's sub scale profile (makes up 1% of banking assets in
NZ), 3) sustained cost pressure across the business, 4) expected Net Interest Margin (NIM) compression in light of growing
competition, and 5) an expected slowdown in loan receivable growth heading into 2021.
What's changed?
We raise our short term forecasts but remain cautious over softening receivable loan growth in 2H21
The company has recently guided loan receivable growth for FY21 to be up mid-single digits against our previous forecast of +9%.
While the motor division and reverse mortgage portfolios have shown steady growth, the company expects the business and personal
divisions to have negative loan receivable growth for FY21. We expect subdued loan growth to lead to increased advertising and
marketing spend in the second half of the year. In light of a stronger economic backdrop we lift our FY21E NPAT to NZ$77.2m from
NZ$64.7m, against a Bloomberg consensus (ex-Forsyth Barr) of NZ$78.3m and company guidance of NZ$83m–85m.
Long unemployment tail likely with drop off in wage subsidy
Anecdotal feedback shows small business owners in New Zealand have experienced a drop off in demand after the post lockdown
spike, while more bullish economists forecasts expect unemployment to peak in calendar 1Q21. Coupled with a roll off in wage
subsidies across the country, we note there could be indirect impacts felt from the hospitality/tourist/retail sectors operating on
skeleton staff and/or closing down given the current border closure and lack of tourism for the peak summer months.
Rural remains an opportunity for HGH
In recent years HGH has reduced its rural loan receivable assets due to the high concentration risk of individual loans and the inability
to compete on yield with larger banks. With the RBNZ applying an increased capital charge to rural assets, larger banks which have
had large exposures to rural assets have now either reduced the number of loans or increased yields in order to maintain Return on
Equity (ROE). In the current environment we see rural financing as an emerging opportunity for HGH, with the group able to leverage
its legacy assets, brand and rural network to compete in a less competitive environment.

[Waltzing]

do they have a copyright notice on there reports?

they might have a notice somewhere on the reports just check them. Lucky we separate our data from our summaries.

we must check with them.

[Greekwatchdog]

It is a very small part of it

[winner69]

ANZ hinted they were probably going to reverse their special covid provision.

Jeff has essentially already said that ...and included in F21 guidance of $85m

If Forbar included this their forecast in line with company forecast ......they come up with a $1.61 target because they think lower multiples than say Oz banks is appropriate.