HGH - Heartland Group Holdings

[Snoopy]

(Representative Dividend per Share) / (Acceptable Gross Yield) = Share Price (an algebraic manipulation of: Dividend per Share / Share Price = Yield )

8.2c / (0.72 x 0.075) = $1.52

A reminder here that NTA was

($675.668m - $72.679m) / 569.338m = $1.06 cps

at the full year FY2019 balance date. This means my 'fair valuation' is at a good premium (+43%) to net tangible asset value.

This $1.52 valuation is measured at the average point in the business cycle. My rule of thumb is that over the business cycle the actual share price will fluctuate between 80% and 120% of capitalised dividend fair value. This gives a target range of $1.22 to $1.82. $0.95, where the share is trading today, is 37.5% below fair value. My target accumulation price (10% below fair value) is now $1.37. But is any of this realistic in the current investment climate?

It is at times like this that the crudeness of the 'capitalised dividend valuation' model is useful, because it is so transparent.

Dividends paid in the past are indicative of the past business environments in which those dividends were paid. Clearly future business environments, for the medium term at least, are likely to be less favourable than those of the last five years. But how much worse?

I fear for the financing of new vehicles. The fact is that those running around in a five year old Japanese car will be disadvantaged very little compared to running around in a brand new equivalent, in practical terms. Yes they will pay a bit more for fuel. But for those that haven't noticed, the price of fuel has come down quite significantly in the last month. This morning I heard that demand for Air Travel within NZ has fallen 99%. I wonder what the fall in demand for rental cars is? Are rental car companies, one of the largest buyers of new cars, even still operating?

A shake out in small business is underway as well. But rather than a panicked risk averse 'pulling out of the rug', I expect a much more measured working through of the issues. Operators, landlords, banks and the government will all need to come to the party. After the initial shake out, I see a good future for financing SMEs in New Zealand.

Livestock funding's future is looking good as the four bigger banks look to wind down their rural exposure in New Zealand. The need for reverse mortgages looks to be even greater than before.

Overall I think HGH has a strong future if they can get through the current period. And the government is there, guaranteeing loans and subsidising incomes, to make sure that it does.

My guess, and it is nothing more than that, is that a new lending market, maybe 80% of the size of what was there BC19 (Before Covid 19), will emerge. That means that all my target prices have to be multiplied by a factor of 0.8. I also think that given the current volatility in share prices, potential shareholders should be able to accumulate at 20% below fair value, not just 10%. So how does my HGH valuation stack up given those changes?

(0.8 x8.2c) / (0.72 x 0.075) = $1.22

My rule of thumb is that over the business cycle the actual share price will fluctuate between 80% and 120% of capitalised dividend fair value. This gives a target range of $0.98 to $1.46.

My target accumulation price (20% below fair value) is now $0.98. With the share trading at 92c as I write this, it is definitely 'in the accumulation zone', IMO!

SNOOPY

discl: hold HGH, and is nevertheless not accumulating until my next term deposit rolls off at the end of the month!

[Balance]

I think you are right and there won't be a final dividend this year.

Forget about the dividend - there will be a rights issue later in this year to fix the hole from loan losses from this economic downturn.

[davflaws]

there are also a group of people who have budgeted on the dividend as part of their income.

And they are going to have to adjust their budgets, just like most of the rest of the population.

I feel very lucky to have had enough excess income in the last few years to put money aside in a portfolio. So I have lost lots of it and so HGH might not give me any return on my $60 k shares. So what?

Lots of people are coping on the Govt's $500 odd, and some are suddenly unemployed and coping on the benefit.

[Beagle]

Forget about the dividend - there will be a rights issue later in this year to fix the hole from loan losses from this economic downturn.

Yeap, I think that hits the nail directly on the head !

[percy]

They better get in quick before the money runs out.!

[Snoopy]

Forget about the dividend - there will be a rights issue later in this year to fix the hole from loan losses from this economic downturn.

Or perhaps a rights issue to fix 20% of the loan losses, thanks to Grant's help?

There is another reason why the 'hole' might not be as big as you think. FY2019 saw the adoption of a much more aggressive policy as regards bad debts under the newly adopted AASB9 standard. I recall Jeff being a bit cynical about it, particularly in relation to reverse mortgages. So you may find some of the expected write backs on 'expected reverse mortgage losses' will offset other losses.

Remember in 2019 when the share price plummeted because of an expectation of a cash issue that didn't happen? The same thing could be happening here. The cash issue, if indeed there is one (Jeff might go for tier 1 bond capital issue instead for instance) might be for rather less than some here think.

SNOOPY

[Balance]

Signs of the times - first financial institution to go under.

A bit like the covid-19 virus having particularly deadly effect on those with pre-existing medical conditions - company was already struggling and with the virus impact, it's all over.

https://www.stuff.co.nz/business/120...estments-folds

Troubled finance company FE investments has been put into receivership with $54.3 million of New Zealand investor deposits at risk. FMA's director of regulation said: "This is terrible news for the investors in this troubled non-bank deposit taker. FE Investments has been in difficulty for some time following a number of business setbacks. Its problems were not caused by COVID 19, but there's no doubt the current economic conditions have made matters worse,"

[SCOTTY]

The HGH dividend yield was high. However the fact of the matter, there are few individual shareholders in NZ these days, and even fewer for whom dividend income would form a major part of their total income. So their protestations would not figure highly in government policy formulation. I think suspension of dividends is sensible in the circumstances, even though I will miss the payment.


Most NZ banks are controlled overseas with overseas shareholders. So the ban on bank dividends would be seen as positive from a NZ political and electoral aspect. Such is the result of overseas ownership of so much NZ business. Government proscriptions on returns from NZ real estate ownership would be a different matter.

Disc: Still a HGH & ANZ shareholder.

You have obviously never attended a HGH Agm.
A great number of shareholders are like myself (70+) and very interested indeed in regular dividends.

[Pricey]

And they are going to have to adjust their budgets, just like most of the rest of the population.

I feel very lucky to have had enough excess income in the last few years to put money aside in a portfolio. So I have lost lots of it and so HGH might not give me any return on my $60 k shares. So what?

Lots of people are coping on the Govt's $500 odd, and some are suddenly unemployed and coping on the benefit.

Amen. My best return recently has been on donating $90 to the foodbank, with ZURU matching me $ for $!

[Bjauck]

You have obviously never attended a HGH Agm.
A great number of shareholders are like myself (70+) and very interested indeed in regular dividends.

I did not make myself clear in my post. I know there are individual shareholders, who rely on regular dividends. However in NZ , that number is proportionally fewer than in other countries such as Australia, the UK and the USA. Their concerns would carry little weight as compared with the concerns of other interest groups. The NZ sharemarket is small, even for our small population, and so is the involvement of individual investors.