I think you guys are being pretty miserable and unfair to Snoops - please treat him with a more civility and respect please.
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I think you guys are being pretty miserable and unfair to Snoops - please treat him with a more civility and respect please.
Not only do I get 3,317 shiny new shares today
I also have my $10,157.18 refund sitting in the account this evening.
At $1.62 HBL is overpriced
Best Wishes
Paper Tiger
Overpriced why? I just bought some more today to round up to nearest 5000
Nobody could have any argument with the speed with which the shares were issued or the speed of the refund, sterling effort by Link share registry.
http://www.4-traders.com/HEARTLAND-B...518/consensus/
HBL trades cum a 3.5 cent interim dividend. Stock's theoretical ex divvy price is therefore $1.58.5 and analysts average valuation is $1.58.
Trades on FY18 forward PE of 12.6. Seems fair value and a fair hold to me. Wake me up if it gets seriously overvalued or undervalued by.... I dunno, lets say 20% :)
I agree also. I for one appreciate the effort that Snoops puts in his posts and his willingness to share his analysis. I fear that a pack mentality is developing here. Share trader would be the worse off without his input.
[QUOTE=Paper Tiger;659275]Not only do I get 3,317 shiny new shares today
I also have my $10,157.18 refund sitting in the account this evening.
That was quick...haven't received mine yet
It might be helpful if some people put the same amount of energy they do into their 'enthusiasm' into understanding what the statistical term 'average' means. The basic idea is that you take a set of values that are 'all over the place' and come up with a number somewhere in the middle. A business cycle average is not a prediction of where the share price is headed in the short term. A business cycle average is not even a predictive hint about what you might do in every particular situation.
I don't think it is anything profound to say that if a share price is going up then the chances are that, in the short term, it will continue to go up. I think it is equally unprofound to suggest that eventually the upward trend will come to an end. If you believe in the concept of a business cycle, (and for Heartland at least I accept there are those that don't and think that these people believe Heartland share price will continue to go up indefinitely), then how can you, as an investor, best use the concept of 'average fair valuation'? I would suggest that 'on average' shareholders should be looking to reduce their HBL position with the share price sits above 'business cycle fair value' and increase their position when the share price sits below 'business cycle fair value'. Notwithstanding the suggestion that when it comes to share price valuations caused as a result of the recent capital raising it might pay, in the short term at least, to do the opposite.
SNOOPY
Snoopy I think the market overall is fully valued. Yes you could make the case that the current FY17 PE is a little higher than average but FY18's forecast PE of 12.5 is about right in my view for this stock.
Maybe people are simply happy to wait for a year for earnings growth to return the PE to its average range for this share and in the meantime enjoy a 7.5% gross dividend yield.
If all the stock did was flat line for a year and people enjoyed the pretty decent dividend yield I can't seer any harm in that strategy and probably as good as any other in a fully priced market.
Yes people will probably only get average returns holding but no harm in that mate.
Post # 8439...11-01-2017
Share price closed at $1.51 on that day.
Today the share price is $1.61 after a very successful SPP.
Sorry but I find it hard to respect posters whose research is poor,missing the point,misguided,often full of mistakes, and ends up being just wrong.
HBL closed at $1.64 on 16/03/2017
Is HBL over valued / undervalued / about right - I have no idea
What I do know is that currently HBL has never been so highly rated by the market as it is at the moment.
Chart is shareprice compared to Book Value. Currently Price/Book multiple is about 1.55. The Price/Book multiple is one of the preferred valuation methids used by analysts (Craigs for one seem to like it). The more bue showing the more highly rated HBL is
At $1.62 I'm starting to feel Heartland is fully valued. Top end of NPAT for FY17 is $60m which is a PE of 13.8. Some earnings growth in FY18, say 6%, gets that PE back to 13.0. I'm not saying things will turn sour but they have enjoyed several fairly benign years economically and theyve been managed well but the current price has no margin for an economic slowdown if it were to occur i.e. risk adjusted across the cycle its starting to feel a bit overdone.
I'm not selling but I am watching more closely as Heartland is no longer cheap like it was a couple of years ago....
HBL valuation.
Current share price [$1.62] would be at the very top of my current valuation.
The PE is high at 14.19,yet the yield is also high at 5.25% .
I have been trying to understand the current strength of HBL's share price.
I think the market is now comfortable that HBL has runs on the board.
They are a success story,and this has seen the PE expand.
They have [well] positioned themselves in the online digital delivery of product.This sector will enjoy huge growth.Far outgrowing banks with bricks and mortar, costly to run, branches.
Should interest rates rise all banks do better.
I also think the market appreciates the added security that HBL have, by reporting quarterly to the Reserve Bank of NZ.
The speed they have used their excess capital,and have had to raise more, tells me they are enjoying a very high substainable growth rate.
I note on the charts HBL have set an all time high.This is positive.I am not sure whether the support level on the chart is $1.60 or $1.55.
Although I am overweighted with HBL I will only be selling a few, should I want some cash for another share.I have discontinued DRP.
HBL was cheaper on PE terms a couple of years ago because people perceived the risks to be higher. Dairy and many related industries for example were up to their eyeballs in it.
Now the risks are widely perceived to be much lower and growth opportunities higher the market quite correctly and quite efficiently has re-priced the risk and PE accordingly.
Posted on 15 March 2016, nearly exactly 1 year ago when HBL's share price was $1.23.
Analysts appear to be wildly wrong once again...
HBL finished at $1.64... with buyers lining up at $1.64 (and nobody keen to sell till another cent up)
I thought HBL was meant to go down after the shares were allotted? ;)
Likely some of that $40 odd million that was oversubscribed is helping support the price, and the market is happy to pay a quality price for a quality company.
In my view, I believe it is more of a question of when (rather than if) a profit upgrade is coming.
Everyone wants HBL shareprice to trend higher, so it has done so, nice and slowly, So why now are some saying it's overvalued,what do you want?
If you look at ANZ WBC they have a pe of 16,so why shouldn't HBL be a little closer to them in value, considering it's growing faster.
I'm still thinking it's meandering it's way to 1.80, lookout for those poor shareholders owning this overvalued pup then,I couldn't think of anything worse.
Maybe a bit of psychology involved wherein everyone wants to take the divvy esp the "gift" div from the new shares before they selldown /reset their portfolio sizing.
Why its worth more.
1. We cannot ignore the fact that HBL has grown its EPS faster in recent years than the Aussie banks.
2. This trend is set to continue, see below therefore a PE premium is warranted compared to its peer group.
3. The following are the forecast PE's for its peer group for FY17, FY18 and FY19 followed by average analyst expected EPS growth in percentage terms bolded from FY17 to FY19 All data off average analysis forecast off 4 traders
Bendigo BEN 13.2, 13.1, 13.3, EPS growth expected -1%
NAB 13.6, 13.4, 13 4%
WBC 14.5, 14, 13.6 6%
ANZ 13.4, 13.2 12.5 7%
Bank of Queensland BOQ 12.9, 12.6 12.3 4.5%
HBL 13.8 12.6 11.9 14%
The average FY19 PE which takes into account average forecasted growth to FY19 is 12.77
4. Even if you make the case, (which I don't) that HBL will only enjoy two more years of abnormal growth before reverting to the very modest rates the Australian banks are "enjoying" for HBL to be trading at the average of its peer group the SP is likely to outperform its peer group by 12.77 / 11.9 = 7.3% over the next two years.
5. Even now based on average estimated 2017 earnings the peer group is trading at an average PE of 13.56 and HBL at 13.8 represents only a tiny premium which taking into account its historical growth outperformance and projected stronger growth and I think the current market PE premium is not properly recognizing this superior growth.
6. I think given the distinct possibility that HBL's growth will continue to outperform its peers post FY19 I think that a minimum further 7.3% rerating will happen over the foreseeable future, probably this year.
7. Relative to its peer group I therefore value HBL at 1.64 + 7.3% = $1.76.
8. I think you can easily make the case that relative to its peer group given its considerably stronger historical and projected growth a PE premium of 1 on FY17 projected earnings is warranted.
Average FY 17 PE for Aussie banks excl HBL is 13.52.
HBL's current PE 13.8 HBL should be trading on a FY17 PE premium of at least 1 = 14.52 14.52 / 13.8 = 5.2% increase from here = $1.73
9. Investment case summary: I therefore think fair value for HBL is between $1.73 and $1.76 on an ex dividend basis and note it currently trades on a theoretical ex dividend price of $1.60.5 ($1.64- 0.035) so we have another ~ 10% rerating to go and then from there the price should continue to drift up in line with the 14% earnings growth to FY 19. My 2 year target price is therefore 1.76 x 1.14 = $2.01 and in the meantime based on 8.5 cps in annual fully imputed dividends we will be enjoying a gross dividend yield of 7.36% (8.5 / 160.5) / 0.72.
Disc: Hold and fully subscribed to dividend reinvestment plan.
Welcome to the Heartland Bank B***s*** Bubble.
I am probably going to reverse my decision to take the DRP
Best Wishes
Paper Tiger
200K share sale tomorrow. Could put some pressure on the upward SP? Hopefully not a director!
Phew. Makes me confident to continue holding, accumulating and taking DRP like I have been since it was called Building Society Holdings :-)
Where I think the SP will be in a few months has little bearing on my investment in HBL, just like it hasn't for all these years. We've had long period of flatlines, some drops but overall a steady significant uptrend longer term. Right now I can not see any signs of that slowing for the foreseeable future. My view is that HBL is a good steady long term hold. Not interested in trading it.
But this is good work Roger. Thanks.
You're most welcome mate. My ancient steam powered abacus nearly overheated working that out and to be honest I was also quite relived with my own findings and am now very content to hold for the foreseeable future. I realized we were long overdue for a good thorough comparative PE analysis and the old saying that readily sprang to mind was "if you want a job done, do it yourself" :)
Goes without saying others will have their own theories of what its theoretically worth and without in any way knocking others valuation methodologies I prefer to back my own with a good hard comparative peer group analysis. I really think HBL is probably worth slightly more than a PE premium of 1 compared to its peer group, (its historical and projected growth is quite significantly higher), but I prefer to take a fairly conservative view at this stage because its a relatively young company. Lets get some more runs on the board over the next few years and we might see even further outperformance in the years ahead !
Good analysis Roger but comparing multiples v Australian banks needs to take into account the 'The Trans Tasman Discount' for want of a better description
Like AIR on a PE of 6.8 v QAN (a much inferior proposition) on a PE of 8.4
Like FBU on a PE of 13.6 and Boral BLD on a PE of 17.9
I would say that the 'Trans Tasman Discount' needs to be say 2 multiples. .....but as they are such a superior bank with world class management lets give them a bonus of 1 and say HBL PE should be 1 less than its 'peer group' as you call it and not at a premium
What does that do to your target - I'd work it out but but you didn't show an eps figure anywhere.
Hope this doesn't get me banished from this thread ha ha
I'm not "buying" the Trans Tasman multiple discount theory mate and I think N.Z. analysts coverage of AIR is at best very average so I prefer to do my own and listen to Mod.
I think FBU's discount is warranted because its simply a company that somehow always should have done better but never does, a perennial disappointer.
AIR still good sound value and continue to hold, better value that QAN which is only fair value.
Fair enough, just different opinios ..... but over many years NZX multiples generally have tended to be lower thn NZX ones ....but luckily these days the old this time it's different is working out.
So the old Efficient Market Hypothesis you mentioned earlier doesn't apply to AIR then?
Very interesting reading, it's like Nov-Dec 2014 all over again when the rampers fired into overdrive and the lemmings piled into HBL, but the lemmings didn't hear about rampers' sell-downs until a few months after they exited.
What followed was an extended period of down-ramping, justified by all sorts of reasoning which is now pronounced as defunct, but could only have left the lemmings who held wondering about their circumstances, many of whom will have sold.
I know the behoved don't intend to ramp the SP per se, but we have seen before that the buying announcements and their excitement is forecast inline with, or in front of, the SP rises. Because the lemmings lap it up.
Yet as soon as the SP weakness emerges, which it inevitably does, the same rampers are gone-burger, in a heartbeat, but their exit is not announced until the ramper is well gone and the hapless lemmings are left holding wondering WTF happened and when will it recover.
So far that hasn't mattered too much as the lemmings who held have made their money back, but the rampers and subsequent down-rampers have made a lot more.
Those with the insights and the expertise to assess and trade the market are to be admired and considered, but taking their advice based on what and more importantly when they post, is folly.
DYOR.
BAA
LOL probably a better place to discuss is the AIR thread mate but in summary QAN currently doing very well indeed in this sustained low oil price environment with its current business model, less capital intensive older fleet, higher gearing and union wage freeze for a number of years due to union agreements regarding restructuring after their $2.8billion loss. Going forward their business model becomes less robust if oil heads back to $70-80 barrel and once their wage freezes come off but seeing as we seem to be in a sustained period of benign oil prices Australian analysts appear to be enjoying a plentiful supply of happy pills whereas all N.Z. analysts seem to focus on is the new competition that's arrived for AIR. Over time I think we'll see AIR's more modern fuel efficient fleet and lower gearing pay off in terms of resilience if there's any further headwinds for the industry. I expect over time their PE's will align more closely....but I have been thinking that for a while now and it hasn't happened yet so predictions about the future are fraught with risk that's for sure mate :)
Returning to HBL its interesting to note that their peer group are on average expecting 2% per annum EPS growth for the next two years whereas HBL is expecting 7% per annum.
Taking into account there projections are also backed by years of similar historical growth differences normally I would ascribe a PE premium of 5 to a stock growing consistently 5% faster than a direct competitor. Ben graham would go even further !
Benjamin Graham's model of 8.5 PE for a no growth company + 2g suggests where g = 2 for the Aussie banks gives a fair PE of 12.5 for HBL's peer group.
On the other hand his model of 8.5 + 2g where g = 7 suggests HBL's fair PE should be 22.5 :D. But what would Benjamin Grahame know...
22.5 x historical EPS of 11 cps = $2.47 so HBL could be said to be worth as much as nearly $2.50 fully accounting for its substantially superior historical and projected growth rates compared to its peers ! $2.50 theoretical value is almost sure to ruffle some feathers, get some fur flying and maybe rub some wool up the wrong way judging by the post directly above :D
Disc: Just good banter, not intended to be investment advice for anyone else.
I just happen to like my shares in 5000 multiples I don't use the DRP QUOTE=Paper Tiger;659289]I know of only one valuation that is higher than the current share price but the average is less.
My attempt is also less than the current SP and that is the most important one for me.
So, why bother to round up the number of shares you own?
Best Wishes
Paper Tiger[/QUOTE]
Jeez Roger - Heartland worth $2.50 - why didn't you point that out before I got sucked into punting on PushQuote:
roger from above -
.......so HBL could be said to be worth as much as nearly $2.50 fully accounting for its substantially superior historical and projected growth rates compared to its peers !
Going from $1.50 to $2,50 for Heartland is about as good as going from $2.00 to $3.50 for push ........esp as one is likely to happen and one is looking very unlikely.
Thanks for that BAA; folly indeed.There are always those that seek to deceive and enrich themselves at others expense; again and again; thankfully only a few on here; but they are everywhere where the scent of $$ is.You can never be really sure re anyones motive and whether its altruistic or speaking with forked tongues.
A good reminder.
Not so sure Ben Graham's approach is the right one these days but the comparative PE analysis is sound as far as I am concerned so I am more than happy with my work yesterday to validate its value based on hard evidence (a fair value of $1.73 - $1.76) Not sure how others are coming up with their values as for some strange reason they don't want to say...maybe they're relying on analysts fair value, (about $1.58) who got it "so right" last year with their 12 month price target of $1.30 didn't they ! We might have to push that Push target out to next year mate, it'll get there though :)
I didn't either but I did put my cheerleaders outfit, (special $2.50 valuation) on especially for you yesterday :D
Geez Roger, wasn't snoopy,s sell down price 1.74.....amazing how instep you two are
I think the equation for Heartland is fairly simple as it is a financial (bank) stock. Currently it is trading at 1.7x book value and there have been many good points made about why its multiple has expanded as it tidied up its legacy loan book and has created a much more solid business. That is why its gone from $0.50-60 to $1.60+ over the past 3-4 years. However, for me 1.8-2.0x book is the maximum value for a business like this risk adjusted across the cycle (Heartland has not been tested on a new down cycle yet) so that giv es a maximum value for me of $1.70-1.89 based on current book value so quite similar to the values you've been getting Roger. Obviously if they can keep executing well and if the economic cycle is prolonged the share price can run further but I will likely sell out between $1.70-1.80 due to valuation. I say this in the full knowledge that my holding will not move the market (60k). No agenda's from me - just a disciplined approach to valuation accepting that at the higher end of the cycle I will likely leave some $$ on the table for others and good luck to them.
Thing with Ben's formula is that if a stock trades at Intrinsic Value it's PEG > 2 and some investors don't like PEGs that high (overvalued they say)Quote:
roger earlier
Not so sure Ben Graham's approach is the right one ....
Think Ben did his sums when market was mainly old fashioned industrials where 5% growth was pretty good
When I look for comparatives, one of the first things I apply is the 'duck test'. Put succinctly, for identification purposes, , if it looks like a duck and quacks like a duck, the chances are it is a duck. When I apply the 'duck test' to Heartland 'Bank' something interesting happens.
Q1/ Can you go into a Heartland bank branch and deposit a bundle of cash?
A1/ No
Q2/ Can you go into a Heartland bank branch and withdarw a bundle of cash?
A2/ No
Q3/ Can you go into a Heartland bank branch and obtain some overseas currency for your overseas trip?
A3/ No
Q4/ Can you go into a Heartland bank and get a proper mortgage (not one of those reverse ones)?
A4/ No
My conclusion: Heartland Bank fails the 'duck test' in comparison with the other banks that Roger used as comparatives.
I guess the killer philosophical question on my mind is this:
"If a striped suited 'Beagle Boy' goes into a Heartland Bank and commands the staff to put all of the till proceeds in his swag bag, then the said Beagle Boy leaves with a limp empty sack (because Heartland don't deal with cash anymore), can he be arrested for bank robbery?"
SNOOPY
Good company, had a good run though. I'm taking some profits, in the future it will likely go higher but I think there will also be an opportunity to buy lower. Market as a whole is running hot at the moment - an overall correction will have the biggest impact on HBL SP rather than the financials of the company itself
Well said. Treat on-line forum with caution.
It is good to make sure you compare like with like. I have shares in a big Aussie bank and in HBL. One of the reasons I bought a shareholding in HBL was for diversification - that it was a different type of bird from the big Aussies! Perhaps (hopefully) it is more of a nimble Welcome Swallow?
I think the answer to this one should be "Yes". You will pay a bit more for it, but they will do mortgages.
On a side note, my main bank is SBS, and they would also get a "No" to those first 3 questions. So I guess, that on your duck test, for the last 17 years I haven't banked with a bank.
Any self respecting Beagle would be barking mad :) to do such a thing.
I'm with Iceman on this. Just because they do things differently and don't want the overheads of an extensive branch network and certain types of low margin lending doesn't mean they won't quack loudly when it comes reporting time :)
The other point we haven't even really touched on is who wants to own Aussie banks when you can't claim their franking credits ? Any sensible hound knows if you've got to let the taxman have two helpings of food before you get to your food bowl you won't be as well fed as you would off HBL divvies.
Snoops you left out Q5
Q5/ Can you rely upon a mobile device to do simple banking transaction with Heartland
A5/ NO
Unlike other banks .... and this one prides itself in being digital
A very strong week for HBL.
Today's close was $1.66, with the VWAP being $1.6539, on 812,247 shares traded ,for a total value of $1,343,341.
Blackpeter said we probably had capitulation over on WHS thread
Hope HBL not heading to a blow off top
So what if it does?
However looking at the chart, this new high signals the breakout is on the upside.
In the meantime, I am now looking forward to the fully imputated divie,as will your bowling club mates.Did they decide to buy on their own,or did you do the decent thing and bring HBL to their attention?.
For those too young to get the reference: a 'Beagle Boy' ain't no hound. A Beagle Boy is from the dark side of Disney:
https://en.wikipedia.org/wiki/Beagle_Boys
Heartland may be getting better while the bigger banks stand still. In absolute terms though, HBL is still a lower margin business, with a lower return on equity, than the bigger banks.Quote:
I'm with Iceman on this. Just because they do things differently and don't want the overheads of an extensive branch network and certain types of low margin lending doesn't mean they won't quack loudly when it comes reporting time :)
Well this hound, in the case of ANZ, went to the trouble of working out the comparative yield, rather than assuming full imputation credits would always skew the value equation in Heartland's favour:Quote:
The other point we haven't even really touched on is who wants to own Aussie banks when you can't claim their franking credits ? Any sensible hound knows if you've got to let the taxman have two helpings of food before you get to your food bowl you won't be as well fed as you would off HBL divvies.
1/ Data from my post 432 on the ANZ thread feeding the 'fair value' at 6.5% yield calculation including NZ impuation credits, (not fully imputed for NZ sharehodlers, but NZ shareholders do get some) ignoring franking credits gives a 'business cycle fair value price' for ANZ shares on the NZX of $NZ24.67.
2/ Data from my post 8633 on this Heartland thread feeding the 'fair value' at 7.5% yield calculation, including NZ impuation credits, give a 'business cycle fair value' price for Heartland shares on the NZX of $NZ1.42.
Based on today's closing price of $1.66, Heartland is now 17% overvalued (on a whole of business cycle basis).
Based on today's closing price of $34.90, ANZ is now 41% overvalued (on a whole of business cycle basis).
At first glance, this comparison supports Roger's point about the greater value of impuation credits offering a better deal for tax resident New Zealanders, skewing the value comparison Heartland's way. But ANZ value is not driven by NZ investors. This is why I redid my data from an 'Australian perspective' (counting Australian franking credits, disregarding imputation credits) in post 443 on the ANZ thread. This gave ANZ fair value at $A31.74 or $NZ34.88 (with $NZ1- = $A0.91). By this measure ANZ is pretty much fair value right now in $NZ terms.
In my view, ANZ is still the better investment proposition for those buying at today's prices. However, because I always like to buy at 'below fair value', I wouldn't be buying either HBL or ANZ at today's prices!
SNOOPY
diacl: hold ANZ
Standby for financial engineering Snoopy. Tier 1 capital raise probably a necessary precursor to a Tier 2 capital raise of maybe $50 - $75m followed by a share buyback.
That'll boost their return on equity. All time new highs...quite content to let my profits run as I'm sure many others are.
Participants in the SPP plan are now up a neat 20 cps within a couple of days of the shares being issued. Who said there's no such thing as a free investment lunch :)
I won't be selling at $1.74 mate. I see fair value as at least $1.76 but as my slightly tongue in cheek post about it potentially being worth as much as $2.50 suggested, I do think HBL's significantly superior track record of earnings growth and projected earnings growth as well as full imputation credits on dividends are significant matters which make this company very attractive indeed relative to Australian bank stocks.
Last I read all of the Heartland 'normal' mortgages had been syndicated out to Kiwibank. However, I will be happy to be corrected on this point if I am wrong.
I believe these 'syndicated Kiwibank mortgages' are different to the on line offerings of 'premium priced' mortgages that Heartland are threatening to introduce on their digital platform, for those too scared to speak to a real banker at another bank!. But 'on line' means you don't have to visist a Heartland bank to get this kind of mortgage.
SNOOPY
All good....I do wonder where and why the large buy orders came from late on a Friday night to push up the sp. ...is there some news around the corner but also wonder where imputation credits come from and how long can they last......p.s. I do like snoopy posts even tho it's way over my head most of the time (but don't tell him that)just our little secret
Good work here by Roger, but time to add a bit more information for those highlighted banks that trade in New Zealand
Bank Fitch Credit Rating (NZ Operations) Approx Probability of Default Over 5 years NAB, trading as BNZ AA- One in 300 Westpac New Zealand Limited AA- One in 300 ANZ Bank New Zealand Limited AA- One in 300 Heartland Bank BBB One in 30
I think this exposes the myth that what we are looking at here is Heartland up against a 'peer group'.
What you have calculated here Roger is what will happen if Heartland lives up to the consensus of what a broad group of analysts think will happen. However, these expectations say nothing about 'execution risk'. The probability of success of the respective business plans comes very muuch to the fore in what is likely to happen. And most analysts with their glib forecasts do not consider this.Quote:
4. Even if you make the case, (which I don't) that HBL will only enjoy two more years of abnormal growth before reverting to the very modest rates the Australian banks are "enjoying" for HBL to be trading at the average of its peer group the SP is likely to outperform its peer group by 12.77 / 11.9 = 7.3% over the next two years.
Much of the historical outperformance comes from Heartland deftly disposing of what seemed to be an absolute basket case of land and property loans at the time. Given these are now largely disposed of, it doesn't seem right to assume that historical growth from this source will continue and so influence the future ghrowth rate going forwards. I don't think any industry forecaster , let alone Heartland have stated, that they will outperform their peers post FY2019. Note I am not saying this isn't possible, or it won't happen. But I would be cautious of using invented hyperbole to justify your value of Heartland shares post FY2019.Quote:
5. Even now based on average estimated 2017 earnings the peer group is trading at an average PE of 13.56 and HBL at 13.8 represents only a tiny premium which taking into account its historical growth outperformance and projected stronger growth and I think the current market PE premium is not properly recognizing this superior growth.
6. I think given the distinct possibility that HBL's growth will continue to outperform its peers post FY19 I think that a minimum further 7.3% rerating will happen over the foreseeable future, probably this year.
7. Relative to its peer group I therefore value HBL at 1.64 + 7.3% = $1.76.
The problem we have valuing Heartland is that most of the real peer group was destroyed in the great finance sector collapse in NZ. I suspect that if you are looking over the ditch, the best comparatives are other finance companies that, like Heartland, do not pass the duck test. The closest I have found to Heartland is the unlisted soon to be former subsidiary of the ANZ bank, UDC Finance, in New Zealand. In NTA terms in what we have to assume was a well thought out disposal process, it sold very recently to the Chinese at a much smaller premium to NTA than Heartland is trading at now.Quote:
8. I think you can easily make the case that relative to its peer group given its considerably stronger historical and projected growth a PE premium of 1 on FY17 projected earnings is warranted.
Average FY 17 PE for Aussie banks excl HBL is 13.52.
HBL's current PE 13.8 HBL should be trading on a FY17 PE premium of at least 1 = 14.52 14.52 / 13.8 = 5.2% increase from here = $1.73
I think at the very least in your valuation, you need to make an adjustment for business execution risk. In my own analysis I did this my requiring a gross return of 7.5% on the projected dividend flow, verses 6.5% for the big banks. I am not sure this is the best way to do it. But it is the best that I have come up with, so far.Quote:
9. Investment case summary: I therefore think fair value for HBL is between $1.73 and $1.76 on an ex dividend basis and note it currently trades on a theoretical ex dividend price of $1.60.5 ($1.64- 0.035) so we have another ~ 10% rerating to go and then from there the price should continue to drift up in line with the 14% earnings growth to FY 19. My 2 year target price is therefore 1.76 x 1.14 = $2.01 and in the meantime based on 8.5 cps in annual fully imputed dividends we will be enjoying a gross dividend yield of 7.36% (8.5 / 160.5) / 0.72.
Disc: Hold and fully subscribed to dividend reinvestment plan.
SNOOPY
You bring up an important point Snoopy, hard to believe heartland bank still has such a credit rating, I would have thought that, these days, it would be much higher (and I don't think I am alone in this thinking).. you would have also thought with all the talk of credit tightening on houses and apartments (that HBL is not exposed to anywhere near as much), both here and in Australia, that the big banks would have some pressure on their ratings... just my thoughts anyway.
t_j -- here's the rationale for a BBB rating. Is worth a read to clarify your thinking
https://www.heartland.co.nz/Uploads/...0published.pdf
Heartland have a higher risk appetite relative to peers ....and pay too much out in dividends
To answer why the rating is not higher maybe the paragraph 'Rating's Sensitivities' will explain why (and note the limited upside bit)
The credit risks I quoted refer to the NZ operations of the big 3 opposition Banks. Whatever happens to the Australian Property market is irrelevant to the RBNZ, even if it is very relevant to NZ shareholders of ANZ, WBC and NAB!
Heartland is much more exposed, in percentage of portfolio terms, than any of those comparative banks to what happens in rural NZ. This is a big risk albeit different to the housing market risk which I acknowledge is an issue for those other banks. I also think that the Seniors Reverse mortgage market could be badly hit in any housing market downturn. It is easy to borrow money against an asset that is seen to be rising rapidly in value. If that asset is falling in value the psychology of taking out a loan against that asset is very different.
Risks and rewards are here, but they are different, and not necessarily favourable for Heartland.
SNOOPY
Now that dairy has recovered I am happy with their risk profile. I prefer to back N.Z. companies wherever possible...lets be honest the ANZ haven't exactly covered themselves in glory with some of their corporate basket case lending in recent years. Plenty of losses yet to be booked on N.Z. corporate lending from some very poor historical committee decisions. You'd be hoping their lending committees in both Australia and New Zealand have had a thorough "refresh" Don't want too many more Dick Smith's, Pumpkin Patch and their ilk do we ! I suspect there might be one or two people on this forum very pleased to see me backing HBL boots and all :)
I think the other thing Snoopy is if one wants to invest in this sector you have to find a better alternative than HBL and I for one do not believe you've made a convincing case with ANZ. Technically breaking through to a new all time high there is nothing to suggest this stock won't travel higher still.
I honestly don't see the point in the back and forth with Snoopy. As long as I've followed the thread Snoopy has been saying HBL is a poor investment and the view has been well heard. If you don't like HBL Snoopy why keep posting about it? Clearly your view is not going to change and we'll all just have to wait and see whilst HBL is busy executing their plan and growing dividends successively as they have done for the past five years.
Just recently you agued with me when I said the SPP is a bargain. Well guess what it was. On the 5K in the SPP I made over 10% with little to no risk.
Also of course it has a lower credit ranking and is higher risk. The bank is 10x smaller than the big 4 banks. That comes with greater risk, but also greater growth opportunities. ANZ is already dominating market share in NZ, has increased funding costs and little room to grow unless they're willing to give up margins. A lot of the other big four are in similar positions. Their lending growth is also going to slow in NZ now that house prices are starting to stablise. There's plenty to like about HBL at the moment given they play a different game and position themselves nicely.
I agree. Snooper my friend, its time to turn your talents to finding opportunities. I brought up ANZ's chart last night. In late 2013 they were $39 a share and are presently just under $35 Kiwi a share.
During that same period of time HBL was ~ 80 cents a share and they have more than doubled and from a TA perspective look like going higher still. Fact is my hound dog friend you have been consistently catching the wrong scent with this one so its probably time to go hunting elsewhere. I stand by the work I did on comparative value and think HBL fair value is at least $1.73-$1.76 and that assumes they only grow at the same rate as their peer group post 2019, (which I think is a VERY conservative assumption) so I won't be selling even at the top end of where I presently see fair value. HBL may get a credit rating upgrade in the next couple of years. Of course there's business execution risks, they exist for all business's including ANZ but risk and reward go hand in hand, should that be paw in paw:)).
Would be nice to see HBL upgraded :t_up:
For what it is worth, I do appreciate Snoopy's posts, even if I don't necessarily 'agree' with them
Any company with a projected positive cashflow and profit is a good investment at the right price. I agree with 'the enthusiasts' that potentially Heartland is a good investment. I disagree at the price the 'good' adjective kicks in. As new data comes in I can re-evaluate my position as to what investment point I mark as 'good' for Heartland. So I express a new opinion. I try not to repeat myself, but sometimes when opponents roll out the same old arguments the counterpoint is the same old rebuttal. My position has changed. A few years ago I was very doubtful at 80c. Now I think paying $1.14 for a Heartland share would be a good price to pay. The 'runs on the board' by Heartland management over the years have changed my opinion.
In my case, I have been invested in ANZ and WBC for years. Although ANZ and WBC are not strictly comparable in my view, are at least in the finance sector. So 'good' for me has to be better than those two in a longer term sustainable way. Hence my fixation with the ANZ and ANZ subsidiary UDC comparisons.
It comes down to a question of price (what you pay) to value (what you get). Clearly you have paid less for those shares you acquired in the SPP, compared to what you would have paid had you acquired those shares on market at today's market price. However, my argument is that in the medium term you may have overpaid in both cases.Quote:
Just recently you argued with me when I said the SPP is a bargain. Well guess what it was. On the 5K in the SPP I made over 10% with little to no risk.
What investors have a choice of buying shares in is the wider ANZ group, not 'ANZ New Zealand branch'. ANZ has had their own little growth foray into wider Asia that the new CEO has pared back (at the retail leve at least). I agree that Heartland has more growth potential, even than the wider ANZ group. This is why I assumed no growth for ANZ, and growth in proportion to the increase in share capital in the case of Heartland. ANZ still won my 'head to head' dividend return comparison, despite the higher growth I was attributing to Heartland.Quote:
Also of course it has a lower credit ranking and is higher risk. The bank is 10x smaller than the big 4 banks. That comes with greater risk, but also greater growth opportunities. ANZ is already dominating market share in NZ, has increased funding costs and little room to grow unless they're willing to give up margins. A lot of the other big four are in similar positions. Their lending growth is also going to slow in NZ now that house prices are starting to stablise. There's plenty to like about HBL at the moment given they play a different game and position themselves nicely.
SNOOPY
Interesting. I guess all investors have different criteria by which they assign fair value. I considered Snoopy's method to be good for a cyclical stock, but didn't consider long term trends. My own valuation puts HBL currently at $1.64, with a 10% annual growth. I consider any share to be a buy at 10% less than current valuation and a sell at 15% above current valuation. Anything in-between is a hold.
I guess I won't be selling any time soon either.
Fair call that I shoudl have been more 'on the ball' with ANZ back in 2013. Suffice to say I have put a lot of effort into trying to understand banks better since then. But back in 2013, ANZ was a star that could do no wrong, so "I didn't need to pay as much attention to it" ;-P. Much like Heartland enthusiasts don't have to pay much attention to their Heartland investment today. TA is really just another way of saying "let the good times roll", and party on. I prefer to go with a more data driven forecasting approach. Granted I will miss any 'surprising turnarounds' by doing things this way. But I am prepared to forgo such wins, just as I forgo buying Lotto tickets.
SNOOPY
Strong finish last week, strong start today... $1.68 currently I believe, $1.70 by the open tomorrow? ;)
Seems to me that still trading cum a fully imputed 3.5 cent dividend up to and including this Wednesday nobody with any meaningful volume seems to want to sell. Seems they broadly agree with this hounds assessment of fair value. Wouldn't surprise me at all to see $1.70 today, ($1.69 when I looked a minute ago). Hold.
SNOOPY.
Could we please have another of your wonderfull SELL HBL posts.
I love them.
Each one sees the sp react upwards immediately.
You are making me a very wealthy man.
Snoopy thank you.
The beers are on me next time we meet.
I love how it is increasing as well, but this cannot continue forever. At some stage the risk will outweigh the reward. Unless this is a takeover haha. I will continue to hold
Even @ 168c still a solid gross 7.11% yield (5.06% fully imputed) :)
This is just such a beutiful chart I needed to update - certainly exciting
Never before have I seen a bank rerated so fast and by so much by the market as now - awesome
Still below fair value on a comparative basis with its peer group so I am expecting only a temporary pullback of 3.5 cents per share when it goes ex dividend on Thursday.
I suspect Percy has a few more than me and is probably enjoying Lobster for dinner some evenings with his chips :)
That fall from 169 to 166 today - just 'profit taking' as they say in in the trade
A good sign I reckon
Flat for the day not a bad thing, found a short term new top at 169, you reckon? Some poor punters down 1-3 cents already, but just a temporary blip on the way to the moon, as they say in the trade.
Stunning chart, nice breakout through previous highs at 160, probably want to back test that solid support, then moon-ward again eh. No worries, dead cert for sure.
Actually, my laziness at just using unadjusted 'dividend per share' figures, while the number of shares continues to increase does build a growth rate into my Dividend Capitalization Modelling. To work out what that is, I have constructed a table below.
Year Dividends Paid 'per share' (dps) No. Shares EOFY2017 {A} No. Shares EOFY {B} {A} - {B} {C} Actual Dividend [dps x {B}] Modelled Dividend Growth [dps x {C}] FY2015 3.5cps + 3.0cps 512.902m (f) 469.480m 43.422m $30.516m $2.822m FY2016 4.5cps + 3.5cps 512.902m (f) 476.469m 36.433m $38.118m $2.915m FY2017(f) 5.0cps + 3.5cps(f) 512.902m (f) 512.902m (f) 0m $43.597m $0m Three Year Total $112.231m $5.737m
(f) indicates forecast result.
Now we can calculate the incremental profit growth percentage:
$5.732m / $112.233m = 5.112%
All this modelled growth happened over a three year period, with two incremental years from the base year. The average annual growth rate, lets call it 'g', must multiply together to obtain the 5.112% total.
g x g = 1.05112
Solving for 'g' yields an annual growth rate of 2.524%
The extra earnings that I have modelled are because I am assuming that it would have been possible to earn more in the past if the share capital of today had been available 'back then'. It is implicit in what I have done that I am assuming constant 'earnings per share' on this theoretically enlarged capital base. It may not have been possible to achieve this constant 'eps growth' had the extra capital been available at the time. Any theoretical extra growth could have been more or less. But becasue this whole incremental growth modelling is only a 'what if' exercise, I will stick with the constant 'eps' estimate, andthe derived annual growth rate of 2.524% that I calculated.
SNOOPY