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