HGH - Heartland Group Holdings

[winner69]

Well done Heartland demonstrating their commitment to reducing greeenhouse gas emmissions

Will make them a better company .... as well as being good for all of us

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HBL/370068/343485.pdf


How committed Heartland are to this gas emmissioon stuff will show we hear that they reduced lending to 'dirty' industry sectors

[Beagle]

One wonders what might be irking investors ?
The red team dropping the sledgehammer on the real estate market affecting the economy ? Maybe ?
The RBNZ continuing with dividend restrictions at 50% until July 2022 ? Possible ?

I recently posted a comparison of the metrics of HGH v its peer group (see post #14476), and note that HGH's share price has declined a bit since then and therefore their comparative metrics are even more compelling. https://www.marketscreener.com/quote/stock/HEARTLAND-GROUP-HOLDINGS-47041144/financials/

Looking forward to FY22 (hard to believe we're in the final quarter of FY21 already) analysts are seeing eps of 15 cps so on $1.74 the forward FY22 PE is just 11.6 Its clear they can work around RBNZ dividend restrictions (recently paying a 4 cent interim dividend with full restrictions out of Australian profits) so now we're at 50% on locally sourced profits I foresee an interim dividend of about 5 cps this time next year and a final of about 6 cps for FY22 by which time RBNZ dividend restrictions should be lifted.

11 cps fully imputed = 11/0.72 = 15.28 cps gross and on $1.74 that's a gross forecast yield of 8.8%

I think we're in as least as good a position as the Australian economy with the chances of a recovery as the vaccination program is rolled out and business confidence is restored so i see the significant discount to its peer group as excessive. The metrics highlighted above are right at the most attractive end of the scale of what this company has traded at in many, many years.

The chart is a bit of a worry but this offers such a broad spectrum approach to investing in the economic recovery and has reasonable earnings growth prospects going forward together with trading on what ostensibly is a no growth forward metric that its a very easy stock to like even if holding at the moment feels like an exercise in how stoic one can remain.

Provided Cindy and the red team don't morph into absolute communists we should be all good.

[winner69]

From a Beagle post - Average PE of peer group 15.4 / HGH FY21 PE 12.5 -- conclusion HGH undervalued

Same peer group on a Price/Book Value basis - P/B of peer group 1.29 ? HGH P/B 1.37 - Conclusion HGH more than fairly valued.

Some will say earnings are key determinate of price (ie why PE is main driver) but if you throw ROE and retained %ages into the equations one might see why HGH tends to trade at a lower PE than its peers.

And then big is seen as better (less risky?) than small is often used a reason for multiple relativities - if only all things were equal

[Beagle]

You continue to use NTA which really isn't the best measure in my opinion when HGH makes around double the net interest margin on its loans than its peer group. Capital ratio's are the only other variable. I will always believe its the earnings that really matter...it's my life's work. PE multiples are as you know also a function of expected growth rates going forward and HGH looks good on that score as well, relative to its peer group. Goes without saying HGH is the only bank that will give you full imputation credits with dividends too so has the highest gross yield by quite some margin.

All its peer group's performance's are inextricably tied to the economy and I reckon we're in at least as good shape as Australia provided your mate Cindy doesn't get any more radical for her comrades. I suspect that risk is what's been repriced into HGH shares in the last week and a half. Ouch. Grant and Cindy strike again.

[winner69]

Those relative PE ratios with OZ peers

Nothing seems to have changed over the last 5 years or so ...much to Jeff’s frustration

Must be something that causes it ...obviously not that high NIM margin

From Heartland 2014 ASM preso

[Ferg]

I'm curious if there is a link between HGH SP and the property market. Do investors see a weaker property market giving rise to relatively lower security levels on reverse equity mortgages for HGH? (as in lower headroom) Would that explain a relatively weaker SP in light of the recent Government announcements?

[Jerry]

Nah! It's something to do with shares I buy... kiss of death...

[ziggy415]

Rereading half yearly report " interest from leading agrigators regarding Australian reverse mortgage book " ....and also " growing aussie reverse mortgage organically and inorganiclly " does this mean someone buying the debt and giving heartland money up front and the inorganic growth mean buying other banks reverse mortgage portfolio...several banks that used to offer reverse mortgages but don't now ...with policies still on books and returns getting less and costs per customer climbing..( westpak) spring's to mind....announcement 2nd half of financial year..

[KJMLimited]

The weakness is a bit of everything but I think the potentially slower economy is the most relevant. Just a headwind that the market hadn't thought about a month ago.

[Beagle]

The weakness is a bit of everything but I think the potentially slower economy is the most relevant. Just a headwind that the market hadn't thought about a month ago.

Bingo, I think that's it.

[Snoopy]

Rereading half yearly report " interest from leading aggregators regarding Australian reverse mortgage book "


Sometimes I like to reread the source material others quote to get some context. If the reference is incorrect this becomes difficult. In fact the above quote is not from the half yearly report, because at the time of writing no such separately titled Half Year Report has been issued. I did find the above quote but it was in the 'Half Year Result Press Release' on page 8, which is a different document.



....and also " growing aussie reverse mortgage organically and inorganiclly "


Likewise the above quote is from yet another document, the Half Yearly Presentation (not the Half Yearly Report) on Slide 27.



does this mean someone buying the debt and giving heartland money up front and the inorganic growth mean buying other banks reverse mortgage portfolio...several banks that used to offer reverse mortgages but don't now ...with policies still on books and returns getting less and costs per customer climbing..( Westpac) spring's to mind....announcement 2nd half of financial year..


I would interpret 'Organic Growth' as the growth as a result of normal business operations. In the case of Reverse Mortgages it is not clear what this means. Because even if no new Reverse Mortgages are issued the compounding interest on the existing reverse mortgages will ensure that at least in the medium term the Reverse Mortgage business will continue to organically grow. Yet somehow I suspect organic growth would include the writing of new Reverse Mortgages through established distribution channels.

By 'Buying debt and giving Heartland money up front', I think you are referring the process of loan securitisation. I think that is different to 'Organic Growth'. Loan securitisation refers to the rejigging of the financing that supports a particularly 'grouped subset of the Heartland loan book', by selling that portion of the loan book on to a third party. However, although this can free up Heartland capital to pursue more 'organic growth' as a side effect, the process of securitising existing loans is not a growth strategy in itself.

I would say 'interest from leading aggregators' does refer to the loan securitisation process.

As for the inorganic growth mentioned, you might be onto something with that residual reverse mortgage loan portfolio at Westpac. Westpac seem to be taking every opportunity they can to simplify their business. Getting rid of a Reverse Mortgage Rump would certainly do that. I think it would be a very substantial acquisition for the thinly capitalised Heartland Australia though, even after several years of Westpac being inactive in the reverse mortgage market. There are smaller moribund reverse mortgages facilitators operating the the Australian market nevertheless. So you might be right, even if it isn't the Westpac reverse mortgage portfolio that is up for sale. Bear in mind though that the quote you referenced began 'Explore opportunities', which would suggest there is no imminent 'done deal'.

SNOOPY

[winner69]

Two weeks ago global dairy (WMP) prices fell after a good run up ....and in last 2 weeks after a good run up Heartland share price has fallen quite a bit (6%)

Last nights dairy auction saw prices ‘stabilise’

That’s good news

[Ferg]

Two weeks ago global dairy (WMP) prices fell after a good run up ....and in last 2 weeks after a good run up Heartland share price has fallen quite a bit (6%)

Last nights dairy auction saw prices ‘stabilise’

That’s good news

Haha, most entertaining thanks winner. I was not expecting a link between dairy farmers buying and selling HGH shares based on their milk price fortunes, but I have seen you mention this before. There is a website dedicated to spurious correlations: https://www.tylervigen.com/spurious-correlations. There is a 94.7% positive correlation between the number of people who die by getting tangled in their bedsheets with US per capita cheese consumption....!

Joking aside, you have me sufficiently curious that I am tempted to run some numbers on dairy prices versus HGH share price. Have you run the numbers on this to test the strength of the correlation?

[winner69]

I gathered that you were a non-believer

Intuitively it doesn’t seem to follow that whole milk powder prices and Heartland fortunes go hand in hand.

A fund manager I knew had a economic model he called the 3C’s .....inputs were climate, commodity prices and currency......essentially quanitfying how green the grass is and what producers were getting for their stuff and it’s impact on the NZ economy.

Greener the grass and higher the milk (and other products) prices the better the economy doing .....growing GDP .....and Jeff keeps reminding us Heartland’s fortunes are tied to the economy

So there is some rational thinking behind the relationship between dairy prices and Heartlands share price.

So keep on eye on things like SMD (soil moisture deficit), commodity prices and the NZD ... do some multiple regression stuff .....amazing how many things have a strong correlation to the 3C’s. ....like in a past life it was a good input into how much paint NZers might use in the future.

Cool eh

For Ferg

Diary prices and GDP linked and Heartlands fortunes reliant on the prevailing economy conditions says Jeff

I haven’t updated Heartland share price / WMP correlation for a while as I don’t have access to GDT data and don’t fancy paying to do so.

Was a reasonable strong correlation ...maybe not the quantum but the direction (up/down) with lags of both was interesting.

[LaserEyeKiwi]

Good news: Heartland now stands alone with the cheapest home loan rate in the market at 1.99% with its online offering (HSBC raised its rates from 1.99% to 2.25%)

now a significant quarter of a percent gap between heartland and everyone else now at 2.25-2.29%

https://www.interest.co.nz/personal-finance/109830/hsbc-ends-its-199-fixed-home-loan-offers-raising-them-225-after-two-month

[peat]

isnt it a bit like OCA not raising their prices enough?


discl
have some

[winner69]

isnt it a bit like OCA not raising their prices enough?


discl
have some

Was thinking the same peat

Also hard to maintain that huge 4.4% NIM when lending sub 2%

[LaserEyeKiwi]

isnt it a bit like OCA not raising their prices enough?


discl
have some

This is a brand new product and market segment for HGH - charging the same as everyone else is not going to win them any marketshare, especially with the automated online nature of the HGH offering (which reduces costs and enables the lower price)

[Rawz]

Was thinking the same peat

Also hard to maintain that huge 4.4% NIM when lending sub 2%

Not hard when they write less than $10m in home loans lol.

It's purely a marketing ploy. And a good one!

[winner69]

Not hard when they write less than $10m in home loans lol.

It's purely a marketing ploy. And a good one!

Best marketing ploy they ever did was to become a BANK ......has more credibility than a finance company and get mums and dads to deposit money with them.

Even their CFO publicly said it was just a marketing ploy

[Cyclical]

Good news: Heartland now stands alone with the cheapest home loan rate in the market at 1.99% with its online offering (HSBC raised its rates from 1.99% to 2.25%)

now a significant quarter of a percent gap between heartland and everyone else now at 2.25-2.29%

https://www.interest.co.nz/personal-finance/109830/hsbc-ends-its-199-fixed-home-loan-offers-raising-them-225-after-two-month


This is a brand new product and market segment for HGH - charging the same as everyone else is not going to win them any marketshare, especially with the automated online nature of the HGH offering (which reduces costs and enables the lower price)

Kiwibank is driving me nuts so I thought I'd take a look at moving the mortgage to Heartland. A quick phone call to discuss with them at a high level our circumstances. The person I spoke to was very helpful and suggested I do the quick application process online and see where we go from there.

So I did the application and to my mind we have plenty of equity, good incomes, easy serviceability, great credit rating, what's not to like I thought... Got to the end, did the quick little survey that asks your opinion on what the application process was like, where I put in that it was a positive, quick and relatively painless experience. Clicked ok only for it to come back with a message to say we don't meet the criteria, or something like that. Click here to understand why, which I did and that just took me back to the home page. Excellent.

Rang them up again, spoke to someone different and explained what had happened. Got the response, something along the lines of "we don't really have a mortgage team you can speak to, but you can email us through the website..." Back on the website, composed a message, hit Send, to which a pop up says "An error occurred. Please try again later."

Not a great experience. And as a shareholder, I'm really disappointed.


Not hard when they write less than $10m in home loans lol.

It's purely a marketing ploy. And a good one!

Seems you're not wrong.


Best marketing ploy they ever did was to become a BANK ......has more credibility than a finance company and get mums and dads to deposit money with them.

Even their CFO publicly said it was just a marketing ploy

Today they lost some credibility in my eyes. There may well be valid reason why they didn't like my application, but if they're going to have this online application process, they need to get it sorted out as presently it's rubbish.

[percy]

Ring Chris Flood at Heartland.
09 927 9139 or 0272266508

[winner69]

The heartland digital things I’ve experienced leave a lot to be desired

Fintech they aren’t

[winner69]

Maybe you are far too rich for a Heartland loan cyclical?

Was it for a stand alone dwelling - I know somebody who was rejected because their house wasn’t.

[Cyclical]

Maybe you are far too rich for a Heartland loan cyclical?

Was it for a stand alone dwelling - I know somebody who was rejected because their house wasn’t.

Haha, if only!

Some of the questions it asks through the application process are if it's a stand alone dwelling on its own section, which is what we have.

I think they do have pretty narrow criteria, but it shouldn't be cloaked in mystery.

[Cyclical]

Ring Chris Flood at Heartland.
09 927 9139 or 0272266508

Thanks Percy but I don't think I'm quite ready to escalate to the CEO.

[percy]

Thanks Percy but I don't think I'm quite ready to escalate to the CEO.

He is very approachable,and I see it as part of his job helping a shareholder/customer.I am sure he does too.
I have a lot of time for him.

[thegreatestben]

I did that process and was approved. I was impressed as it only took about 5 minutes

[winner69]

Thanks Percy but I don't think I'm quite ready to escalate to the CEO.

He says on the website “When you need us, we’ll be there."

As percy says Chris a good guy ...I’m sure he’d appreciate your feedback and probably sort it out as well

[Cyclical]

He is very approachable,and I see it as part of his job helping a shareholder/customer.I am sure he does too.
I have a lot of time for him.
Ok, thanks, I'll take a look. Easy to just abandon it as a potential customer, but as a shareholder, I'm keen to understand what the underlying issues are and to find out if they're interested in fixing/improving the experience, or if that's just how they roll.


I did that process and was approved. I was impressed as it only took about 5 minutes
Good to know it does actually work for some.

[Rawz]

Cyclical, as a customer I would be frustrated with your experience but as a shareholder I wouldn't worry.

HGH are great at reverse mortgages, vehicle, construction, forestry, agri and transport finance.
Banks (the real banks) are great at home loans and credit cards. Let them both do what they do best I say.
And let them allocate precious capital to those areas they excel in.

This offer is all about them testing the market and their online systems to see if they can write loans with as little employee involvement as possible. That is why the customer service rep told you there isn't a mortgage team to talk to, because there literally isn't by design. If you cant tick all the boxes and get the computer to say yes then they don't want to know ya. If you can then great, you get the good rate and HGH spend only a few FTE hours on closing out the deal.

The banks have personal bankers spending hours with customers sitting in expensive branches. HGH trying to avoid this model.

HGH Fintech soonish maybe

[Cyclical]

Cyclical, as a customer I would be frustrated with your experience but as a shareholder I wouldn't worry.

HGH are great at reverse mortgages, vehicle, construction, forestry, agri and transport finance.
Banks (the real banks) are great at home loans and credit cards. Let them both do what they do best I say.
And let them allocate precious capital to those areas they excel in.

This offer is all about them testing the market and their online systems to see if they can write loans with as little employee involvement as possible. That is why the customer service rep told you there isn't a mortgage team to talk to, because there literally isn't by design. If you cant tick all the boxes and get the computer to say yes then they don't want to know ya. If you can then great, you get the good rate and HGH spend only a few FTE hours on closing out the deal.

The banks have personal bankers spending hours with customers sitting in expensive branches. HGH trying to avoid this model.

HGH Fintech soonish maybe
Yep, good post and good points, Rawz. I found an email in my junk off the back of the failed application, so have replied to that and will see where it goes. I'm probably stuck with Kiwibank for another year anyway due to the cash contribution effectively tying is in for 3 years, but regardless, will be interesting to go down the rabbit hole and see what the process looks like for potential Heartland customers.

I suppose from my perspective, if they're going to make a play at the mortgage market (pretty high profile one at that due to the sharp rate), then they should either do it right from the get go, or just not bother, as a failed foray can be quite damaging. That said, the issue with my app may well have been something as simple as checking the wrong box. If revisited the criteria and fail to see any that we'd fail on, so may have been a mistake, or the system doesn't like our address.

[Cyclical]

Was thinking the same peat

Also hard to maintain that huge 4.4% NIM when lending sub 2%
I imagine you know how it works, w69, but if not, Snoopy explained it well a few months back. He'll be along shortly to put me straight, but something like 15% of Heartland's / depositor's money at whatever cost that may be, then the other 85% from the RBNZ printing machine at the OCR. All adds up to a ~4% NIM. The caveat here is that I may have all that wrong!

[percy]

https://sendy.tarawera.co.nz/l/J6oLVth2f3f6IXNYvUBQEg/zYGryRmkBNhRA892fXm892srCQ/Dey9lnZpxpfZJibsTIlf8A

[Beau]

Thanks for sharing Percy great to see everything on track with reverse mortgages.

[Scrunch]

I imagine you know how it works, w69, but if not, Snoopy explained it well a few months back. He'll be along shortly to put me straight, but something like 15% of Heartland's / depositor's money at whatever cost that may be, then the other 85% from the RBNZ printing machine at the OCR. All adds up to a ~4% NIM. The caveat here is that I may have all that wrong!

The 15 / 85 is how a 4% net margin becomes a good return on equity.

[LaserEyeKiwi]

https://sendy.tarawera.co.nz/l/J6oLVth2f3f6IXNYvUBQEg/zYGryRmkBNhRA892fXm892srCQ/Dey9lnZpxpfZJibsTIlf8A

Excellent news (heartland reverse mortgage enquiries increased 39% in 1st quarter) - although I find it strange this sort of material information wasn't released via NZX market announcement and instead is in an interview to a relatively small website.

[winner69]

Excellent news (heartland reverse mortgage enquiries increased 39% in 1st quarter) - although I find it strange this sort of material information wasn't released via NZX market announcement and instead is in an interview to a relatively small website.

Overall profit expectations still within guidance so no need to disclose anything.

Good sign though ...where would you draw the line as to what stuff you tell the market?

Anyway the increase was probably expected / forecasted to make up for poor H1 - NZ Reverse Mortgages: Net operating income decreased -13.8% compared with 1H2020 to $11.2m.

[Snow Leopard]

.... a relatively small website.

That relatively small website is part of the same empire as this forum.
You are expected as a poster here to read it avidly (thus getting the inside line on the great companies on the NZX) and click at least 33% of the adverts to help pay for hosting your posts.

Disc: :)

[caveman]

The on-line mortgage application doesn't seem to ask for the purpose of a loan like most banks do these days.... So, can I shift my floating loan on my standalone property to HGH and use the funds to buy more HGH shares? ...or would they regard that as a risky/poor investment?

[Snow Leopard]

NZ becomes first in world for climate reporting (https://www.beehive.govt.nz/release/nz-becomes-first-world-climate-reporting)

Heartland, being such a responsible & caring bank, probably well ahead of the curve on this.

:mellow:

[SCOTTY]

Just hit $1.82. Looks like through both 30/100 MA - strong signal:)

[Greekwatchdog]

Revolving Credit Account @ 2.75%. Taking on the big boys. https://www.scoop.co.nz/stories/BU2104/S00272/heartland-expands-home-loans-offering-with-revolving-credit-at-market-leading-275-pa.htm

[thegreatestben]

Just need them to offer lending on investment properties and I'd be there in a heartbeat...

[LaserEyeKiwi]

Revolving Credit Account @ 2.75%. Taking on the big boys. https://www.scoop.co.nz/stories/BU2104/S00272/heartland-expands-home-loans-offering-with-revolving-credit-at-market-leading-275-pa.htm

2.7% revolving credit home loan - wow that is indeed an amazing rate.

[kiora]

2.7% revolving credit home loan - wow that is indeed an amazing rate.

Hmmm not really, only for max $100,000

[LaserEyeKiwi]

Hmmm not really, only for max $100,000

the big 4 banks charge on average 4.7% for the exact same thing, hard not to call this a fantastic offer.

[Ohdoyle]

Hmmm not really, only for max $100,000

Very few people put their whole mortgage on revolving credit. Most have the majority fixed and leave a portion on revolving credit of between 20 and 50k.

The 100k maximum is a non event as I'm not sure to many customers would want more than that. Only those with exceptionally large incomes maybe.

[Rawz]

Very few people put their whole mortgage on revolving credit. Most have the majority fixed and leave a portion on revolving credit of between 20 and 50k.

The 100k maximum is a non event as I'm not sure to many customers would want more than that. Only those with exceptionally large incomes maybe.

Again another product that gains market attention but is designed for not much uptake.
Marketing gurus at work.

[stoploss]

Again another product that gains market attention but is designed for not much uptake.
Marketing gurus at work.
Revolving credit facility is pretty valuable to a property investor. If you have it sitting @ 0 , with a $ 500 K limit gives you quite a bit of flexibility.....

[thegreatestben]

Not sure many banks would be willing to go to 500k. I had 200k with anz no questions asked but kiwibank would only give me 20% of total lending.

Having the flexi made it very convenient to move money around without having to tell/ask the bank. Very useful through the planning and consent phase of my subdivision.

[Rawz]

Revolving credit facility is pretty valuable to a property investor. If you have it sitting @ 0 , with a $ 500 K limit gives you quite a bit of flexibility.....

As per above $100k limit?

[stoploss]

As per above $100k limit?
No, If you have the assets and the serviceability , no problems.

[Bjauck]

Heartland are not providing the annual interest earned statements this year.

I rang them up to ask when they were being provided and the service agent’s response was that they were neither providing an annual certificate through online banking nor mailing a hard copy. The reason was that the information is provided through My IRD.

However Heartland Term and cash PIE earnings have not been provided through MyIRD and Heartland are not providing an annual PIE income statement. Taxpayers need to declare it as income if their PIR rate was too low for the year. My Big Australian Bank has provided both pie and income tax certificates. So, that is not good enough Heartland!

[Grimy]

I found what was on My IRD did not line up with the individual statements I have from Heartland over the course of the year. Some other companies are not providing a year end statement either.
It's a pain, as the system still isn't working properly in the odd case and it would be great if I only had to upload one statement to IRD, rather than several to show them the correct figures.
This has happened for several years now. But it is getting better. In my case only a few need correcting, rather than quite a few last year and heaps the year before.

[waikare]

I found what was on My IRD did not line up with the individual statements I have from Heartland over the course of the year. Some other companies are not providing a year end statement either.
It's a pain, as the system still isn't working properly in the odd case and it would be great if I only had to upload one statement to IRD, rather than several to show them the correct figures.
This has happened for several years now. But it is getting better. In my case only a few need correcting, rather than quite a few last year and heaps the year before.

I did my tax return last Saturday and the funds were in my account on Tuesday night, the exact amount that I had claimed. The only information I had to enter in to My IRD was my Aust. dividends, my 3 banks returns tallied to the same as the IRD figures (gross) that I recorded monthly on a spreadsheet. As for my dividends there was a difference of 10cents in the gross figure ($20400). I didn't bother to try and reconcile it. Very happy with the IRD, and now so easy and straight forward now as compared to previous years.

[winner69]

Heartland mentioned as a lender to this outfit that’s gone bust

Probably only peanuts and it’s secured so no worries

https://businessdesk.co.nz/article/law-regulation/capital-not-covid-reason-for-major-dairy-receivership

[X-men]

2019 full year profit $73.6m
2020 full year profit $72m..covid
2121 estimated full year profit $83 to $85m n yet SP still under $2

[kiora]

Heartland mentioned as a lender to this outfit that’s gone bust

Probably only peanuts and it’s secured so no worries

https://businessdesk.co.nz/article/law-regulation/capital-not-covid-reason-for-major-dairy-receivership

Probably secured but could be a very significant amount $m of borrowings
Built up a significant dairy holdings since arriving in NZ in 1990's
That would not come cheap particularly automation then Bovis hit

[KJMLimited]

This business has been in trouble for ages and it is common knowledge. One would expect an appropriate write down is already in the bad loans part of the balance sheet.

[X-men]

If full year profit is more than $85m....that would be exciting!

[winner69]

Westpac NZ profits doubled in H1

Wrote back a chunk of previous bad debt provisions ....and NIM increased

All bodes well for Heartland

Whose going to guess npat close to $100m this year ...rather than their own guess of $85m

[X-men]

happy with the target 85m...

[Snow Leopard]

Westpac NZ profits doubled in H1

Wrote back a chunk of previous bad debt provisions ....and NIM increased

All bodes well for Heartland

Whose going to guess npat close to $100m this year ...rather than their own guess of $85m

Thought you would have posted: "Jeff will make sure it comes in near target and then forecast a nice jump for next year."

[winner69]

happy with the target 85m...

Suppose $85m is pretty good v $72m in 2020 - that's up 18%

Thanks snowie for reminding me - Jeff will see 2021 is maybe $85.2m ....and maybe talk high 90's for 2022

[Scrunch]

Westpac NZ profits doubled in H1

Wrote back a chunk of previous bad debt provisions ....and NIM increased

All bodes well for Heartland

Whose going to guess npat close to $100m this year ...rather than their own guess of $85m

Agree. Westpac's result and general economic commentary should mean the Covid overlay taken last year is released. Will probably get commentary about the lower underlying result so as to set up 2022 as an increase on this 2021 underlying result, not a possible decrease on circa $100m npat.

[X-men]

https://www.nzherald.co.nz/business/bank-bounce-back-profits-rise-35-per-cent-in-last-three-months-of-2020/BFT3JKP7UEQSM5DSCHLITQ3CL4/

I reconk profit upgrade is coming soon

[winner69]

Global Dairy Trade overnight ...prices basically flat

Just like Heartland share price at the moment

[LaserEyeKiwi]

ANZ just reported interim result - big gain from reduction in credit impairment balance:

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ANZ/371670/345379.pdf

Interim dividend of 70c to be paid - almost back to normal (pre pandemic it was 80c per half year)

4.5% forward dividend yield is pretty good in current internet rate environment - but of course HGH will be quite a bit better (fingers crossed)

[Greekwatchdog]

Update https://www.nzx.com/announcements/371895

[winner69]

That's massive really ....

.....because it does not include any release of Heartland’s economic overlay,


So Jeff really saying $90m plus

[LaserEyeKiwi]

Heartland Group Guidance Update

10/5/2021, 9:35 am MKTUPDTENZX/ASX release
10 May 2021

This update on Heartland Group Holdings Limited’s (Heartland) (NZX/ASX: HGH) financial performance falls outside of Heartland’s usual reporting practice. However, Heartland considers a guidance update appropriate given the uncertainty which remains as to New Zealand’s resilience to the economic impact of the COVID-19 pandemic and the timing of the economic recovery.

All financial results in this announcement are based on the unaudited financial statements of Heartland and its subsidiaries for the nine months to 31 March 2021 (YTD). Relative growth rates are annualised, and include the impact of changes in foreign exchange rates.

Financial update

Heartland has achieved a net profit after tax (NPAT) of $21.0 million for the three months ended 31 March 2021 (3Q2021), bringing YTD NPAT to $65.1 million (or $64.3 million on an underlying basis, excluding the impacts of one-offs as detailed in Heartland’s announcement of its results for the six months to 31 December 2020 (1H2021)).

Underlying return on equity (ROE) was 11.9% (annualised YTD NPAT as a percentage of average equity), flat on 1H2021 underlying ROE.

Momentum in lending increased in 3Q2021, with gross finance receivables (including reverse mortgages) growing $158.6 million (13.7%), a significant uplift from $59.3 million (2.5%) in 1H2021, resulting in a YTD growth of $218.0 million (6.2%).

Growth was experienced in Motor, both New Zealand and Australian Reverse Mortgages and Business Intermediated. Current Home Loans pipeline momentum remains strong, with $580 million approved online and $30.3 million drawn down YTD. Heartland recently expanded its Home Loans offering with the provision of a Revolving Credit facility at New Zealand’s lowest rate.

Heartland maintained net interest margin (NIM) of 4.30% in the nine months to 31 March 2021, up 2 basis points on 1H2021.

The underlying cost to income (CTI) ratio for 3Q2021 was 44.1%, bringing the underlying YTD CTI ratio to 45.3% (1H2021: 45.9%). The reduction in the underlying CTI ratio during 3Q2021 demonstrates Heartland’s continuous focus on creating end-to-end processing efficiencies through ongoing digitalisation.

Impairments continue to perform strongly with a YTD impairment expense ratio (annualised impairment expense as a percentage of average receivables) of 0.27% (1H2021: 0.19%). The increase is due to higher than usual repayments in 1H2021, combined with significantly stronger growth in receivables in 3Q2021 compared with 1H2021.

General update

Heartland’s digital strategy is evolving further, becoming embedded in operations. What this means is the removal of friction and the prioritisation of speed in delivering service which enhances customer experience and results in processing efficiencies. The online platform for Home Loans is an example of this, where Heartland is currently able to offer the most competitive mortgage rates and will soon offer even lower rates, passing on the benefits of digital banking directly to New Zealand home owners. Ultimately, it will also be demonstrated in reductions in the CTI.

On 31 March 2021, the Reserve Bank of New Zealand (RBNZ) announced that it was easing dividend restrictions which were put in place in April 2020 (and extended in November 2020), to allow banks to pay up to 50% of their NPAT to shareholders. The 50% dividend restriction will remain in place until 1 July 2022, at which point the RBNZ intends to remove the restrictions entirely (subject to no significant worsening of economic conditions).

Harmoney’s transition of its funding model from a peer-to-peer off-balance sheet model to wholesale securitised on-balance sheet funding via warehouse structures is well advanced, and the transition of Heartland’s facilities with Harmoney is progressing well.

Despite continued elevated levels of uncertainty regarding the economic impact of COVID-19, Heartland’s economic overlay of $9.6 million taken in respect of the financial year ended 30 June 2020 remains unutilised. Heartland’s Board continues to consider the need for this overlay as part of Heartland’s upcoming year-end financial results process for 30 June 2021 (FY2021).

Looking forward

Provided current trends continue as expected and economic conditions remain stable, Heartland now expects NPAT for FY2021 to be in the range of $85 million to $86 million. This updated NPAT forecast range does not include any release of Heartland’s economic overlay, which remains under continuous review by Heartland’s Board, and on which no decision has been made.

– ENDS –

[winner69]

That's massive really ....

.....because it does not include any release of Heartland’s economic overlay,


So Jeff really saying $90m plus

[iceman]

That's massive really ....

.....because it does not include any release of Heartland’s economic overlay,


So Jeff really saying $90m plus

He sure is saying that. What a ripper of an update :-)

[percy]

He sure is saying that. What a ripper of an update :-)

Agree.A ripper.......................
Well done Jeff and the team.

[LaserEyeKiwi]

lol - just a 1% stock price pop on the news. What is wrong with this market?

[stoploss]

lol - just a 1% stock price pop on the news. What is wrong with this market?

It's the hare and the tortoise..... 1 % is a little bit better than -20 % available elsewhere on this Forum ......

[LaserEyeKiwi]

It's the hare and the tortoise..... 1 % is a little bit better than -20 % available elsewhere on this Forum ......

Fair comment!

Ok up 2% now, maybe some of that ATM money flowing into HGH

[winner69]

First profit upgrade in 5 years (was one downgrade once and that was to allow for restructuring and ASX listing costs)

The master of managing earnings and putting things in the bottom drawer is losing his touch

Things must be going very very well at Heartland if Jeff has had to come clean ...and there's still another quarter to go

[Beau]

Pleasing to see everything thing still well on track Happy long term holder.

[nztx]

lol - just a 1% stock price pop on the news. What is wrong with this market?


RB Straight Jacket still on until 2022 - did I read ? ;)

[X-men]

Pretty sure it will hit $2 soon

[Beagle]

Decent trading update today that was in line with my thinking. I am looking for net profit in the early $90's million range for FY22 which gives them an eps of approx 15.8 cps and am hopeful the economy will be in a strong recovery and am looking for a recovery PE of approx 14.5 times earnings (which is the average of where the peer group I follow on the ASX is currently trading).
I am hopeful of a target price one year hence of ~ $2.30. The most obvious risk to that is another / more Covid lockdown(s) so the current price probably quite fairly reflects the potential risks and rewards.

[Scrunch]

RB Straight Jacket still on until 2022 - did I read ? ;)

Only partly. Their dividends from the NZ operation are limited but they can flex this a bit through a payout source of that isn't from the banking bit of the group. That's my understanding anyway.

[Getty]

Welcome back Beagle!

[winner69]

Jenny Ruth has a nice warm fuzzy piece on Heartland in BusinessDesk

Starts off -

It's always a dangerous thing to bet against a company with an established track record of doing what it says it will do.

Last December, Forsyth Barr analysts clearly didn't believe the message Heartland Group gave the annual shareholders' meeting that the company was tracking ahead of expectations.

Heartland has just proven them wrong in the best possible way; it raised its full-year earnings guidance after reporting it had 75% or more of the higher annual forecast under its belt from the first nine months.

[Greekwatchdog]

And latest update this morning. I do note that they have revised their target price upwards still Underperform.3Q21 Update — Expensive at Current Levels

UNDERPERFORM
Heartland Group Holdings (HGH) has reported an unscheduled trading update for the nine months to 31 March 2021,
citing supportive economic conditions and modest receivable loan growth in the Motor, Reverse Mortgage and Business
Intermediated divisions. Guidance for FY21 was lifted by +2% at the mid point to NZ$85m–$86m (vs. our prior
expectations of NZ$82.2m) from prior guidance of NZ$83m–$85m. HGH's cost to income ratio was reported at 44.1%
(-3.2% on 1H21), its impairment ratio was 0.27% (+0.17% on 1H21) and receivable loan growth was up +3.4% on 1H21.
Going forward, we remain unconvinced that HGH can generate a long term return on equity in excess of its cost of capital
given its sub scale, higher risk profile, lower quality loan book and lack of competitive advantage, and are yet to see the
benefits of its digital strategy materialise. Given a recent rally in the stock price, we retain our UNDERPERFORM rating.
What's changed?
Modest 3Q21 receivables loan growth
Receivable growth of +3.4% in 3Q21 was driven by increases in its Motor, Business Intermediated and Reverse Mortgage books,
highlighting favourable category exposures. Repayments in 3Q21 were lower than 2H21, having normalised post COVID-19
disruptions. We expect the motor division in particular to continue to perform strongly in 4Q21, given healthy domestic demand.
Residential mortgages — a change in approach?
HGH is looking to build upon its small residential mortgage book and compete with large International banking peers. At this stage we
remain cautious regarding the opportunity for HGH given 1) the slim margins generated with a product yield starting from 1.99%, 2)
the highly competitive nature of residential mortgages in the New Zealand market, and 3) the brand power behind competing
Australian banks. However, if execution is successful, we note a greater return on equity can be generated given the lower capital
requirements needed for a residential mortgage product vs its current product mix. The company currently has ~NZ$30m of
residential loan receivables (0.6% of its total loan book).
Valuation
HGH and Australian banking peers have re-rated strongly with initial fears of a severe downside economic scenario now subsiding.
With the stock trading on a P/BV of 1.15 and generating a ROE/COE of 1.04 for FY21, using a variant of the Gordon Growth Model we
derive a target price of NZ$1.79, retaining an UNDERPERFORM rating

[Beagle]

Forsyth Barr have been consistent with their negativity I will give them that but they have also been consistently very wrong. Their forecasts earlier in the year were wildly different to HGH's own forecast, (and drew quite widespread derision on here by many experienced investors) and have been proven to be dramatically wrong.

[percy]

HGH is looking to build upon its small residential mortgage book and compete with large International banking peers. At this stage we
remain cautious regarding the opportunity for HGH given 1) the slim margins generated with a product yield starting from 1.99%, 2)
the highly competitive nature of residential mortgages in the New Zealand market, and 3) the brand power behind competing
Australian banks. However, if execution is successful, we note a greater return on equity can be generated given the lower capital
requirements needed for a residential mortgage product vs its current product mix. The company currently has ~NZ$30m of
residential loan receivables (0.6% of its total loan book).
Valuation

From what Jeff Greenslade said some time ago was it was a very easy product for them to do,so why not do it.?
Very small add on to HGH.
No big deal.Bit like a supermarket having lollies at the check outs.

[winner69]

Crux of Forbar's valuation is based on these two statements -


Going forward, we remain unconvinced that HGH can generate a long term return on equity in excess of its cost of capital given its sub scale, higher risk profile, lower quality loan book and lack of competitive advantage,

and

With the stock trading on a P/BV of 1.15 and generating a ROE/COE of 1.04 for FY21, using a variant of the Gordon Growth Model we derive a target price of NZ$1.79,

Generating returns in excessive of ones cost of capital is the foundation of corporate finance and in the long term a company's value is generally determined by that metric - rather than the cheats way of using PE ratios etc

[Beagle]

Forbar's 12 month price target issued in October 2020 was $1.35 based on eps of just 10.5 cps.
My price target issued in October 2020 was $1.81 based on eps of 14.4 cps. I can post quotes if anyone wants me too.
Forbar's track record speaks for itself. I backed the truck up at $1.35 in November to celebrate my birthday and figured HGH was the gift you give yourself. Best present I ever bought myself.

I remain comfortable with my $2.30 price target 1 year hence from here with the caveat of the risks mentioned yesterday.

[Snow Leopard]

Gordon Growth Model?

This something out of one of the Wall Street movies? :)

[peat]

Gordon Growth Model?

This something out of one of the Wall Street movies? :)

genuinely seems legit...

(not being sarcastic)

[LaserEyeKiwi]

Forbar's 12 month price target issued in October 2020 was $1.35 based on eps of just 10.5 cps.
My price target issued in October 2020 was $1.81 based on eps of 14.4 cps. I can post quotes if anyone wants me too.
Forbar's track record speaks for itself. I backed the truck up at $1.35 in November to celebrate my birthday and figured HGH was the gift you give yourself. Best present I ever bought myself.

I remain comfortable with my $2.30 price target 1 year hence from here with the caveat of the risks mentioned yesterday.

Wow Forsyth Barr have been so completely humiliated with their previous targets, that even when they raise it dramatically they are still negative on the stock. I feel sorry for any investors following their recommendation today (I dont why anyone would considering how off they were previously.)

I also think the Home loan business is dramatically underestimated.

So incredibly silly seeing the stock price LOWER than it was before yesterdays profit upgrade.

[winner69]

Wow Forsyth Barr have been so completely humiliated with their previous targets, that even when they raise it dramatically they are still negative on the stock. I feel sorry for any investors following their recommendation today (I dont why anyone would considering how off they were previously.)

I also think the Home loan business is dramatically underestimated.

So incredibly silly seeing the stock price LOWER than it was before yesterdays profit upgrade.

.......shareprice heading down to Forbars target:eek2::scared::t_down::t_up::p:D

[Beagle]

Wow Forsyth Barr have been so completely humiliated with their previous targets, that even when they raise it dramatically they are still negative on the stock. I feel sorry for any investors following their recommendation today (I dont why anyone would considering how off they were previously.)

I also think the Home loan business is dramatically underestimated.

So incredibly silly seeing the stock price LOWER than it was before yesterdays profit upgrade.
And yet Forbar are doing the best of the brokers in this years sharesight competition...life's full of ironies isn't it !!
Perhaps like in any brokerage house, the caliber of various analysts therein is somewhat variable ;)

[Rawz]

HGH priced about right. Bit of a boring but solid hold at the moment. Most had a good ride from $1.10's - $1.20's to $1.80's (some would have even got in lower). I personally got off the train a few months back at $1.84. Better trains to ride

[Cyclical]

Is it just me or have others noticed a push in advertising for their home loan product? Like just now, prime time, one news.

[Azza]

It's getting around, I've noticed it and the only mainstream media I would see during the day will be the 30 min news at 12. Other than that they must be pushing online advertising alot too, think I've seen a fair amount on FB and may have had some on YT.

[Greekwatchdog]

New Home lone rates. Going after the big boys. https://www.nzx.com/announcements/372087

[thegreatestben]

Love it, would be there in a heartbeat if I could.

[LaserEyeKiwi]

New Home lone rates. Going after the big boys. https://www.nzx.com/announcements/372087

Wow - fantastic! will definitely be witching myself at my next renewal.


Heartland drops home loan rates to new lows

12/5/2021, 1:36 pm GENERALNZX/ASX release
12 May 2021

Heartland drops home loan rates to new lows: 1.85% p.a. 1-year fixed, 1.95% p.a. floating

Heartland Group Holdings Limited’s (Heartland Group) (NZX/ASX: HGH) subsidiary Heartland Bank Limited (Heartland Bank) (NZX: HBL) (together, Heartland) has disrupted the home loan market again, this time with the reduction of its 1-year fixed and floating term loan rates. This announcement comes shortly after Heartland broadened its mortgage offering with New Zealand’s lowest revolving credit facility rate.

The challenger bank now offers the following fixed and floating rates, which are each the lowest of their category:

1.85% p.a. 1-year fixed
2.35% p.a. 2-year fixed
2.45% p.a. 3-year fixed
1.95% p.a. floating term loan
2.35% p.a. floating revolving credit

In the quarter ended 31 March 2021, the fintech lender saw a 173% increase in average monthly drawdowns compared with the previous quarter ended 31 December 2020, and has received over 6,600 applications since re-entering the residential mortgage market in October 2020.

Heartland’s online process allows for a faster home loan approval than the traditional process with other lenders. Those who meet the eligibility criteria can fill out the digital application in minutes and get a decision online, with no need to make an appointment or arrange for someone to come to them.

“People shouldn’t need to pay so much for their mortgage,” explained Heartland Bank CEO Chris Flood. “Our approach to home loans is disrupting the traditional market in favour of a digital solution, one which can offer customers market-leading rates and time savings.”

Visit heartland.co.nz/home-loans to learn more about Heartland’s eligibility criteria.
Heartland Bank lending criteria, terms and conditions apply.

– ENDS –

[winner69]

The FINTECH lender

Like it

Wonder how the vehicle part demerger progressing

[Beagle]

Not sure what lending at this rate does to their net interest margin...but everyone else seems happy about it so lets all have a group hug, lay around and be happy https://www.bing.com/images/search?view=detailV2&ccid=hIYy0FFq&id=61506B60806C9AEB811B8DFDE2926072EB639A9C&thid=OIP.hIYy0FFqaqH7rVAPtvIupQHaHa&mediaurl=https%3A%2F%2Fwooftiny.com%2Fwp-content%2Fuploads%2F2020%2F04%2F10-Pictures-Beagle-Make-Me-So-Happy-03.jpg&exph=858&expw=858&q=happy+beagle&simid=608036651877558244&ck=D9E1EA402EF10339944DBFFB6E2572D1&selectedindex=3&form=IRPRST&ajaxhist=0&ajaxserp=0&vt=0&sim=11&cdnurl=https%3A%2F%2Fth.bing.com%2Fth%2Fid%2FR8486 32d0516a6aa1fbad500fb6f22ea5%3Frik%3DnJpj63JgkuL9j Q%26pid%3DImgRaw

[LaserEyeKiwi]

Not sure what lending at this rate does to their net interest margin...but everyone else seems happy about it so lets all have a group hug, lay around and be happy https://www.bing.com/images/search?view=detailV2&ccid=hIYy0FFq&id=61506B60806C9AEB811B8DFDE2926072EB639A9C&thid=OIP.hIYy0FFqaqH7rVAPtvIupQHaHa&mediaurl=https%3A%2F%2Fwooftiny.com%2Fwp-content%2Fuploads%2F2020%2F04%2F10-Pictures-Beagle-Make-Me-So-Happy-03.jpg&exph=858&expw=858&q=happy+beagle&simid=608036651877558244&ck=D9E1EA402EF10339944DBFFB6E2572D1&selectedindex=3&form=IRPRST&ajaxhist=0&ajaxserp=0&vt=0&sim=11&cdnurl=https%3A%2F%2Fth.bing.com%2Fth%2Fid%2FR8486 32d0516a6aa1fbad500fb6f22ea5%3Frik%3DnJpj63JgkuL9j Q%26pid%3DImgRaw

I think this is more of a marketshare grab Beagle.

There is usually a lot of friction involved in changing mortgage providers, so most do not do it for a small 0.1 or 0.2 difference in mortgage rate. However HGH is now 0.5 cheaper than the major banks on fixed rates, and a whopping 2.5 cheaper on floating rates!, and I think that sort of gap will shift a lot of people.

I really think this is a massive growth business for HGH - and it won't be too long before they have a mortgage book over $1 Billion.

[Biscuit]

..... it won't be too long before they have a mortgage book over $1 Billion.


...paying them peanuts? and if there is a significant fall in property prices....?

[LaserEyeKiwi]

Some positive coverage https://www.interest.co.nz/personal-finance/110365/surprise-move-heartland-bank-has-sharply-cut-its-floating-and-one-year-fixed


As the winter real estate season approached and housing market activity starts to fall away, one bank is making a big play for the remaining home loans business.

Heartland Bank has cut its already low rates sharply.

It's core one-year fixed rate has been sliced to 1.85%, a -14 bps drop from what was already the lowest rate in the bank mortgage market.

And it has cut its already low 2.50% floating rate to 1.95%, a major -55 bps reduction.

Further it has cut -40 bps from its revolving credit rate, taking it down to 2.35%.

These are eye-catching changes.

That one year fixed rate is a full -40 bps lower than any of the major banks. It is also -34 bps lower than any other bank's one year 'special', and -24 bps below the Cooperative Bank's one year FHB 'special'.

It is easily the lowest one year rate from any institution, ever.

Heartland's 1.95% floating rate is also a market low, far lower than the 3.40% from Kiwibank, or the 2.25% on offer from KiwiSaver provider Simplicity for their members.

[LaserEyeKiwi]

...paying them peanuts? and if there is a significant fall in property prices....?

Once it has built a large book, it takes advantage of the high friction of changing and can slowly raise rates (while still being significantly lower than competitors due to its low cost model)

[Beagle]

I think this is more of a marketshare grab Beagle.

There is usually a lot of friction involved in changing mortgage providers, so most do not do it for a small 0.1 or 0.2 difference in mortgage rate. However HGH is now 0.5 cheaper than the major banks on fixed rates, and a whopping 2.5 cheaper on floating rates!, and I think that sort of gap will shift a lot of people.

I really think this is a massive growth business for HGH - and it won't be too long before they have a mortgage book over $1 Billion.

I liked this bit "One rate Heartland has not trimmed is its reverse mortgage rate which remains at 5.95% pa".

[winner69]

All part of the strategy of promoting themselves to the finance world as a FINTECH company ...rather than a finance company (and pretend bank)

FINTECHs rewarded with higher market multiples they say.

[LaserEyeKiwi]

Just want to emphasise that Mortgages are a massive blue ocean for HGH now that it has entered.

The NZ mortgage market is now over $300 Billion in size, so having a target as low as 1% of that market would grow HGH significantly.

[Snow Leopard]

But is it actually good for HGH to go bigly into the ordinary mortgage market?

Might as well sell up and buy ANZ.

[clearasmud]

But is it actually good for HGH to go bigly into the ordinary mortgage market?

Might as well sell up and buy ANZ.
Of course it's good.
The RB is bankrolling Heartland at 0.25%

[winner69]

Just want to emphasise that Mortgages are a massive blue ocean for HGH now that it has entered.

The NZ mortgage market is now over $300 Billion in size, so having a target as low as 1% of that market would grow HGH significantly.

Jeez ...low target of 1% is 3 billion

Heartland receivables currently about 5 billion


That would indeed grow Heartland significantly

Just imagine 2% share ...double the size of Heartland

[Ferg]

Does anyone know if Heartland does not give preferential access to the brokers analysts?

[Cyclical]

Not sure what lending at this rate does to their net interest margin...


...paying them peanuts?


Of course it's good.
The RB is bankrolling Heartland at 0.25%

Exactly, clearasmud, they can still hit ~4% NIM with these rates, so go for gold I say. They are certainly making a big push with TV advertising, so I think they are pretty serious about grabbing a slice of the action.

I had a rant recently about a failed application online, but it transpired I made a mistake and checked something by accident...I was accepted in the end. But Kiwibank have me tied in for another 12 months, so I'm stuck there for now. One thing I found though, while on the face of it the Heartland rates look very competitive, they are a bit light on the cash incentive side of things compared with what I'm used to getting at Kiwibank at least (it's been 2 years though), so could be a case of horses for courses.

[winner69]

Didnt’t Snoopy once explain how lending at sub 2% can still give a NIM of 4% seeing intuitively it can’t be done.

[Cyclical]

Didnt’t Snoopy once explain how lending at sub 2% can still give a NIM of 4% seeing intuitively it can’t be done.

From last time...


I imagine you know how it works, w69, but if not, Snoopy explained it well a few months back. He'll be along shortly to put me straight, but something like 15% of Heartland's / depositor's money at whatever cost that may be, then the other 85% from the RBNZ printing machine at the OCR. All adds up to a ~4% NIM. The caveat here is that I may have all that wrong!

[Scrunch]

Didnt’t Snoopy once explain how lending at sub 2% can still give a NIM of 4% seeing intuitively it can’t be done.

You can't get a NIM of 4% but you can get a good margin on the capital needed to support the lending. If you make a 1% margin on the RBNZ/other borrowing financed bit and 2% on the equity financed bit the return on equity is 11% (if equity finances 10% of the lending). The lower you can get the equity supporting the loans, the higher the return on equity.

[Cyclical]

Didnt’t Snoopy once explain how lending at sub 2% can still give a NIM of 4% seeing intuitively it can’t be done.

I went digging back to October to find a couple of posts we had going on the subject...ok, maybe ~4% NIM was dreaming... The bold bit at the bottom is likely the key though.


Thanks Snoopy, I think I know where you are coming from, but personally I'm struggling to arrive at ~3.5%, unless you think OCR is going to -2% while Mortgage rates remain unchanged at 1.99%.

Here's my stab at it, all things being equal...please tell me where I'm going wrong:



At today’s rates:





Laon Amount
$100,000.00
1.99%
$1,990.00








Funding Sources:





Term Deposit
$15,000.00
1.05%
$157.50


RBNZ
$85,000.00
0.25%
$212.50


Total Loan Cost


$370.00










NIM ($)
$1,620.00




NIM (%)
1.62%

















I think I can get that net interest margin up a bit Cyclical. A home loan has an RWA (Risk Weightings Adjustment) as low as 35%. That means the loan capital to back up a 35% RWA $100,000 mortgage is not $15,000, but only 0.35 x $15,000 = $5,250. So the bank's cost of 'income in' verses 'funding' on that loan now look like this:



At today’s rates:





Loan Amount
$100,000.00
1.99%
$1,990.00








Funding Sources:





Term Deposit
$5,250.00
1.05%
$55.13


RBNZ
$94,750.00
0.25%
$236.88


Total Loan Cost


$292.01










NIM ($)
$1,697.99




NIM (%)
1.70%















That is of course is just the interest charge bit of the NIM. Normally on top of that there are application fees, approval fees, variation fees etc. Looking on the Heartland website for 'mortgage fees', this particular 1.99% offer looks clean (although that 20% deposit requirement might knock out some applicants). However, I think the key point here is that historical Heartland's 4% net interest margin is across the whole loan book. In some loan categories, the NIM would be less than 4%. Furthermore the 'net interest margin' is only one input factor into the 'net profit margin'. It might be worthwhile settling for a lower NIM if it meant less follow up was required to manage payments due, which implies a positive effect on the 'net profit margin'.

SNOOPY

[Cyclical]

You can't get a NIM of 4% but you can get a good margin on the capital needed to support the lending. If you make a 1% margin on the RBNZ/other borrowing financed bit and 2% on the equity financed bit the return on equity is 11% (if equity finances 10% of the lending). The lower you can get the equity supporting the loans, the higher the return on equity.

You hit the nail on the head there, Scrunch, which just goes to show that we shouldn't put too much emphasis on NIM.

[X-men]

Pretty happy with HGH..one of my biggest holding. Reconk will hit $2 in coming reporting day

[Scrunch]

You hit the nail on the head there, Scrunch, which just goes to show that we shouldn't put too much emphasis on NIM.

And refining some of the numbers, the Non-property investor residential mortgage loan has a risk weighting of 0.35 if the loan is current, has a <80% LVR and is to a residential owner occupier (HGH conditions?). While HGH may ultimately need a 16% capital adequacy ratio, the 0.35 weighting means if the book had no arrears, you could theoretically have equity financing 5.6% of the loans and the remaining 94.4% financed by borrowing. >15x leverage helps the maths.

RBNZ's funding for lending scheme should be available for up to half of all new eligible lending. This would mean half the financing needed for the new 1.85% loans could be sourced from RBNZ at the cash rate (0.25%). This would create a margin of 1.6% (not 1%) on this part of the financing structure.

These changes would improve the return on equity to a theoretical 25%+. Unfortunately income tax will lower this, as will any bad debts, commissions paid to brokers, any large sign-on legal fees subsidies and non-automated back-end processes. Assuming all these other bits are well managed it looks like this <2% lending could be nicely profitable.

[iceman]

Just want to emphasise that Mortgages are a massive blue ocean for HGH now that it has entered.

The NZ mortgage market is now over $300 Billion in size, so having a target as low as 1% of that market would grow HGH significantly.

I am a bit more weary about this growing emphasis on the mortgage market, in direct competition with the big boys. We have done very well for many years with our fringe products where the big boys have pretty much left us alone, reverse mortgages being a prime example.
Yes of course the RBNZ is currently providing some very cheap lending but going into the mortgage market boots & all has to be a long term strategy that will last well beyond the cheap funds from the RBNZ.

[percy]

I am a bit more weary about this growing emphasis on the mortgage market, in direct competition with the big boys. We have done very well for many years with our fringe products where the big boys have pretty much left us alone, reverse mortgages being a prime example.
Yes of course the RBNZ is currently providing some very cheap lending but going into the mortgage market boots & all has to be a long term strategy that will last well beyond the cheap funds from the RBNZ.

Perhaps it is not a long term strategy.?
When the cheap RBNZ funds are gone, so will be HGH from this sector.?
While there is currently a profitable "window of opportunity" in this sector HGH are taking advantage of it.

[winner69]

Perhaps it is not a long term strategy.?
When the cheap RBNZ funds are gone, so will be HGH from this sector.?
While there is currently a profitable "window of opportunity" in this sector HGH are taking advantage of it.

..............and highlighting / stressing their FINTECH credentials

Market needs reminding they not an ordinary finance company

[percy]

..............and highlighting / stressing their FINTECH credentials

Market needs reminding they not an ordinary finance company

Profitable business,and cheap advertising.

[JohnnyTheHorse]

Harmoney has a $200m+ facility with Heartland coming soon:

https://www.nzx.com/announcements/372109

[winner69]

Still can't believe that Jeff came out with a profit upgrade. First one in 5 years (probably many more years than that)

Here's a table showing Jeff's 'managing profit' efforts over the last few years. No surprises / we always do what we will say we will do etc etc

Jeff will say Heartland's NPAT for year will be $86.4m - they'll report $93.1m with the covid overlay being released but Jeff will stress that that's not real and say actualy underlying earnings were $86.4m

Just like last year Jeff talked about the $78.9m rather than the reported $72.0m

[Ferg]

Can't argue with that. He does what he says he is going to do. What it shows is a deep understanding of the business and its drivers. Either that or some "creative bookkeeping" through provisions.... Thanks for sharing.

[Panda-NZ-]

Good profit in a low interest rate environment. Imagine how good it will be when they actually increase.

[dabsman]

Good profit in a low interest rate environment. Imagine how good it will be when they actually increase.

That's why I bought myself some Harmoney yesterday. Let's see how that goes from some quite depressed prices currently

[Rawz]

Can't argue with that. He does what he says he is going to do. What it shows is a deep understanding of the business and its drivers. Either that or some "creative bookkeeping" through provisions.... Thanks for sharing.

Probably a bit of both to be fair.

[Panda-NZ-]

Hmm can Heartland run their own kiwisaver scheme or wouldn't it be worthwhile for them.

[Beagle]

Can't argue with that. He does what he says he is going to do. What it shows is a deep understanding of the business and its drivers. Either that or some "creative bookkeeping" through provisions.... Thanks for sharing.

It is quite "interesting" how they can project forward a whole year ahead what the profit will be and more often than not get it pretty spot on. You could very easily be forgiven for thinking some variations in their bad and doubtful debts provisioning methodologies occur from one year to another to make the numbers fit which kind of makes me wonder why bother with such a modest forecast upgrade ? (Not that I am complaining, disc: I have truckloads). Anyway...in August 2021 when they report a profit we already know for FY21 we get to know what FY22's profit will be and that's pretty cool no matter how you slice and dice this.

[winner69]

It is quite "interesting" how they can project forward a whole year ahead what the profit will be and more often than not get it pretty spot on. You could very easily be forgiven for thinking some variations in their bad and doubtful debts provisioning methodologies occur from one year to another to make the numbers fit which kind of makes me wonder why bother with such a modest forecast upgrade ? (Not that I am complaining, disc: I have truckloads). Anyway...in August 2021 when they report a profit we already know for FY21 we get to know what FY22's profit will be and that's pretty cool no matter how you slice and dice this.

The master of profit smoothing was Jack Welch at GE --- chart below proves that

Maybe Jeff learnt a few tricks from him.

Its actually a hard thing to do well because you need to remember whats in each little hidey hole - I've seen a few attempts at it fail big time

In GE's case Jack's successor had to unwind a few things

[winner69]

Some investors however do see 'smoothness' of earnings as a red flag

But I've long admired Jeff's ability at it

[Beau]

Yes quite a contrast to smooth or not to smooth

[Beagle]

Some investors however do see 'smoothness' of earnings as a red flag

But I've long admired Jeff's ability at it

In a world full of rough seas smooth is a refreshing change. Huge ups and downs are no good for the heart rate, see 16 second mark https://www.youtube.com/watch?v=c8qBvw3ofyE
I like the boat but those conditions are for younger and keener blokes than me :eek2:

[dibble]

It is quite "interesting" how they can project forward a whole year ahead what the profit will be and more often than not get it pretty spot on.

You must be repetitively well "impressed" then with how the chinese "Govt" does it with their GDP.

[winner69]

You must be repetitively well "impressed" then with how the chinese "Govt" does it with their GDP.

And they can do the sums and publish the result within a week after period end.

Most other countries take 2 to 3 months eh

[jg8512]

competition for HGH's Aust reverse mortgage business ... from the Federal govt, FFS.
https://www.servicesaustralia.gov.au/individuals/services/centrelink/pension-loans-scheme

at least they don't pay yet as a lump sum (yet!?)

[jg8512]

competition for HGH's Aust reverse mortgage business ... from the Federal govt, FFS.
https://www.servicesaustralia.gov.au/individuals/services/centrelink/pension-loans-scheme

at least they don't pay yet as a lump sum (yet!?)


actually you can now get lump sum advances from the Aust Federal govt: https://www.dss.gov.au/sites/default/files/documents/05_2021/budget-2021-22_strengthening_the_social_security_safety_net_11 _05_2021_1000.pdf

[Snoopy]

actually you can now get lump sum advances from the Aust Federal govt: https://www.dss.gov.au/sites/default/files/documents/05_2021/budget-2021-22_strengthening_the_social_security_safety_net_11 _05_2021_1000.pdf


Your Australian budget reference says from 1st July 2022:

"From 1 July 2022, pending the passage of legislation, Pension Loans Scheme recipients will benefit from:

•a No Negative Equity Guarantee, which means recipients will never owe more than the value of the equity in the secured property, and
•access to capped advance payments."

"Recipients will be able to access up to two lump sum advances in any 12-month period, up to a total value of 50 per cent of the maximum annual rate of Age Pension. Based on current Age Pension rates, a single person would be able to receive lump sum payments of up to around $12,385 per year, while couples combined could receive up to around $18,670"

https://www.servicesaustralia.gov.au/individuals/services/centrelink/pension-loans-scheme/how-much-you-can-get

Looks like the Federal government interest rate for reverse mortgage borrowers is 4.5% compounding fortnightly.

This does look like serious competition for the 'Heartland Reverse Mortgage Business' in Australia!

SNOOPY

[winner69]

I.....

..makes me wonder why bother with such a modest forecast upgrade ?

.....

.

Good question

I think Jeff is really telling us that they will get to $86m (up from $79m last year ...without the covid delay.

In Jeff’s mind the covid overlay doesn’t really exist and is not ‘normal’

He’s basically saying that when he reports $93m (writing back the overlay) don’t use that number as real performance (like we didn’t really go from $72m to $93m)......esp in your valuation models ... and forecasts for F22 .....as our guidance would then show we not doing very well.

Like F22 guidance $94m looks good v $86m in F21 but terrible v $93m reported profit.

Jeff’s just educating you all to be real

[percy]

Good question

I think Jeff is really telling us that they will get to $86m (up from $79m last year ...without the covid delay.

In Jeff’s mind the covid overlay doesn’t really exist and is not ‘normal’

He’s basically saying that when he reports $93m (writing back the overlay) don’t use that number as real performance (like we didn’t really go from $72m to $93m)......esp in your valuation models ... and forecasts for F22 .....as our guidance would then show we not doing very well.

Like F22 guidance $94m looks good v $86m in F21 but terrible v $93m reported profit.

Jeff’s just educating you all to be real

And he does it so subtly..

[Bjauck]

...
This does look like serious competition for the 'Heartland Reverse Mortgage Business' in Australia!

SNOOPY
Crown competition will be difficult to beat. Government and Reserve Bank policies have meant many regular folk are asset rich, with valuable homes, but financial assets/cash poor. It makes sense that they increase pensions by way of a loan instead of an outright benefit. As it is based on how much real estate equity the elderly recipient has, This scheme is a hybrid means tested pension/estate duty. I imagine the NZ Government is closely following what is happening in Australia as many NZ pensioners are asset rich but cash poor too.

[Rawz]

Crown competition will be difficult to beat. Government and Reserve Bank policies have meant ordinary folk are asset rich, with valuable homes, but financial assets/cash poor. It makes sense that they increase pensions by way of a loan instead of an outright benefit. As it is based on how much real estate equity the elderly recipient has, This scheme is a hybrid means tested pension/estate duty. I imagine the NZ Government is closely following what is happening in Australia as many NZ pensioners are asset rich and cash poor too.

The reverse mortgage product has been highly successful for HGH and I must say I was shocked when I saw the AFR article pop up on facebook talking about how retirees can go directly to the source and skip the middleman (HGH).

If NZ govt follows suit I wonder how much impact it will have on HGH earnings.

Sheesh what is next.. may as well open the government or better yet RBNZ tap for first home buyers. Actually who needs banks? :eek2:

[peat]

This does look like serious competition for the 'Heartland Reverse Mortgage Business' in Australia!

SNOOPY

i mean its okay if you write an app and Microsoft or Apple consume you, at least they pay if you got your IP tied down but ... the Govt just swooping in on your business, that sux. Hard to compete with an infinite balance sheet.
So I guess they will possibly have to consider modifications to add further value for the client, over and above the state version. Convenience and flexibility components will need to be worked even harder.

[Beagle]

Good question

I think Jeff is really telling us that they will get to $86m (up from $79m last year ...without the covid delay.

In Jeff’s mind the covid overlay doesn’t really exist and is not ‘normal’

He’s basically saying that when he reports $93m (writing back the overlay) don’t use that number as real performance (like we didn’t really go from $72m to $93m)......esp in your valuation models ... and forecasts for F22 .....as our guidance would then show we not doing very well.

Like F22 guidance $94m looks good v $86m in F21 but terrible v $93m reported profit.

Jeff’s just educating you all to be real

Great post and it won't surprise me in the slightest if the guidance for FY22 is exactly what you suggest, $94m :)

[Ferg]

So I guess they will possibly have to consider modifications to add further value for the client, over and above the state version. Convenience and flexibility components will need to be worked even harder.

A good point which shouldn't be overlooked. I would expect this was already identified as a risk and HGH has its point of differentiation sorted. Also, given the choice of working with a banker or a Government official, hard choice I know given we are scraping the bottom of the barrel, but I would rather deal with a banker.

[percy]

A good point which shouldn't be overlooked. I would expect this was already identified as a risk and HGH has its point of differentiation sorted. Also, given the choice of working with a banker or a Government official, hard choice I know given we are scraping the bottom of the barrel, but I would rather deal with a banker.

Agree.
With the Australian Govt endorsing the Reverse Equity Loan principals I would think it will only grow acceptance for them,in which case HGH REL's growth trajectory will continue skyward.

[Snoopy]

A good point which shouldn't be overlooked. I would expect thhttps://www.servicesaustralia.gov.au/individuals/services/centrelink/pension-loans-scheme/how-much-you-can-getis was already identified as a risk and HGH has its point of differentiation sorted. Also, given the choice of working with a banker or a Government official, hard choice I know given we are scraping the bottom of the barrel, but I would rather deal with a banker.

https://www.heartlandfinance.com.au/reverse-mortgages/resources/interest-rate

1/ Our current Standard Reverse Mortgage interest rate is 5.60% p.a. (comparison rate 5.62 p.a.*)
2/ Our current Aged Care Option Reverse Mortgage interest rate is 5.60% p.a. (comparison rate 5.71% p.a.^)

I couldn't find the compounding period for a Heartland Reverse Mortgage. So let's say it is monthly. (Please correct me if I am wrong)

5.6% over a year is the same as 5.6%/12 = 0.4667% per month.

So over one year a 5.6% $100,000 Heartland loan will clock up an interest bill of:

$100,000 x (1.004667)^12 = $105,746 => one year interest component is $5,746

Proposed Australian Federal reverse mortgage rate is 4.5%, albeit compounding fortnightly

https://www.servicesaustralia.gov.au/individuals/services/centrelink/pension-loans-scheme/how-much-you-can-get

4.5% over one year is 4.5%/24 = 0.1875% per fortnight

$100,000 x (1.001875)^24 = $104,598 => one year interest component is $4,598

Maybe you would rather deal with a banker. But $1,000 per year is a pretty good cash incentive to go to that government office. And let's not forget there are a large cohort of oldies who would rather deal with an office than deal via a telephone.

SNOOPY

[jg8512]

it will also depend on marketing ... ie, who can better inform the consumer: HGH or the welfare office. the other worry is that the welfare office might have more touchpoints and generate greater awareness of its offer (to the detriment of HGH). welfare might also be seen by elder folks as more trustworthy than a bank/finance company many won't have heard of.

here's hoping govt's admin of its scheme is as poorly advertised and managed as most other govt initiatives and it quickly falls away.

[Scrunch]

it will also depend on marketing ... ie, who can better inform the consumer: HGH or the welfare office. the other worry is that the welfare office might have more touchpoints and generate greater awareness of its offer (to the detriment of HGH). welfare might also be seen by elder folks as more trustworthy than a bank/finance company many won't have heard of.

here's hoping govt's admin of its scheme is as poorly advertised and managed as most other govt initiatives and it quickly falls away.

It may also grow the pie size as reverse mortgages gain more acceptability with the wider public.

[peat]

yeh I was going to say not many takers of other govt loan schemes recently.... which may not mean much of course.


here's hoping govt's admin of its scheme is as poorly advertised and managed as most other govt initiatives and it quickly falls away.

Also to be frank I am not sure whether I would rather deal with a govt official or a banker... both can turn on you esp this Labour govt who increasingly aren't sticking to the rules. Who is more likely to honour a contract? Whose contract is likely to be less onerous. Hard to say really. But govt is contending and will warrant consideration to those aware of this.

I think the decision would be made - at least for me - around the peripheral benefits/costs of the arrangement.

[Cyclical]

https://www.heartlandfinance.com.au/reverse-mortgages/resources/interest-rate

1/ Our current Standard Reverse Mortgage interest rate is 5.60% p.a. (comparison rate 5.62 p.a.*)
2/ Our current Aged Care Option Reverse Mortgage interest rate is 5.60% p.a. (comparison rate 5.71% p.a.^)

I couldn't find the compounding period for a Heartland Reverse Mortgage. So let's say it is monthly. (Please correct me if I am wrong)

5.6% over a year is the same as 5.6%/12 = 0.4667% per month.

So over one year a 5.6% $100,000 Heartland loan will clock up an interest bill of:

$100,000 x (1.004667)^12 = $105,746 => one year interest component is $5,746

Proposed Australian Federal reverse mortgage rate is 4.5%, albeit compounding fortnightly

https://www.servicesaustralia.gov.au/individuals/services/centrelink/pension-loans-scheme/how-much-you-can-get

4.5% over one year is 4.5%/24 = 0.1875% per fortnight

$100,000 x (1.001875)^24 = $104,598 => one year interest component is $4,598

Maybe you would rather deal with a banker. But $1,000 per year is a pretty good cash incentive to go to that government office. And let's not forget there are a large cohort of oldies who would rather deal with an office than deal via a telephone.

SNOOPY
Thanks for your calcs. It's certainly not ideal is it. I know if I was a bean counting oldie, there's no way I'd be paying ~25% more interest than I had to.

Snoopy, if you know it off the top of your head, please remind me what kind of percentage the Oz reverse mortgage market means to Heartland's bottom line?

[Snoopy]

Thanks for your calcs. It's certainly not ideal is it. I know if I was a bean counting oldie, there's no way I'd be paying ~25% more interest than I had to.

Snoopy, if you know it off the top of your head, please remind me what kind of percentage the Oz reverse mortgage market means to Heartland's bottom line?


Australian Reverse Mortgages over 2020 ended the year with $NZ958m as the receivables balance. Let's say rather than lose business, Heart;and drop their rates to match the Federal government rates. The drop in interest income for that balance would be:

(0.056 - 0.045) x $NZ958m = $10.5m reduction in interest income. At Australia's 30% tax rate that equates to a 0.7 x $10.5m = a $7.4m profit fall for Heartland.

SNOOPY

[Cyclical]

Australian Reverse Mortgages over 2020 ended the year with $NZ958m as the receivables balance. Let's say rather than lose business, Heart;and drop their rates to match the Federal government rates. The drop in interest income for that balance would be:

(0.056 - 0.045) x $NZ958m = $10.5m reduction in interest income. At Australia's 30% tax rate that equates to a 0.7 x $10.5m = a $7.4m profit fall for Heartland.

SNOOPY

Thanks Snoopy. Potentially could make quite a dent then, especially if our government follows suit. Interestingly though, the link says "Page last updated: 28 January 2020" so I guess HGH are well aware of it and haven't had to take drastic steps to counter it thus far. I wonder if there is anything out there on the uptake of the scheme since it's inception.

[iceman]

Thanks Snoopy. Potentially could make quite a dent then, especially if our government follows suit. Interestingly though, the link says "Page last updated: 28 January 2020" so I guess HGH are well aware of it and haven't had to take drastic steps to counter it thus far. I wonder if there is anything out there on the uptake of the scheme since it's inception.

I was thinking when I read the comments on here about the Aussie Government scheme "is this not old news", as I have a recollection of this being discussed on here a long time ago. As you say, it would be nice to find an update on this Government scheme but it certainly does not seem to have had any major impact on HGH huge growth in reverse mortgages in Australia so far.

[percy]

I was thinking when I read the comments on here about the Aussie Government scheme "is this not old news", as I have a recollection of this being discussed on here a long time ago. As you say, it would be nice to find an update on this Government scheme but it certainly does not seem to have had any major impact on HGH huge growth in reverse mortgages in Australia so far.

It was,and it was the catalyst for the huge growth HGH have enjoyed in the sector.

[Snoopy]

I was thinking when I read the comments on here about the Aussie Government scheme "is this not old news", as I have a recollection of this being discussed on here a long time ago. As you say, it would be nice to find an update on this Government scheme but it certainly does not seem to have had any major impact on HGH huge growth in reverse mortgages in Australia so far.




It was,and it was the catalyst for the huge growth HGH have enjoyed in the sector.


You are both right. The Australian pension loan scheme has been operating for a while, and since that time Heartland has benefitted. The link below

https://www.dss.gov.au/sites/default/files/documents/05_2021/budget-2021-22_strengthening_the_social_security_safety_net_11 _05_2021_1000.pdf

refers to a modification of the existing scheme. Under the original scheme paramenters:

"the amount of loan you get each fortnight. This amount can be up to 1.5 times the maximum payment rate of your eligible pension each fortnight."

The amended version (from 01-07-2022) says that Australian seniors, -who do not automatically qualify for a pension because it is means tested-, can borrow against their house the same amount of money as before. But the maximum they can get paid out on any one date goes up from $952.70 x 1.5 = $1429.05 (for a single person) to

"Based on current Age Pension rates, a single person would be able to receive lump sum payments of up to around $12,385 per year, while couples combined could receive up to around $18,670. The total amount of pension plus loan available will still be capped at 150 per cent of the maximum rate of Age Pension, so any advance taken will reduce the maximum fortnightly loan amount a person can take over the rest of the year."

The total amount that can be accessed under the government system has not changed. What has changed is that the lump sum that can be with drawn at any one time goes up from $1429.05 to $12,385 (for a single person). Where as before the government REL loan was a more complementary product to the Heartland REL lump sums available, this new maximum expanded lump sum is definitely overlapping with Heartland's target market. That is the way I see it.

If you need the 'fortnightly income' and a 'lump sum', then Heartland is very much still in the REL picture.

SNOOPY

[LaserEyeKiwi]

Am I the only one who finds that government plan capped at a very low amount? I thought most reverse mortgages were for much larger amounts in the 6 figure range.

Quick google discovers the average reverse mortgage size in Australia is $118,627.

[peat]

nah they are limited in value because of those guarantees that are in place such as never kicking them out etc.. which means they cant lend too much in case the person lives to 108

[Bjauck]

I was thinking when I read the comments on here about the Aussie Government scheme "is this not old news", as I have a recollection of this being discussed on here a long time ago. As you say, it would be nice to find an update on this Government scheme but it certainly does not seem to have had any major impact on HGH huge growth in reverse mortgages in Australia so far. The scheme has been boosted in their recent budget, I think the Australian Pension Loans Scheme has raised awareness for the whole sector, which is good for HGH too.

However I think it also does raise the issue of means testing pensions, with owner-occupying housing being part of the asset test and with an estate duty being brought into the mix. If some people want a boost to their pension, then the quid pro quo is that their estate is reduced.

It seems a sensible development in our current situation of having very low interest rates and very expensive real estate, which often is by far the largest asset for a retired person, whose extra income from fixed interest is now tiny.

Ironically however, I think the Australian Pension Loan Scheme in effect will not levy this quasi estate duty on the wealthiest Aussies as they will less likely need a pension boost.

[Snoopy]

Am I the only one who finds that government plan capped at a very low amount? I thought most reverse mortgages were for much larger amounts in the 6 figure range.

Quick google discovers the average reverse mortgage size in Australia is $118,627


There is an analysts dilemma when trying to make sense of 'average' numbers. If there is a cluster of loans at $18,000 and a cluster at $218,000, then analysing what might happen to an average loan of $118,000 is not really a useful exercise.

The most thorough assessment I have seen on Heartland's REL business in Australia is in the 19th November 2018 investor day presentation. Slide 21 tells us the 'average' REL loan for Heartland Australia is $120,000, leveraged at 25% of the house value. But the same slide tells us that -at initiation- the average LVR was 12%, let's say $60,000. Effectively what that slide is saying is that with the average REL holder, only half of the money they owe is capital borrowed. The other half is 'deferred interest'. That means the average initiated loan is only $60,000. And that may be made up of a cluster of loans at $12,000 and another cluster at $108,000.

($12,000 + $108,000) / 2 = $60,000 average

Slide 29 shows the use these loans are put to include: Renovations, travel, medical expenses , car, aged care , debt consolidation, mortgage refinance, support next generation, everyday bills......

It would be the lower 'lump sum' cluster of loans $12,000 that Heartland are at risk of losing. You could do up a kitchen, or bathroom for that. You could have a decent holiday within Australia. You could get some lesser medical procedures done: a cataract operation, a set of hearing aids. You could probably refinance an outstanding credit card debt too. You could buy a good reliable second hand car.

However, you could not do up your kitchen and your bathroom. You could not buy a new car. You could not do a 'world trip'. You could not get a hip operation. So there is still a good window of opportunity there for the likes of Heartland offering REL loans to those wanting something 'that little bit more' than the basics.

On reflection, my forecast of a $7.4m 'net effect' fall off in profit from these latest Aussie budget measures may be a little high. And that 'fall' doesn't take into account the underlying growth whereby even if no new net loans are written, the receivables balance will still grow at an underlying 5.6% per year. Yet I do take the 4.5% Australian Government loan rate as a signal that 'the market' (and Heartland) are being a little greedy with their REL loan package in the post Covid-19 low interest rate environment.

SNOOPY

[percy]

I doubt whether the Sydney person who took out an REL loan of $1mil with HGH would have been approved by the Aussie Govt.
[may have been $2mil].

[RTM]

Mary Holme talking about reverse mortgages…RNZ

[Beagle]

Been making some steady progress lately which is nice. $2 sometime in the next month or two ?

[clown]

Been making some steady progress lately which is nice. $2 sometime in the next month or two ?

Quite a few off market trades in the past few weeks too.

[winner69]

Has Laura the Chief Operating Officer picked the TOP

Selling at 1.93

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HGH/373349/347629.pdf

[Master98]

Has Laura the Chief Operating Officer picked the TOP

Selling at 1.93

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HGH/373349/347629.pdf
should we follow insiders for selling? bought at $1.29.

[winner69]

should we follow insiders for selling? bought at $1.29.

Following insiders when they sold saved A2 punters heaps

[Master98]

Following insiders when they sold saved A2 punters heaps
well said winner.

[BlackPeter]

Has Laura the Chief Operating Officer picked the TOP

Selling at 1.93

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HGH/373349/347629.pdf

To be fair - she sold only 1/3rd of her holdings. Maybe just sensible portfolio rebalance? It might be sensible to follow this example, but not sure we can already call the top.

[dabsman]

To be fair - she sold only 1/3rd of her holdings. Maybe just sensible portfolio rebalance? It might be sensible to follow this example, but not sure we can already call the top.

Building a deck

[Beagle]

Has Laura the Chief Operating Officer picked the TOP

Selling at 1.93

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HGH/373349/347629.pdf

No she hasn't. Someone else picked the top ages ago at $2.14 under the other ticker handle and that's when earnings were only about two thirds of what they are now. I reckon we're going over that in due course and this time based on much higher earnings, they're worth all of that.

[Bjauck]

Following insiders when they sold saved A2 punters heaps Are the circumstances and management style currently facing HGH the same as what faced ATM?

There is only the one insider sale of HGH (so far). Looking at the details in the document, she is in joint ownership with another person (her husband?) Maybe the other owner needed funds.

The previous insider trade was for a (smaller) purchase in April.

[Panda-NZ-]

HBL/HGH was around $2.20 at the peak before the restructure a few years ago.

[Panda-NZ-]

1.95 @ today's close is my prediction.

[winner69]

SBS reverse most of their covid overlay and report huge increase in profit (to $41m)

Also say that NIM has expanded lately.

[percy]

SBS reverse most of their covid overlay and report huge increase in profit (to $41m)

Also say that NIM has expanded lately.

Is their NIM still less than half of HGH's.?

[winner69]

Is their NIM still less than half of HGH's.?

Full year 2.5% / Capital Ratio 15.7% / ROE about 11.5%

[Beagle]

1.95 @ today's close is my prediction.

Mate, what a legend ! For tomorrow's trick can you please tell me the closing price on 3 June 2022 :)

[winner69]

We are always in awe of Heartland’s NIM ....about 4.5% compared to most other banks (including the big four)

Question ....why doesn’t high (above average) NIM lead to high (above average) ROE

[Snoopy]

Mate, what a legend ! For tomorrow's trick can you please tell me the closing price on 3 June 2022 :)


Panda-NZ can do that yes. But if he tells you, you have to go into a lock up kennel until the end of trading on 3rd June 2022 :-(

SNOOPY

[Panda-NZ-]

I'll block the entrance to the kennel and lay on it. Since pandas don't hibernate.

https://www.youtube.com/watch?v=dqT-UlYlg1s

So i'll just fill my time with eating bamboo rather annoyingly with no real purpose.

[iceman]

We are always in awe of Heartland’s NIM ....about 4.5% compared to most other banks (including the big four)

Question ....why doesn’t high (above average) NIM lead to high (above average) ROE

Could at least a part of the answer be "spending on fast growth" ?

[James108]

We are always in awe of Heartland’s NIM ....about 4.5% compared to most other banks (including the big four)

Question ....why doesn’t high (above average) NIM lead to high (above average) ROE

Maybe it takes a lot of overheads to operate in the sectors that deliver a high NIM. Maybe scale is too small.

[Scrunch]

We are always in awe of Heartland’s NIM ....about 4.5% compared to most other banks (including the big four)

Question ....why doesn’t high (above average) NIM lead to high (above average) ROE

Part of the answer is that NIM is net interest margin - interest received less interest paid. It doesn't factor in bad and doubtful debts. That said Hgh is pretty good on its bad and doubtful debts.

[Rawz]

Maybe it takes a lot of overheads to operate in the sectors that deliver a high NIM. Maybe scale is too small.

Probably a bit of that. A car loan runs for 3-5 years.
A home loan runs for 30 years
Credit card runs forever? :mellow:

You have to run the same car loan multiple times.

Heartland bank would have more business loans as a percentage with 'annual reviews' performed by credit. More touch points?

Only surmising

[LaserEyeKiwi]

Probably a bit of that. A car loan runs for 3-5 years.
A home loan runs for 30 years
Credit card runs forever? :mellow:

You have to run the same car loan multiple times.

Heartland bank would have more business loans as a percentage with 'annual reviews' performed by credit. More touch points?

Only surmising

I wonder how many people re-up car loans? Eg once they have paid off a car in 5 years, they trade in for a newer car again and once again use a loan.

[Rawz]

I wonder how many people re-up car loans? Eg once they have paid off a car in 5 years, they trade in for a newer car again and once again use a loan.

Typically what Heartland and UDC do is send them a letter just over halfway through a 60 month loan pre-approving them for the same amount of money as originally. Easy to do if they have perfect repayment history.

Then the funder will share this data with the original car dealer who will ring the customer to discuss trade in values and new car prices etc.

Cool ay

[winner69]

I reckon HGH share price will hit 2 bucks this week

[Old mate]

Just about winner:t_up:

[sb9]

I reckon HGH share price will hit 2 bucks this week

Almost there, huge lot at 1.99 almost got taken out

[thegreatestben]

Still think we'll see the last cent tomorrow W69?

[Beagle]

Has Laura the Chief Operating Officer picked the TOP

Selling at 1.93

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HGH/373349/347629.pdf

From this day last week. No she hasn't.

From this day last month...
Decent trading update today that was in line with my thinking. I am looking for net profit in the early $90's million range for FY22 which gives them an eps of approx 15.8 cps and am hopeful the economy will be in a strong recovery and am looking for a recovery PE of approx 14.5 times earnings (which is the average of where the peer group I follow on the ASX is currently trading).
I am hopeful of a target price one year hence of ~ $2.30. Beagle
Fair value, still a little over 15% capital gain to come in the next 11 months in my opinion and then there's the very attractive fully imputed dividend yield.
I wouldn't rule out the possibility of it going a little over $2.50 this time next year as the market starts to think about earnings possibly topping $100 in FY23.

[winner69]

Still reckon 2 bucks later today

Lucky day so far -- did a few things on computershre without any issue - a miracle - but even greater miracle did something on Heartland App ant it didn't need any human intervention from Heartland people

So things going well ...and HGH at 2 bucks:t_up:

[sb9]

That $2 wall got smashed finally

[Jantar]

That $2 wall got smashed finally
Just sold 10% of my holding at $2.02. The rest are a hold

[pierre]

Just sold 10% of my holding at $2.02. The rest are a hold

Im holding all mine. They owe me an average of $1.21 each and I'm happy to enjoy the divvies and the ride waiting for Beagle's prediction of $2.50 to arrive.

[Beagle]

Pleased its finally cracked $2 again as its been a long time between drinks. Will go higher but $2.50 is upper quartile of my expectations in the next 12 months. Excellent yield and good prospects for a reasonable capital gain makes this a very sound hold.

[winner69]

Beagle ...way OZ banks are going at least $2.50 after full year announcement...yes?

[Beagle]

I know you use other ways to assess fair value relative to Aussie banks and that's fine mate but I will stick with earnings. As I said last week I see fair value at about $2.30 but you could be right and that $2.30 might be now, not in 12 months time.
The answer to your question is that will be very much determined by their profit forecast for FY22, which hopefully we will be blessed to know when they announce their FY21 result in August.
Just double checking off market screener now

The market is always forward looking as we know mate so is starting to think about FY22 earnings and leaving aside the outlier CBA (which is on a forward FY22 PE of 20.2) based on Friday's closing prices the peer group I follow is currently trading in a fairly tight range based on 13.1 x - 14.7 (average 14.14) x FY22 forecast earnings.

If we apply the same PE to HGH based on average analyst expectations for FY22 of 89.7m earnings we get fair value now of $2.16
If HGh can issue an FY22 forecast of about the $94m earnings level we've been recently talking about then that suggests eps of just over 16 cps for FY22 and fair value in late August 2021 of 14.14 x 16.04 cps = $2.27 nand if the PE stays the same and this time next year we're talking about FY23's forecast of $100m earnings than eps would rise about 6% from there and the share price with it to circa $2.40 by mid 2022.

$2.50 is right at the top end of my expectations as a target price in the year ahead and that's based on a forward PE of 14.5 x 17 cps ($100m) earnings expectations for FY23.

When it got to $2.14 years ago and was overpriced it was on a forward PE of 18 times earnings so we're nowhere near overpriced this time (with all the years compounded earnings growth since then).

[winner69]

Beagle - as you know my preferred measure of value is Price/Book Value

Oz bank peer group exc CBA currently P/B is about 1,2 - HGH is 1.6

HGH out on its own - relatively speaking most expensive of peer group by a long way

Must be flawed --- won't use that method any more --- (even though done me good in past)

[Beagle]

Market seems to be saying that earnings based price relativity to Aussie banks is the correct approach.

[winner69]

beagle ....but that implies all are 'equal' and we know that they aren't eh

[JohnnyTheHorse]

Beagle - as you know my preferred measure of value is Price/Book Value

Oz bank peer group exc CBA currently P/B is about 1,2 - HGH is 1.6

HGH out on its own - relatively speaking most expensive of peer group by a long way

Must be flawed --- won't use that method any more --- (even though done me good in past)

Is Heartland Fintech with all that online stuff they talk about? Market loves fintech... maybe that explains it.

[winner69]

I have a feeling they are about to announce the demerger of the motor finance arm

[LaserEyeKiwi]

Whoa - what happened near end of session? What a nice spike!

[peat]

Is Heartland Fintech with all that online stuff they talk about? Market loves fintech... maybe that explains it.
They describe themselves as a digitally-led financial services group, ‘a financial technology company (fintech) with a bank licence’.

[Old mate]

https://www.goodreturns.co.nz/article/976518781/heartland-bank-dominates-market.html

[Beagle]

Excerpt from above link "Jarden analysts gave the stock a ‘buy’ rating with a target price of $2.30 predicting ongoing growth for many years to come".

[Beagle]

................eliminate double post due to frustrating website issues.

[winner69]

Could end with 1 HGH at $1.80 and 1 MFIN share at $0.70 post demerger

I sense action coming soon

[winner69]

Jarden say . "gave the stock a ‘buy’ rating with a target price of $2.30 predicting ongoing growth for many years to come".

The word processor in action ....that’s the words they say about MFB (different numbers):eek2:

[X-men]

Hgh proven record....MFB is new kid on the block...so winner...u cannot compare....

[winner69]

Forbar must be due for another report ....even if for nothing else to keep up with the spiralling share price

[BlackPeter]

Forbar must be due for another report ....even if for nothing else to keep up with the spiralling share price

You mean - they better hurry up with their upgrades and take your Avatar as an glowing example?

[winner69]

Tonight’s market report in the media ‘hGH was down x% because of some profit taking after a stellar rise over the last week”

You read it here first

[Beagle]

Tonight’s market report in the media ‘hGH was down x% because of some profit taking after a stellar rise over the last week”

You read it here first

You're getting good at this ;)

[percy]

https://www.scoop.co.nz/stories/BU2106/S00271/helping-customers-avoid-financial-abuse.htm

[winner69]

No ‘profit taking’ today ...media says price ‘retreated’

[Beagle]

Close enough though.
Got tomorrow's market wrap media comment for us yet ;)

[Beagle]

Close enough though.
Got tomorrow's market wrap media comment for us yet ;)

[nztx]

Probably be all about recovering today's retreat ;)

[mike2020]

How does 'continued it's stellar rise" sound?

[Beagle]

Might get that today :)

[winner69]

Might get that today :)

...esp if they come out and say something about the pending demerger of motor finance div

[Beagle]

...esp if they come out and say something about the pending demerger of motor finance div

Are you flying a kite or have you heard whispers ?

[Monarch]

What would be the advantage of a demerger anyway? Wouldn't we be worse off with 2 smaller scale entities, 2 executive team salaries to pay etc? To me a demerger could improve short term gain at the expense of long term.

[Rawz]

What would be the advantage of a demerger anyway? Wouldn't we be worse off with 2 smaller scale entities, 2 executive team salaries to pay etc? To me a demerger could improve short term gain at the expense of long term.

It will unlock some shareholder wealth no doubt but agree as a long term play it doesn't make sense for a predominantly asset financier to split off its motor division.

[Beagle]

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HGH/359897/330902.pdf 17/09/2020 Annual results presentation.
The board has asked management to explore ways of ... see page 24

Possibly worth noting that they were right to ask management about ways to optimize value when the share price was $1.19 on the day before this announcement but the share price is at quite a different level these days.

[winner69]

I haven’t seen it but a marketing mate says the new ad on TV is awful and a disgrace. The comment was that American stock advert converted for NZ is impossible to hide & undermines the ‘heartland’ brand - like happy people in non NZ locations is slimey

Anybody know what he’s on about

[Beagle]

I don't think the new TV adds are too bad at all. Quite good actually although they need some tweaking to be first class....maybe they could include images of a Beagle ?
Tina's add for Turners gets top billing at present followed closely by WHS's new winter warmers cozy add that finishes up with a beautiful dog in bed all cozying up with a child. Fast editing, quick clean, warm and cozy with very warm imagery. Hits the nail squarely on the head for family winter warmth.

[IAK]

Turners ad is great but the Sky tv broadband one is the best imho

https://youtu.be/116s_kgQoC8

[nztx]

We haven't seen what the next 'Tina from Turners' Tele Adverts look yet .. ;)

[winner69]

HGH share price heading to 210 plus this week

Probably be 225 at results announcement time.

[Beagle]

$2.50 sometime in 2022.

[dompf]

HGH share price heading to 210 plus this week

Probably be 225 at results announcement time.

heartland doing really well; used to be parity with OCA not any more!!

[Beagle]

heartland doing really well; used to be parity with OCA not any more!!

Just out of curiosity I compared the two and was quite surprised by the correlation between their share prices.12718

Speaking of unusual correlations, perhaps also a little surprisingly, I hold the same number of shares in each company.

But wait...there's more !!
Overall performance of HLG and WHS has' been very similar over the last 3 years too
12719 and in yet another spooky coincidence I have about the same value invested in WHS and HLG.

I guess at some point I either fluked it or put quite a bit of thought and structure into the composition of my portfolio...not sure which it was lol.

Hope nobody asks me which of these four will perform best in the year ahead because its hard to pick the best when they all have very good prospects.

[Beagle]

..........

[winner69]

Heartland increasing their holding in Harmoney

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HGH/375217/349808.pdf

see value ....or a bit of financial engineering

[Beagle]

.............

[Beagle]

Heartland increasing their holding in Harmoney

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HGH/375217/349808.pdf

see value ....or a bit of financial engineering

"Following a series of discrete trades on market through the ASX beginning on 25 June 2021 and ending on 6 July 2021..."

Share price of Harmoney was up a whopping 10% on 30 June 2021. Yeah, that's really discrete lol

"Can't wait" to read in Te Reo in their annual review how this new expanded investment in fintech digital reengineering was strategically timed.

[zs_cecil]

"Following a series of discrete trades on market through the ASX beginning on 25 June 2021 and ending on 6 July 2021..."

Share price of Harmoney was up a whopping 10% on 30 June 2021. Yeah, that's really discrete lol

"Can't wait" to read in Te Reo in their annual review how this new expanded investment in fintech digital reengineering was strategically timed.

It sounds there were not many fintech options for HGH to put money in. At least the investment timing was not bad.

[Rawz]

I always thought one of the big 4 banks would be the one to buy HMY after 5 years. Maybe Heartland want them all for themselves.
They could be Australia's largest reverse mortgage lender as well as the largest personal lender.

[winner69]

I always thought one of the big 4 banks would be the one to buy HMY after 5 years. Maybe Heartland want them all for themselves.
They could be Australia's largest reverse mortgage lender as well as the largest personal lender.

Acquiring Harmoney will never happen

[Rawz]

Acquiring Harmoney will never happen

Not in the foreseeable future but never say never W69. The engine scoring and approving a personal loan application would be very similar to that needed for approving a car loan. That's what any bank would be buying.

Granted, Heartland have their own in NZ but nothing in Aussie (if they wanted to enter that market).