HMY - Harmoney Corp Limited

[Muse]

To FM's point, if some of the employee share remuneration costs were a one off in FY21, that would definitely help the view I compiled (by having higher NPAT sooner), although it would make no difference to "cash NPAT" per their methodology given it is a non-cash expense. Do we know anything about their employee share scheme?

Managed to snip this from the FY21AR: "Under the terms of the historical share-based compensation plan, at IPO, vesting of options was accelerated. This resulted in all unrecognised expense in relation to outstanding options being recognised as an expense in the period. The expense for option related share-based payments is therefore at an elevated level in 2021 and included in the remuneration and other benefits values reported above."

[Muse]

I'd hazard a guess share based payments will still to some extent be an expense into the future

for sure. but not nearly by that much. It was $4.1m in FY21. 700k the year prior.

[Snoopy]

Hey Snoops - what's the hidden message in your signature

Only that the ACC have generally IMO done a good job managing their premium money in their own investment portfolio over the years. So if ACC is buying, you don't want to be selling and vica versa.

SNOOPY

[Muse]

I'm on my phone ferg so cant dive into the detail but are you using FY21 as a base to forecast from? If so, I'd adjust out those IPO expenses which were chunky and the share based payments. Could make an ~$8m NPBT difference that compounds over time.

Yeah I think after rereading some of my old notes I think you have to make a few adjustments ferg to your FY21 cost assumptions if you are going to role that forward as your base:

* Share issue expense: clearly a one off large expense as noted in the AR, and typically seen during IPO's or seen the year a trade or private equity player invests into a company. That's $3.5m, less say $700k (prior year as a proxy for maintainable), for net adjustment to your FY21 cost base of $2.8m;

* IPO expenses of $4.1m, clearly should be adjusted out as non recurring on a roll forward basis

* borrower establishment fee rebate: these relate to the fees charged to borrowers of p2p loans, which is now a legacy & discontinued operation. There was a bit of fanfare about this over the previous years as HMY enterted into a settlement agreement with comcom to return them. The settlement was for $7m - $3m of which was recognised in FY20, and $4m in FY21. Clearly unsatisfactory for the business and the shareholders at the time, but I would consider these to be non recurring and thus it's a fair normalisation

As winner69 alluded to its, for banks, convention to reference cash npat. That's an industry standard for them - but probably as it suits their cause a bit particularly in downyears as they have big swings in non cash provisions & hedges. But it swings in round abouts as they often release unused provisions which will see NPAT higher than cash npat. I'm fine with & prefer good old NPAT.

My spreadsheet wasn't my operational model output I simply used the $45m EBITDA they talked to in their investor day presentation. But you'll recall in my spreadsheet I clearly deducted depreciation & amortisation as anyone would from EBITDA when calculating my NPAT. My figure there a npat figure, not a cash npat in the way harmoney calculate, despite me having 'cash npat' in the spreedsheet.

Probably too much detail, but when I was adjusting the FY21 proforma P&L to try to normalise it as a recurring base to forecast from you have to make the following adjustments FY21 the P&L line items:
* $4m IPO expenses: $3.6m belong in G&A, $0.4m in verification & servicing
* $3.5m employee share issue (lets make it $2.8m to reflect $700k ongoing): personnel expenses
* borrower establishment: these actually relate to proforma interest income as establishment fees are amortised over the expected life under the loan under NZIFRS9, therefore is settling a normalised base year you'd increase interest income by the same amount (being $4m, increasing interest income from $78.6m to $82.6m). If you are pegging FY21 interest income to a loan book size to derive an opening or average interest rate % and use that to roll forward, you'd need to use $82.6m to reflect that as an operating adjustment, and not simply deduct the $4m from overheads. If that seems an awfully specific answer, thats because it is, and the one I was more or less provided when I asked harmoney about it when I started looking at the company.

So when looking at the $45m ebitda management talk to at an average $1 billion book, I think its more or less fair starting point to drill down to npat. For my simple spreadsheet I took off $3.5m depreciation and amortisation - which is 3.3x more D&A than HMY incurred in FY21. I think thats an aggressive forecast and they wont incur that, but I used it as a bit of catchall for other items. Like what's an appropriate share issue expense (say $700k pa), and movement in expected credit loss provision (was $456k in FY21). So my $29m NPAT is a NPAT figure, not a cash npat figure, and while a similar back of the fag packet number, about right.

Cheers, FM

[Muse]

Way Harmoney going it will be BIGGER (on revenues) than Heartland in a few years ...so answer to your question is Yes

Remember floated at 4.4 times revenue .... punters took up plenty of shares then ...most were pretty 'sophisticated' punters or fund mnagers

When I originally read your post w69 my immediate reaction was those sophisticated fund managers bought at ~3.70 and its now what 1.89. But that got me to thinking & it reminded myself why I am here as a recent shareholder over the last 6 months. I just went back and looked at the Shareholder information - 92% of the shares are held by 48 people. As as best as I can tell from looking at the SSNs. from IPO to now none have sold down, and in fact the insiders and major institutions have increased their holdings post IPO.

I recall that sharsies was well oversubscribed and there was significant scaling. Given the complete lack of liquidity, its fair to assume most the decline in SP has been on account of the small retail base losing interest in the company. Of those investors, its safe to say there isn't much knowledge of what the company actually does how its changed or makes its money, a lack of awareness of the operational leverage inherent in HMY's model, the fundamental differences between HMY's model and its Australian comps, the difficult to decipher financials (which overtime will rectify themselves), the discontinuation of p2p, bad press around comcom, mistimed IPO and reinforcing cycle it has created. And all that is understandable, and reflects the risk of a company undertaking an IPO too early.

But the majors and insiders have all stayed, and increased their holdings over that time, and there is a clear set of catalysts and pathway forward to addressing these constraints over the next few years.

So I do think think this business has value well in excess of its share price. There is a lot of execution risk as there is in any early stage business

[winner69]

Moose ….there was some inso selling post IPO ….and some disgruntled investors

Mugs and IPO fatigue mentioned

Harmoney's post IPO share slump prompts investor call for price inquiry
https://www.nzherald.co.nz/business/...GLLZGLADBMNJ4/

[Muse]

Moose ….there was some inso selling post IPO ….and some disgruntled investors

Mugs and IPO fatigue mentioned

Harmoney's post IPO share slump prompts investor call for price inquiry
https://www.nzherald.co.nz/business/...GLLZGLADBMNJ4/

Yeah i know & alluded to it - i just couldnt find any SSNs for the large shareholders selling down

[winner69]

From that article love how Lead brokers came out shortly after IPO with good values …Jarden $3.50 and Ord Minnett. $3.90.Jarden did much the same with MFB

Marketscreener suggests they lowered them …. Now $3.31 and $3.46

Keeping the faith ….still believing the story …. that’s good.

[winner69]

Yeah i know & alluded to it - i just couldnt find any SSNs for the large shareholders selling down

They only raised $95m so unlikely any new investor held 5% and no new SSN were filed ….we’ll probably never know if peeved insto’s did sell or not …… disgruntled investor who made the fuss probably one of those ‘sophisticated’ ones.

Whatever HMY down nearly 50% …opportunity eh.

[winner69]

Seems we will have to wait until the next set of pretty charts big numbers is produced to get that much needed boost in HMY share price