Financials do have a very high Covid beta as they are very sensitive to the economic effects of Covid on their customers and the opposite, to the recovery prospects that vaccines give hope for so its is very surprising to note that while many US, European and Australian financials have rebounded strongly on the hopes of the Pfizer vaccine and yesterday's Modera vaccine with an even higher efficacy at 94.5% HGH has been stuck pretty much in the doldrums.
For many years now I have compared the forward metrics to HGH's peers in Australia and found a very close correlation. Its not often that HGH's forward PE is more or less than 2 different to the average of its peers so imagine my surprise when I noted yesterday that based on HGH's official forecast at the midpoint of $84m = 14.4 cps HGH are currently on a forward FY21 PE of just 9.4 !9.8
This compares with peers as follows, (all figures are average analyst forecasts off market screener)
ANZ 13.3 14.5
WBC 13.4 14.8
NAB 15.8 16.6
BEN 14.3 16.5
BOQ 14.4 15.9 CBA 18.219.9 Peer Group Average 14.9 16.4
Leaving aside the outlier of this group CBA which for reasons unknown is also trading at about twice NTA this still gives an average forward PE for the Australian banks of 14.25. 15.7
In my experience HGH's normal trading range on a forward PE basis is 11 - 17.5 with the mid point also being 14.25.
I have never seen HGH trade at a discount of this size to its peer group, nothing remotely like it so this presents as a real overlooked recovery story.
I think as 2021 unfolds and the recovery story and vaccinations get rolled out HGH has excellent prospects to recover towards the mid point of its historical PE range which is where the Australian banks already are.
14.25 x officially forecast of 14.4 cps = Target Price of $2.05. I think HGH has excellent prospects to make a strong recovery in 2021. I already have a sizeable position and added some more this morning.
I note the RBNZ dividend restrictions still apply so I am only expecting 5 cps (6.94 cps gross) in fully imputed dividends in the year ahead which gives a gross yield of 6.94 / 137 = 5.1% but I am expecting that to approximately double for FY22 and beyond and on a look through Covid recovery basis HGH could give a 10% Gross Yield in FY22
Posted a couple of weeks ago. Since then the Australian banks have moved northwards quite considerably and the updated forward PE's are shown above. The gap has widened by just over 1 more PE from HGH's forward PE now at 9.8 to its peer group average excluding CBA the outlier to a massive gap of 16.4 - 9.8 = 6.6. I find that quite remarkable. It will be interesting to see if there's any color provided on Monday that might shine some light on HGH's situation.
Last edited by Beagle; 29-11-2020 at 08:47 AM.
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
On 2 April 2020, the Reserve Bank announced that, taking effect immediately, all locally-incorporated banks will be restricted from paying dividends on ordinary shares and redeeming all non-Common Equity Tier 1 capital instruments such as bonds "until further notice" under revised Conditions of Registration. The Reserve Bank stated that these restrictions are designed to maintain higher levels of capital during a period of reduced economic activity resulting from the COVID-19 pandemic and will be kept in place until the economic outlook has sufficiently recovered.
The Banking Supervision Handbook (the Handbook) sets out the detailed rules regarding conditions of registration which are imposed upon banks under the Reserve Bank of New Zealand Act 1989. On 14 April 2020, the Reserve Bank issued revised versions of two Handbook documents including the document 'Statement of Principles - Bank Registration and Supervision' (BS1) which reflects these earlier announced restrictions on banks from making certain types of distributions. BS1 updates the standard wording of the Conditions of Registration and adds explanatory text.
For further information on the Handbook and revised documents, please see the Reserve Bank's website.
On 11 November 2020, the Reserve Bank announced that the restrictions on dividends and redeeming non-Common Equity Tier 1 capital instruments will be retained until 31 March 2021 or later if required.
Further, the Reserve Bank has written to insurers to advise that it expects insurers will only make dividend payments if it is prudent for that insurer to do so, they should take into account their own stress testing and elevated risks in the current climate.
For further information on this regulatory update, please see the Reserve Bank's press release.
Posted a couple of weeks ago. Since then the Australian banks have moved northwards quite considerably and the updated forward PE's are shown above. The gap has widened by just over 1 more PE from HGH's forward PE now at 9.8 to its peer group average excluding CBA the outlier to a massive gap of 16.4 - 9.8 = 6.6. I find that quite remarkable. It will be interesting to see if there's any color provided on Monday that might shine some light on HGH's situation.
Heartland Board been lamenting these relativities for years ...this from 2014 ASM presentation
Nothings changed ...maybe no point crying over spilt milk ...it’s just the way the world is.
Or if they truly believe that story then it’s time Jeff and the Board moved on .....they have failed miserably in closing the relativity gap......and now spending big bucks with Jarden to come up with other ideas.
Maybe the ‘colour’ tomorrow is all about FINTECH
Last edited by winner69; 29-11-2020 at 09:48 AM.
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
Heartland Board been lamenting these relativities for years ...this from 2014 ASM presentation
Nothings changed ...maybe no point crying over spilt milk ...it’s just the way the world is.
My issue with HGH is that I see it as a Finance Company and don't find comparisons with Banks such as ANZ, Westpac etc as overly relevant.
My issue with HGH is that I see it as a Finance Company and don't find comparisons with Banks such as ANZ, Westpac etc as overly relevant.
That’s how I see it as well leftie
Always been a pretend bank (for marketing purposes) and valuation comparisons to Aussie banks in particular not that meaningful....and suppose that’s how Jeff sees it now.
Interesting that things haven’t changed much in 6 years
Last edited by winner69; 29-11-2020 at 10:07 AM.
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
ASX have HGH in A peer group with Aus Finance Group AFG, Resimac RSM and My State MYS
The ASX has this little chart showing their relative positions - PE and share price growth. I had to draw HGH in (the wonky circle in negative territory) has obviously ASX couldn't cope with negative share price changes
Maybe this is what Jarden are going to come up - cos if anything HGH maybe slightly undervalued in this peer group.
If nothing else this is a bit funny
Last edited by winner69; 29-11-2020 at 11:24 AM.
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
PE correlation with Australian banks has been very very good in most recent years, (I have followed this quite closely over recent years), and I think the way they are dramatically growing their reverse equity loan book the comparison with their peer group is more relevant than it has been in previous years. Disconnect in earnings multiples has never been higher than at present in recent years.
My 2 cents is unless there's a forecast downgrade at tomorrow's annual meeting the directors are right to think that the shares are considerably undervalued at present.
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
I must be out of date with the very latest rocket science IFRS accounting standards.
Yep - you should fuel up, provision up, lure Ms Beagle aboard, and head N for a week or two. Come anchor up in the inner channel in McKenzie Bay and I'll even findya a scallop or two.
PE correlation with Australian banks has been very very good in most recent years, (I have followed this quite closely over recent years).....
All depends by what you mean by correlation Beagle.
If you are saying that HGH correlation with Aus Banks should be 100% ie exactly the same as leading Aus banks, then I suspect you are overstating HGH's prospects.
If you are saying that HGH's correlation with Aus Banks should be 50% ie half the Aus banks then you might be more accurate.
Big Diff between Aus banks and HGH IMHO.
Just my two cents..... and no, I don't hold, but I have friends who have had their fingers burned on this one.
PE correlation with Australian banks has been very very good in most recent years, (I have followed this quite closely over recent years), and I think the way they are dramatically growing their reverse equity loan book the comparison with their peer group is more relevant than it has been in previous years. Disconnect in earnings multiples has never been higher than at present in recent years.
My 2 cents is unless there's a forecast downgrade at tomorrow's annual meeting the directors are right to think that the shares are considerably undervalued at present.
PE gap big in 2014 as Jeff pointed out. PE gap big now. Maybe that’s how it’s meant to be. Maybe it’s a big v small thing (like RYM v OCA)
What was it that caused Heartland to get out of step a few years ago and become more highly prized than Aussie banks? Maybe that’s the secret that Jeff is looking for?
Might repeat - and shareprice go to $2.14 - and then the beagle can close out another successful trade on Heartland
Be funny if Jeff puts an updated chart from 2014 up today.
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
Originally Posted by Beagle
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