Scale is important for any business wanting to maintain a strong position in whatever market they operate in. If you don't have scale, you can carry on developing a business until the point that the 'big boys' notice you. If you continue to push ahead, those already dominating the market will act aggressively against you. This can severly limit any future growth and may end up being fatal for that part of the smaller expanding business. I am not saying that a small business can never match and get on equal terms with a bigger one. I am saying that when a small player starts to tread on the toes of a big player, then this introduces a significantly higher risk for those invested in the smaller player. if as an investor you can avoid such a risk, this is a good thing.
Heartland in their December 2016 presentation say that their mission statement is to:
"Pursue opportunities where they can provide innovative products in niche areas within the household, business and rural sectors, that are under-serviced by the major banks"
The Heartland mission statement is sensible, because the big four Aussie Banks are absolute gargantuans by Heartland standards. It wouldn't be too far of a stretch to say that to take on the big Aussie banks directly would be a suicide mission. But how secure is Heartland
really in these market niches in which they choose to operate?
The specific target markets are listed below:
Millennials (People Reaching your Adulthood in the early 21st Century => Aged 25-35 today):
Provide a frictionless digital experience to the emerging millennial market, who value speed and ease.
e.g. Harmony joint venture, Motor Vehicle Loans, Online personal loans. Growing the consumer loan book has a lower ROE (because more capital is needed to support such loans) which needs to be balanced by a higher margin.
Current Gross Receivables: $844m, Average Loan Size $14k
Heartland vs Competitors (Motor Vehicle)
1/ Marac (Heartland Subsidiary): 12.95% to 19.95%: Finance and Insurance Loan Book $340m
2/ Motor Trade Finance: 13.75%: Finance Book $535m
3/ Turners Vehicle Finance 12.95%. Finance book $144m
Heartland vs Competitors (Consumer Peer to Peer)
1a/ Harmony (Heartland investment 10% equity): Loans from $1,000 to $35,000 (all unsecured). Interest rates depends on net assets, income and credit history. Loan Book Size : Up to $100m (approx)
2a/ Squirrel Money: target A and B grade borrowers (only approve 21% of land applications). Loans $3,000 to $30,000 (unsecured) OR $70,000 (secured). Interest rate - market base plus individual risk profile. Loan Book Size: $5m
Retired:
Provide a personalised service to the 65+ via reverse mortgages. This requires an accessible and friendly branch structure, as the retired like to be able to eyeball their bank manager. Nevertheless the information is there on line too. (
https://www.seniorsfinance.co.nz/ )
e.g. Seniors Finance (Australia and New Zealand). Growing the reverse mortgage business will result in higher ROE (lower Reserve Bank risk weighting for housing, less capital applied) but a more compressed margin.
Current Gross Receivables (NZ only): $374m, Average Loan Size (NZ Only) $94k
Heartland vs Competitors:
1/ Heartland Seniors current loan rate is 7.5%, compounding monthly, $10,000 minimum loan. 15% of house value available at age 60. 35% at age 80. 40% at age 85. maximum Loan amount $500,000
2/ SBS Bank ('Retirement Loan' floating rate of 6.74% (fixed rate no longer available). Total loan balance $61m (September 2013) Amount of loan offered from 5% of the value of your home at age 60, to 30% at age 80 (to a maximum of 50%).)
3/ ASB (closed down their HomePlus business to new customers on August 3rd 2015),
Small and Medium Enterprise:
To be a smart streamlined on-line lender in this neglected market, where 'big banks' prefer to deal with 'big companies.' Plant/Equipment and Working Capital Finance. The web portal for SMEs is
https://openforbusiness.heartland.co.nz/
Current Gross Receivables: $942m, Average Loan Size $107k
Heartland vs Competitors:
1/ Heartland Business Funding rate 10%, Property and Business Services book: $405m
2/ ANZ Business Indicator rate 9.4% plus lending margin. Business and Property Services book: $14,275m
3/ ASB Business Lending fixed rate 10.15%. Property and Business Services: $7,439m
4/ Westpac Base rate of Interest + 'Customer margin.' (Indicative 13.95%) Property and Business Services book: $2,284m
Rural:
Livestock Finance, Farm transition loans, Intermediate Finance with partner PGG Wrightson, Term loans to farmers in the sheep beef and dairy sectors
whose debt needs are modest (my emphasis). The web portal for livestock loans is
https://openforlivestock.co.nz. However farm equipment funding is only accessible by dealers.
https://ofb.heartland.co.nz/ofadappl...application%2F
Current Gross Receivables: $619m, Average Loan Size $209k
Heartland vs Competitors:
1/ Heartland Livestock: 100% finance available (for sheep, cattle, deer) secured against livestock purchased (not other farm assets). On line approval up to $500,000.
2/ ANZ $19,787m on loan ( 32x larger than Heartland! ) Agri Current Account "7.60% + (Lending margin)"
3/ Westpac $8,432m, Base rate of Interest + 'Customer margin.' (Indicative 13.95%)
4/ BNZ $2,210m on loan (includes fishing and forestry) Farm First rate 9.2%, secured over farm OR stock OR farming assets
Conclusion:
Yes (see neighbouring discussions for reasoning)
SNOOPY
PS Base borrowing rates for various lenders can be found here
http://www.interest.co.nz/print/69150
on a page that appears to be regularly updated.
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