I have been looking at some motor vehicle year to date sales figures.
https://www.mia.org.nz/Portals/0/MIA...es%20Table.xls
Kia right on top in the lockdown month of April, even outselling perennial market leaders Toyota. And Heartland are the ones that finance Kia sales - wow! YTD Kia is in 5th place just behind Holden (also financed by Heartland). Kia being a 'budget' brand might grow. They seem to be having great success with the new Seltos small SUV. Let's say sales grow 10% in FY2021. Yet Holden is a zombie company now, so that part of the Heartland business will probably disappear altogether in three years as present day Holden loans unwind. Jaguar/Land Rover are the other brand financed by Heartland, as are Hino trucks. But they are both niche players and don't appear on the top 15 sales statistics.
Jaguar Land Rover are having some sales issues globally but seem to be running hot in New Zealand.
https://www.driven.co.nz/news/did-th...-back-in-1948/
“For Jaguar, sales have experienced an increase of over 100 per cent since the launch of the F-Pace in 2017 and subsequent launches of the E-Pace and the EV I-Pace. Land Rover, too, has experienced double-digit percentage growth year on year thanks to the growth of the category but also having models with high-performance attributes."
Prestige brands generally slow in sales during a recession though. So I am picking JLR sales might halve this calendar year.
So what will all this do to Heartland's financing of new vehicles? Well, Heartland's financial year ends on 30th June. Only three months of the year will be 'post lockdown', so things might not be as ugly as some think. Particularly as dealers look to quit excess stock with sweet finance deals. Bad for motor dealers but ironically good for Heartland,
The market is always forward looking though. So the real interest is, what will motor vehicle finance look like in FY2021? If you are Heartland, don't look in the mirror. You will see 'ugly'. If the base case for funding new vehicles is split for FY2020 45:45:10 between Holden:Kia:JLR (an educated guess) then FY2021 is likely to look like 0:50:5 on the same scale. That means new car financing down 45%.
So what does this picture suggest for profitability in FY2021?
As at December 2019 the motor vehicle finance book at Heartland was $1,124m. Let's guess new vehicle sales were $500m of that. So a 45% reduction would see a loss of:
0.45 x $500m = $225m worth of finance business in turnover.
Motor vehicle finance has traditionally had some of the best margins at Heartland. Heartland's AGM presentation had an ROE north of 15%. In recessionary times I am going to stick to the 15% figure. This means the earnings that Heartland will miss out on due to plunging new car finance deals will be around:
0.15 x $225m = $34m
Of course the annual hit won't be this much, as finance typically has a three year cycle. So the FY2021 hit will be about 1/3 of that, $11.4m
I am guessing the FY2022 impact will be only half that in FY2021, $5.7m, but unfortunately the financing effect from FY2021 is cumulative into FY2022
Underlying profit was around $74m in FY2019 (a bit less in FY2020?). So it looks like new car financing alone will knock Heartland's profit down to just shy of $63m, or a 15% drop.
Lot's of figures pulled out of the air here.
Anyone like to comment if I am on the right track?