HMY - Harmoney Corp Limited

[Rawz]

4) Q2 was released 19th of the month. We are only 21st... and this month we have three back to back 4 day working weeks because of Easter and ANZAC holidays.

Be patient

[jimdog31]

4) Q2 was released 19th of the month. We are only 21st... and this month we have three back to back 4 day working weeks because of Easter and ANZAC holidays.

Be patient

surely today??

[mike2020]

Wed next week.

[Rawz]

CEO/CFO probably already at the beach house for an extra long weekend. Like Mike says above, we might have to wait until next week

[nztx]

While that may be true, afterpay is a glorified loan shark. Ive seen first hand the types of ppl they give money too, there is almost no dd, a high level of fraud too.

My impression of harmoney is that as they arent pay day lenders that their exposure wont be anything like what afterpay is and will experience.

I rather look at scenarios that may occur when using OPM (Other People's Money)
which this outfit are clearly doing by many very large basketfuls

What could possibly go wrong ?

[Muse]

I rather look at scenarios that may occur when using OPM (Other People's Money)
which this outfit are clearly doing by many very large basketfuls

What could possibly go wrong ?

Just curious if you apply that same logic to a bank? For financial institutions debt is a raw consumable like inventory is for a retailer

Old Heartland, which like harmoney very much indeed as one of its largest shareholders, uses deposits (other peoples money), securitised debt, and unsubordinated notes to fund its receivables, in addition to a small proportion of equity they use to fund their receivables. I haven't checked how much equity they have directly invested in their receivables book but I recall they had about a 14% regulatory capital ratio at the end of end of December.

Specific to harmoney, off balance sheet p2p debt is running off and I doubt harmoney will have much/any left by the end of this calendar year.

That means all lending will be funded by on balance debt from either warehouse or asset backed securitisations and their attendant equity requirements. HMY's warehousing arrangements require harmoney to fund and own the junior tranche within each warehouse, which is usually at least 10%. Securitisations drop the equity requirement by roughly half. As best I can tell, harmoney has funded over 9% of its warehouse receivables with equity at the end of 31 dec 2021.

Funding and funding requirements for banks an area most investors never bother to look at and it has interesting implications for banks, particularly Heartland going forward. From 1 July this year the minimum total capital ratio for banks will lift from 10.5% to 16% over 7 year phased transition. Heartland was at 14% and ahead of its phased plan but given it has debt funded its aussie acquisition, this could set its capital ratio back a % point or two. This has dividend payout implications and potentially even additional equity requirements starting in probably 3 or so years from now as they will need to either retain more (even after DRIP) or raise equity to meet those requirements. Nothing to worry about now but its on the horizon.

[nztx]

Just curious if you apply that same logic to a bank? For financial institutions debt is a raw consumable like inventory is for a retailer

Old Heartland, which like harmoney very much indeed as one of its largest shareholders, uses deposits (other peoples money), securitised debt, and unsubordinated notes to fund its receivables, in addition to a small proportion of equity they use to fund their receivables. I haven't checked how much equity they have directly invested in their receivables book but I recall they had about a 14% regulatory capital ratio at the end of end of December.

Specific to harmoney, off balance sheet p2p debt is running off and I doubt harmoney will have much/any left by the end of this calendar year.

That means all lending will be funded by on balance debt from either warehouse or asset backed securitisations and their attendant equity requirements. HMY's warehousing arrangements require harmoney to fund and own the junior tranche within each warehouse, which is usually at least 10%. Securitisations drop the equity requirement by roughly half. As best I can tell, harmoney has funded over 9% of its warehouse receivables with equity at the end of 31 dec 2021.

Funding and funding requirements for banks an area most investors never bother to look at and it has interesting implications for banks, particularly Heartland going forward. From 1 July this year the minimum total capital ratio for banks will lift from 10.5% to 16% over 7 year phased transition. Heartland was at 14% and ahead of its phased plan but given it has debt funded its aussie acquisition, this could set its capital ratio back a % point or two. This has dividend payout implications and potentially even additional equity requirements starting in probably 3 or so years from now as they will need to either retain more (even after DRIP) or raise equity to meet those requirements. Nothing to worry about now but its on the horizon.

Different kettle of fish

I like banks which have lots of OPM paying a miserable usary rate to most, possessing a deflated SP & sporting a good Div yield

The big Aussie banks have provided a fairly good upwards slope out of the mire of the past couple of years
for those who noticed

Back on HMY

When the kaboodle is mostly funded on borrowed capital, with lower interest rate times
then a rapid change & pain in the economic times can result in higher impairment & loss
rates - the adverse effects flow direct to bottom line as more of the profit from unimpaired
is needed to cover loan & interest revenue losses - am I wrong ?

What were HMY's impairment rates pre-Covid & what do they look like now ?

Look no further than other players in the game for suggestion of what may be the result.

It's taken HMY a fair while to even hit positive bottom line times & economic swings
and roundabouts going to worse wont be helping.

[Muse]

Different kettle of fish

I like banks which have lots of OPM paying a miserable usary rate to most, possessing a deflated SP & sporting a good Div yield

The big Aussie banks have provided a fairly good upwards slope out of the mire of the past couple of years
for those who noticed

Back on HMY

When the kaboodle is mostly funded on borrowed capital, with lower interest rate times
then a rapid change & pain in the economic times can result in higher impairment & loss
rates - the adverse effects flow direct to bottom line as more of the profit from unimpaired
is needed to cover loan & interest revenue losses - am I wrong ?

What were HMY's impairment rates pre-Covid & what do they look like now ?

Look no further than other players in the game for suggestion of what may be the result.

It's taken HMY a fair while to even hit positive bottom line times & economic swings
and roundabouts going to worse wont be helping.

As you can tell I like my banks too, including heartland, and a range of other financial institutions. HMY is an interesting little company that I invested into only in the last 6 months on a spec basis and have learnt heaps which I've applied to my core holdings.

Debt is a raw material for HMY as it is for heartland, and that is that.

There is no doubt impairments will rise as households struggle. And there can be no doubt that it will impact HMY more than heartland given the nature of lending.

Impairments are much lower at 31 December 2021 than anytime pre covid.

HMY technical capabilities in lending assessment through there new libra score card has shown some pretty significant improvements. I pulled the Moodys rating assessment on the aussie securitised book and it was there assessment it would show a static loss rate (IE the cumulative all time loss rate, not the pa loss rate) of 4.4%. That compares to the 6.5% static loss rate for the first lending cohort when they expanded to australia.

anyway - technical nouse can't overcome macroeconomics if there is a recession, and sure as rain, if there is one impairments will rise.

if people were feeling wary of consumer discretionary and the macro environment, now wouldn't be a bad time to bail.

[nztx]

As you can tell I like my banks too, including heartland, and a range of other financial institutions. HMY is an interesting little company that I invested into only in the last 6 months on a spec basis and have learnt heaps which I've applied to my core holdings.

Debt is a raw material for HMY as it is for heartland, and that is that.

There is no doubt impairments will rise as households struggle. And there can be no doubt that it will impact HMY more than heartland given the nature of lending.

Impairments are much lower at 31 December 2021 than anytime pre covid.

HMY technical capabilities in lending assessment through there new libra score card has shown some pretty significant improvements. I pulled the Moodys rating assessment on the aussie securitised book and it was there assessment it would show a static loss rate (IE the cumulative all time loss rate, not the pa loss rate) of 4.4%. That compares to the 6.5% static loss rate for the first lending cohort when they expanded to australia.

anyway - technical nouse can't overcome macroeconomics if there is a recession, and sure as rain, if there is one impairments will rise.

if people were feeling wary of consumer discretionary and the macro environment, now wouldn't be a bad time to bail.

For sure ..

The Covid Safety nets are off - Inflation is on

The effects of any increased Wages will be swallowed without trace, if not already
at higher tax cost to the reciprients of the increases with inflated other deductions.

There will be affected areas of the economy (some worse than others) as this rolls out

Businesses will close for those on or near the edge who are for whatever reasons
unable to adapt to the approaching adjusted Landscape,

With that Jobs will go, Housing will become more difficult

Inflation and added fuel costs will track into most if not all corners of the
changing economic landscape

HMY weren't at Bottom Line positive with protective measures in place
so the ensuing periods will be interesting whether on increased lending exposures
off higher borrowings, the formula can make it across the line and to what extent the
bottom line rewards patient punters, if it does at all in near future

[Muse]

For sure ..

The Covid Safety nets are off - Inflation is on

The effects of any increased Wages will be swallowed without trace, if not already
at higher tax cost to the reciprients of the increases with inflated other deductions.

There will be affected areas of the economy (some worse than others) as this rolls out

Businesses will close for those on or near the edge who are for whatever reasons
unable to adapt to the approaching adjusted Landscape,

With that Jobs will go, Housing will become more difficult

Inflation and added fuel costs will track into most if not all corners of the
changing economic landscape

HMY weren't at Bottom Line positive with protective measures in place
so the ensuing periods will be interesting whether on increased lending exposures
off higher borrowings, the formula can make it across the line and to what extent the
bottom line rewards patient punters, if it does at all in near future

I dont necessarily disagree with any of that.

But for context its worth noting the business IPO’d waaaay to early and is finally on the verge of scaling against its relatively fixed cost base. It has a net lending margin (ie after interest expense and incurred credit losses) of 9.7% which is truely exceptional - and at its run rate getting close scaling.

I would guess HMY will respond to rising risk environment in NZ by pricing the risk up which will ultimately slow growth in NZ which has been low growth for a while now. It wouldnt be able to price for all the excess risk and I’d have though NZ’s net lending margins will compress.

AU’s book will be bigger than NZ’s in a year and that is where all the growth is. Macro environment outlook much more benign.

But if worrying about the cycle and where one sits in it this isnt the stock for you.

There are many ways a business like this can catch a stray bullet. You have to be a true tactician to navigate turbulent waters well and come out unscathed. Avanti finance is an example of that - sailing thru the gfc - and are smashing it now.