HGH - Heartland Group Holdings

[percy]

Sharehoders need to be kept an eye on dairy exposure

Is 8% of their lending book ($200 plus) and if anthing goes a bit awry the impact has to be seen in the context of annual earnings of $55m

Its stupid to ignore all together

It is more stupid to harp on as many do.
The endless posts about Heartland's very modest exposure, would cause the casual reader to think Heartland had between 25% and 95% of their loan book in dairying .
It is under 8% and has been pretty well stress tested by Heartland's management.Heartland's management have a record of being right.

[boysy]

Everyone has a record of being right until they are wrong. Coming from a banking background I question whether dairy farmers come to HBL as a lender of last resort ?. I'm just a casual observer of this thread but losses are never predicted otherwise prudent lending would never have taken place.

[Beagle]

Coming from an auditing background some people with no knowledge of accounting issues would be profoundly shocked at how much estimation goes into the area of bad and doubtful debt provisioning that obviously flows into the final profit and loss figure. No way in the world they have stress tested for a decade of $4 dairy pay-out's, in fact if this made up their core scenario they wouldn't be supporting dairy farmers through this because there would be no light at the end of the tunnel !

RBNZ recently suggested that bank's losses from dairy could amount to as much as 14% of their loan book under their worst case scenario of four years of low dairy payouts. For HBL this suggests potential future write-offs of $230m x 14% = $32.2m, (or 6.76 cps) certainly manageable when its spread over a number of years as it surely would be under that scenario. Good that RBNZ ran this scenario and that someone on here made the effort to quantify that in terms of cents per HBL share effect

Not stupid at all to ponder what if $4 kg is the new normal for the next decade, just like it was for the decade leading up to 2007. RBNZ is putting it out there that the fall to $4 for four years is the worst case scenario...but what if it isn't ? Food for thought especially for investors in a bank that hasn't even made a start on increased provisioning in this area.

My new valuation 11 cps earnings x PE 10.5 (sector PE's have come back) = $1.15.5 less 10 cps for the net present value of embedded future losses in the bank's balance sheet pertaining to dairy = $1.055.

[percy]

92% of Heartland Bank's lending is outside of dairying.
No other bank in NZ has such a high % outside of dairying.

[percy]

Everyone has a record of being right until they are wrong. Coming from a banking background I question whether dairy farmers come to HBL as a lender of last resort ?. I'm just a casual observer of this thread but losses are never predicted otherwise prudent lending would never have taken place.

Go back to the start of this thread.Post No.1 ..01-06-2011 and read all the posts .
Then read HBL reports,announcements,and presentations..
You will note HBL have always done what they said they would do.
Then read what posters have posted.Very few have been even nearly right,yet they continue to make a lot of noise..

[winner69]

Go back to the start of this thread.Post No.1 ..01-06-2011 and read all the posts .
Then read HBL reports,announcements,and presentations..
You will note HBL have always done what they said they would do.
Then read what posters have posted.Very few have been even nearly right,yet they continue to make a lot of noise..

Obviously these comments (along with that earlier one) are pointed at me and needs a response but i will resist the temptation to get personal - but i will say I am pretty pleased with myself that i have always been nearly right (almost spot on) with my 'projected'/ 'guessed' Heartland's 1/2 yearly profits. My financial modelling of Heartland pretty good. i reckon a great effort over several years.

Heartland earnings announcements have never surprised me.

[winner69]

92% of Heartland Bank's lending is outside of dairying.
No other bank in NZ has such a high % outside of dairying.

But 8% of Heartlands lending is in dairy ($240m odd) ...and they acknowledge that times are not that great in that sector.

Maybe stupid is not the right word to us but i think it unwise to disregard out of hand. Dairy has the pitential to be a drag on earnings for some years.

Even if worst case is 1% going bad that's ~$2m impact - significant enough to turn a good year for Heartland into a so-so year (no doubt impacting the share price)

As a shareholder got to keep on top of such things - might change the investment criteria.

[nextbigthing]

Even if worst case is 1% going bad that's ~$2m impact - significant enough to turn a good year for Heartland into a so-so year (no doubt impacting the share price)

Winner, $2M is a drop in the bucket. Once you see the earnings from the next acquisition you'll agree.

As a shareholder got to keep on top of such things - might change the investment criteria.

If you're not happy with the return you could always put your money in a bank like ANZ or something. Or you could put it in a HNZ account and get an even better return than ANZ.

$1.60 by Christmas.

[percy]

But 8% of Heartlands lending is in dairy ($240m odd) ...and they acknowledge that times are not that great in that sector.

Maybe stupid is not the right word to us but i think it unwise to disregard out of hand. Dairy has the pitential to be a drag on earnings for some years.

Even if worst case is 1% going bad that's ~$2m impact - significant enough to turn a good year for Heartland into a so-so year (no doubt impacting the share price)

As a shareholder got to keep on top of such things - might change the investment criteria.

Significant???
No.
A bit of a bugger yes, if that is you worse case .
On best case ,it has already been provided for.

[winner69]

Significant???
No.
A bit of a bugger yes, if that is you worse case .
On best case ,it has already been provided for.

I'm wrong sometimes - what happens if it is 2% or 3% or 4% or higher - and dividend gets reduced

Context - several loans >$10m - one goes belly up big time that's 4%