Liquidity Buffer Ratio HY2016 (Part 1)
Quote:
Originally Posted by
Snoopy
Time to update the Liquidity Buffer ratio, the balance between monies borrowed and monies lent and matching up those maturity dates using a one year time horizon. The equation we are looking to satisfy is:
(Total Current Money to Draw On)/(Net Current Loans Outstanding) > 10%
FY2015 Loan Maturity (Financial Receivables) |
Expected |
Contracted |
C/E |
On Demand |
$37.012m |
$37.012m |
100% |
0-6 months |
$503.452m |
$664.557m |
132% |
6-12 months |
$341.392m |
$450.638m |
132% |
Quote:
My table of expected depositor behaviour for FY2015 follows:
FY2015 Deposit Maturity (Financial Liabilities) |
Expected |
Contracted |
E/C |
On Demand |
$22.450m |
$748.332m |
3.01% |
0-6 months |
$395.102m |
$1213.450m |
32.4% |
6-12 months |
$249.762m |
$686.159m |
36.4% |
This is the most imprtant calculation that most nvestors in finance companies never do. I have rechristened it the 'Meads Test'. The Meads Test is way to find out if dear old Colin says a profitable finance company is 'solid as', whether that company will run out of cash when it comes time to repay your debenture. "Liquidity Buffer Ratio" sounds a bit pompous, so I will adopt the term 'Meads Test' in the future, as I think most investors will relate to that term better.
We are looking at the balance between monies borrowed and monies lent and matching up those maturity dates using a one year time horizon. The equation we are looking to satisfy is:
(Total Current Money to Draw On)/(Net Current Loans Outstanding) > 10%
Heartland provides a nice projection of forward cashflows in note 14 of IRFY2016. But these are contacted cashflows. In practice depositors roll over their Heartland debentures. And when customers repay a Heartland loan, they often take out another loan. So what we as investors need to concentrate on is the expected behaviour of those that take out loans from Heartland and those that loan money to Heartland. Expected behaviour is not written in stone. But we can make an educated guess at this by looking at what happened in prior periods where both 'contracated' behaviour and 'expected' behaviour was tabulated. "Adjustment factors" in the table below:
HY2016 Loan Maturity (Financial Receivables) |
Contracted |
CE Factor |
Expected |
On Demand |
$31.879m |
1.000 |
$31.879m |
0-6 months |
$618,779m |
1.32 |
$816.778m |
6-12 months |
$277.017m |
1.32 |
$345.662m |
HY2016 Deposit Maturity (Financial Liabilities) |
Contracted |
CE Factor |
Expected |
On Demand |
$728.056m |
0.0301 |
$21.914m |
0-6 months |
$1,360.508m |
0.324 |
$440.805m |
6-12 months |
$498.705m |
0.364 |
$181.529m |
Now I have generated the expected cashflow data over the ensuing twelve months, I can proceeed to make some 'Meads Test' calculations.
SNOOPY
Liquidity Buffer Ratio HY2016 (Part 2)
Quote:
Originally Posted by
Snoopy
HNZ LENDINGS vs HNZ DEBENTURES
Customers owe HNZ 'Finance Receivables' of $2,862,070,000. There is no breakdown in note 11 of AR2015 as to what loans are current or longer terms. However, if we look at note 20, we can
derive the
expected maturity profile of total finance receivables due over the next twelve months.
|
On Demand |
0-6 Months |
6-12 Months |
Total |
Expected Receivables Due |
$37.012m |
+ $877.215m |
+ $594.842m |
= $1,509.069m |
less Expected Deposits for Repayment |
$22.450m |
+ $395.102m |
+ $249.762m |
= $667.314m |
equals Net Expected Cash Into Business |
$14.562m |
$482.112m |
$345.080m |
$841.755m {B} |
If more money is coming in from customer loans being repaid, than is having to be repaid to the debenture holders, then this is a good thing for liquidity. That now is the case here.
HNZ LENDINGS vs HNZ DEBENTURES
Customers owe HNZ 'Finance Receivables' (Lendings) of $2,928,601,000. If we look at note 14 of IFR2016, we can derive the expected maturity profile of total finance receivables due over the next twelve months. (This is what I did in part 1 of this calculation.) Adding the totals for the ensuing twelve months gives:
|
On Demand |
0-6 Months |
6-12 Months |
Total |
Expected Receivables Due |
$31.879m |
+ $816.788m |
+ $365.662m |
= $1,214.329m |
less Expected Deposits for Repayment |
$21.914m |
+ $440.821m |
+ $181.893m |
= $644.628m |
equals Net Expected Cash Into Business |
$9.965m |
$375.967m |
$183.769m |
$569.701m {B} |
If more money is expected coming in from customer loans being repaid, than is having to be repaid to the debenture holders, then this is a good thing for liquidity and debenture holders being repaid. That is the case here: good news for debenture holders.
It is important to note that this calculation is based on the loan book position at balance date. New loans taken out since balance date are not included. Neither are brand new customer debentures invested with Heartland since balance date. So these figures are not a forecast of what will happen. But they are are forecast of what will happen if all customer loan and deposit activity ceased at last balance date. This means the figures are best suited for comparing with previous periods, rather than being forecasts of what will happen in their own right.
SNOOPY