HMY - Harmoney Corp Limited

[Muse]

Credit losses as the economic conditions tighten are the focus of the market with unsecured lenders as the likes of Afterpay & Zip show.

Growth in the loan book with credit losses growing as well is not a good thing.

https://www.smh.com.au/business/bank...12-p5acvr.html

Balance I'd agree 100% that as and when the economy cools & unemployment rises you will see higher incurred credit losses as a % of average book than before. That's just how it works - no debate. And even if that doesn't happen, when you grow your book ridiculously fast (as HMY is), your provision at year end for all future expected credit losses (IE not what you actually incurred during the period, but the provision for ALL future expected ones over numerous future years) in dollar terms rises fast and causes stat NPAT to be negative when in growth mode (although I tend to look at NPAT after adding back the aftertax impact of the provision to see what underlying NPAT is & use that instead). If you grow really fast, AND raise your provision %, the statutory impact is even more pronounced. So I hear what you are saying.

But on HMY's comparison to laybuy and afterpay and all that jazz...I just refer you to my post responding to a previous comparison to Laybuy by a different poster. The operational and financial performance between HMY and BNPL couldn't be more stark...one earns damn year 10% net lending margin (interest income less interest expense and credit losses) and the other is negative. The operational and financial nature of HMY's lending is far closer to heartland than it is to BNPL, but obviously still quite different to heartland in that it is unsecured, scaling, and consumer focused.

Well that is a load of rubbish, and a rather disingenuous comparison to Laybuy.

Harmoney don’t provide meaningful impairment stats? Not true.

In its 1H FY22 report they noted group loss rates (actual incurred credit losses - or ICL - as a % of average receivables) of 3.8% - a slight improvement on 3.9% in FY21 and 4.8% in FY20.

Of that group loss rate, its warehouse facilities had incurred credit losses of 2.2% - against down from about 2.3% in FY21A and vs ~2.1% in FY20. Harmoney provide incurred credit losses by country as well.

Legacy peer to peer incurred credit losses are quite a bit higher at 8%, up from 5 to 5.5% and 6.1% in the prior 2 years – for two reasons. One, given the inefficiencies of p2p they necessitated higher lending rates which meant they went to riskier customers, and (2) the book is old and is in run which naturally attracts higher loss rates as the book ages. Peer to peer has been discontinued, at 1H they about $101m of remaining p2p receivables, which is running off at the rate of about 40-45m per quarter. We should naturally see overall incurred credit losses as % of book fall as the p2p book runs off holding all else equal.

Harmoney likewise disclose the provision for future expected credit losses. At the proforma group level this sat at 4.6% (down from 5.7% in FY21), its on balance sheet warehouse facilities 4%, and p2p of 7.3%
In their release they provide monthly charts showing 61+ day arears showing last 24 month performance in both NZ and AU (both at record lows) – with that time frame a good leading indicator for 90 day arrears which we know drives incurred credit losses. Group 90 day arrears at 1H FY22 was 0.46% - a record low for the company.

Not sure what more credit data you could reasonably expect but happy to hear your suggestions

Regarding laybuy, the financial and operational performance between the two companies could not be more stark. Laybuy very recently announced their ‘net transaction margin’ (similar to net lending margin which Harmoney and traditional banks use – basically your gross margin after credit losses) was at breakeven and expected to be negative across its second half. That is shocking. A financial institution that can’t even recover its interest expenses after credit losses may as well close up shop.

When looking at financial instos a lot of investors focus on NIM but net lending margin is without a doubt the most relevant financial metric. And that is where Harmoney happens to shine. In 1H FY22 they clocked $24.2m in NLM – growth of 41% on the prior year – and represented a 9.3% net lending margin on average book. As Winner69 would say – that’s very good.

You’ll get no argument from me that the financials are difficult to understand. That should resolve as the transition from p2p to warehouse is completed before the end of this calendar year.

[whatsup]

Is this a sub $1-00 share, the selling is relentless, I thought the bottom was a long time ago but how wrong was I , pity the fish heads who bought @ $3-00 + !!

[Balance]

Balance I'd agree 100% that as and when the economy cools & unemployment rises you will see higher incurred credit losses as a % of average book than before. That's just how it works - no debate. And even if that doesn't happen, when you grow your book ridiculously fast (as HMY is), your provision at year end for all future expected credit losses (IE not what you actually incurred during the period, but the provision for ALL future expected ones over numerous future years) in dollar terms rises fast and causes stat NPAT to be negative when in growth mode (although I tend to look at NPAT after adding back the aftertax impact of the provision to see what underlying NPAT is & use that instead). If you grow really fast, AND raise your provision %, the statutory impact is even more pronounced. So I hear what you are saying.

But on HMY's comparison to laybuy and afterpay and all that jazz...I just refer you to my post responding to a previous comparison to Laybuy by a different poster. The operational and financial performance between HMY and BNPL couldn't be more stark...one earns damn year 10% net lending margin (interest income less interest expense and credit losses) and the other is negative. The operational and financial nature of HMY's lending is far closer to heartland than it is to BNPL, but obviously still quite different to heartland in that it is unsecured, scaling, and consumer focused.

Thanks for the various replies which put HMY’s business in perspective vs that of Afterpay and Zip.

I believe I am simply pointing out the obvious - that HMY is lumped along with the unsecured lender sector which is well and true out of favour in the market. It’s sp benefited when the sector was in favour and now it’s not.

Could indeed represent an opportunity for those who understand HMY a lot better than the likes of me and the market.

[RTM]

Thanks for the various replies which put HMY’s business in perspective vs that of Afterpay and Zip.

I believe I am simply pointing out the obvious - that HMY is lumped along with the unsecured lender sector which is well and true out of favour in the market. It’s sp benefited when the sector was in favour and now it’s not.

Could indeed represent an opportunity for those who understand HMY a lot better than the likes of me and the market.

We have exposure to Harmony via Heartland...so took a quick look at their reports...as I am wondering what is driving down the HGH price and if it might be exposure to Harmony. A couple of things have me scratching my head a bit.

Firstly...the salaries seem high. See page 75 of AGM ? Or am I hopelessly out of touch with reality ?

Harmony - Salary June 2021.JPG

Secondly...HGH's ownership of Harmony's shares = 8.44% as at 30 June 21
I might be "happy" with this level of exposure .....no more.
And I have a further question that someone may be able to quickly help with.
Is Heartland additionally exposed to Harmony via financing their lending ?

[Rawz]

Yes HGH have big warehouse facility for HMY.

HGH also have a lot of big WHS facilities for 2nd tier NZ car lenders that a lot of HGH shareholders wouldnt know about (im guessing). It's hugely profitable for HGH. Often HGH provide funds when the big banks wont- because they have appetite.

Only a guess but I would say HGH would be close to withdrawing their funding lines to HMY because HMY can now get funding much much cheaper from the big banks. Therefore its not profitable enough for HGH. Better to give it to Go Car Finance et al

[RTM]

....and now I see this. Current valuation HMY: A$1.01
Not ideal !

Harmoney - HGH Valuation.JPG

[Rawz]

RTM- HMY employ very expensive data scientists to build complex globally leading technology (some google VP actually said this). These gurus command top dollar. Cool ay lol

[RTM]

Yes HGH have big warehouse facility for HMY.

HGH also have a lot of big WHS facilities for 2nd tier NZ car lenders that a lot of HGH shareholders wouldnt know about (im guessing). It's hugely profitable for HGH. Often HGH provide funds when the big banks wont- because they have appetite.

Only a guess but I would say HGH would be close to withdrawing their funding lines to HMY because HMY can now get funding much much cheaper from the big banks. Therefore its not profitable enough for HGH. Better to give it to Go Car Finance et al

Thanks...maybe I have enough HGH at this time as well ! Think I'll head outside for a while ....

[RTM]

RTM- HMY employ very expensive data scientists to build complex globally leading technology (some google VP actually said this). These gurus command top dollar. Cool ay lol

THx....yes...probably a lot of analytics going on behinds the scenes that I never considered. Even so. Seems pretty solid.

[winner69]

RTM- HMY employ very expensive data scientists to build complex globally leading technology (some google VP actually said this). These gurus command top dollar. Cool ay lol

Billions of data points to make credit assessments Harmoney says