Heartland's Acceptable Operating Leverage Ratio
Quote:
Originally Posted by
Snoopy
Back to the acquisition.
From page 29 of the February 2014 presentation:
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43m shares at 90c works out at $38.7m in share value. Add the $48.3m in 'cash' being paid to the seller and I get $87m, the acquisition consideration.
Heartland say they are funding the $28.3m cash component of their purchase over and above the $20m capital raising from existing cash (by definition surplus or the Reserve bank would not allow them to do it) on their balance sheet.
Now go back to page 14 of the February 2014 acquisition presentation. The portfolio size is listed as $NZ340m plus $A380m ($NZ420m at prevailing exchange rates). So the total in $NZ terms is around $760m.
The underlying capital used to support this acquisition is $NZ87m.
So the loan value to underlying capital ratio is $87m/$760m= 11.4%
The above relates to the Reverse Mortgage acquisition. But we can also work backwards and see from a 'reserve bank' pair of eyes (wheels?) deduce what is considered an acceptable operating leverage ratio for the rest of the business.
Apparently, just before the purchase of the reverse mortgages, Heartland had 'surplus' cash of $28.3m on the balance sheet. If we look at the 31st December 2013 HY2014 balance sheet $178.5m in cash was there. So we can deduce that:
$178.5m - $28.3m = $150.2m
of cash is required , as part of a more comprehensive asset package, to fund all the rest of the Heartland business. Put another way, the 'total equity' (again from the balance sheet) needed to fund the rest of the Heartland business is:
$382.5m - $28.3m = $354.2m
The size of the loan book at balance date was $2,077.0m
So the equity to loan book ratio for the rest of the business, as judged acceptable under the watchful eye of Mr Wheeler, is:
$354.2m/$2,077m = 17.0%
SNOOPY
Tier 1 and Tier 2 Lending covenants HY2014
Quote:
Originally Posted by
Snoopy
Once again there is no mention of Tier 1 or Tier 2 in the Heartland FY2013 report.
The 'best case' scenario is that all loans are Tier 1. $2,097.553 of loans are outstanding. 20% of that figure is:
0.2 x $2,097.553m = $419.5m
Heartland has total equity of $370.5m which is well below the 20% of loan target no matter what the tier classification of the loans.
Result: FAIL TEST
Once again there is no mention of Tier 1 or Tier 2 in the Heartland HY2014 report.
The 'best case' scenario is that all loans are Tier 1. $2,097.553m of loans are outstanding. 20% of that figure is:
0.2 x $2,076.968m = $415.4m
Heartland has total equity of $382.5m which is still below the 20% of loan target no matter what the tier classification of the loans.
Result: FAIL TEST
PS I do note that while other posters have protested at my 20% of equity to back up the loan measuring stick in the past, it is not too far away from the 17% which by implication is judged acceptable by management under the watchful eye of Reserve Bank chairman Graeme Wheeler. The reserve bank further qualifies their views that a company of Heartlands credit rating still has a 1 in 30 chance of going broke in any year. I prefer to think in business cycles and 30 years will contain around five of those. So you could restate the Reserve Bank's view as saying that HNZ has a one in five chance of going broke at the bottom of the business cycle. For me that investment risk is too high. So I am sticking to my 20% equity requirement, even if the Reserve Bank will settle for less.