HGH - Heartland Group Holdings

[BlackPeter]

Haha....when u ever got HGH valuation or sp right Snoopy?

Even before covid....your valuation was all over the place.

Pre covid was $1.80 ish. I sold before it crashed $1.84.

I remembered when SP went down to $1.30...gloom n doomed before covid... everyone was thinking capital raise...but HGH did not do capital raise...it shocked the market.

Everything comes to a risk....that is share market.

Recession or no recession...no one has a crystal ball. Even my master Beagle ...he was cashing all up before covid n sworn no to be back in the market till end or year or when the market recover.

But...he jumped in back quicker than he thought so ....

Be careful out there....crazy market here

Nobody can predict future stock prices (Ben Graham), and I suppose neither Snoopy nor me nor any professional analyst nor you are exempt from this rule. Does not mean we don't get it right from time to time ... has something to do with statistics and the number of possible choices :

Still - I find it always useful to understand the reasoning of other people explaining why they assess a certain stock in a certain way. It helps to better view and understand a company, to see risks and opportunities.

[King1212]

One rule on the market...there is no rule...market is irrational.

Go and value Air...AIA.....kmd ....SKT...

Yet our darling PPH...which every kiwis in denial about the future of PPh...
They have to list in ASX to be able to grow.

The only NZ bank that listed in the market. Hgh will storm the weather and will sail it through

[Snoopy]

Haha....when u ever got HGH valuation or sp right Snoopy?

In the early days looking at Heartland, I underestimated the post GFC property recovery in the greater Queenstown market. When the property market recovered, the risks of the alternative downward path are quickly forgotten. Not by me though. So I have no regrets about my Heartland warnings of the time. I was only made to look foolish with the benefit of hindsight.

Even before covid....your valuation was all over the place.

Pre covid was $1.80 ish. I sold before it crashed $1.84.

IIRC this was when Beagle topped up at $1.85, just a few days before he changed his mind and sold back out. I advised Beagle at the time of my capitalised dividend valuation price well below that. And I was proved right that this was a very poor time to buy HGH.

I remembered when SP went down to $1.30...gloom n doomed before covid... everyone was thinking capital raise...but HGH did not do capital raise...it shocked the market.

I remember that too. That is when I entered the Heartland share register. Another good call by me at the time. I think my record with Heartland over the last couple of years is pretty good.

Everything comes to a risk....that is share market.

Recession or no recession...no one has a crystal ball. Even my master Beagle ...he was cashing all up before covid n sworn no to be back in the market till end or year or when the market recover.

But...he jumped in back quicker than he thought so ....

Be careful out there....crazy market here

If you think 'no recession' is an option going forwards, I think you need to get out more. Still it does explain why you think the share price might be headed back to $1.50 soon. For the record, if no recession does turn out to be the path forward, then I agree with you.

SNOOPY

[King1212]

Recession or no recession....it will happen or not.... nobody can tell.

However....the true economy impact won't be seen at least 6months from now.....why?

1. Too much money pumped on the market. Not on domestic but international too. Europe is going to release 750b to help the recovery.

2. Labour has given too much lollies. Businesses all using the tap....yum yum....

3. Consumer spending is still okay at the moment....we all locked down for 6 weeks. .. hardly spent any Moni. All of us still got paid....full, subsidy or loss job...on benefits. People can even tap in 8 weeks of $500 cash!

No matter what RNB said....NZ banks are in a good position to weather the storm.... people still in cautious.

Only time can tell. No body would see market recover so fast. Not even me....I even told TJ...I would be out of market because my balls was shaken as the market was so vilotile.

Good luck....only small holding on HGH...love u all

[Snoopy]

For what its worth Snoopy, Westpac initial provisioning was 2.5% of market cap so on an adjusted basis that suggests ~ $17m for HGH.
As you suggest they have very different business models but I would suggest whatever level of specific and general provisioning banks bring to account in their books is nothing better than a very wild guess anyway as everyone is effectively just throwing darts at a dartboard while blindfolded as we're in unchartered waters and nobody has a playbook for this thing or how its going to affect their customers.

Concentrate of the level of their capital adequacy and liquidity, those are the more reliable indicators we have, right at the moment.

You are right to bring into the spotlight, the capital position of Heartland at this time Beagle. Here is what Heartland said about capital inflows with their 18th March 2020 announcement. I am not aware of this position being updated since.

"Heartland continues to forecast a result in line with the original NPAT forecast in the range of $77 million to $80 million, and expects that a result in the middle of that range is likely. (i.e. $78.5m)"

Now, so far in FY2020 there have been two dividends:

1/ On 06/09/2019 a 6.5cps dividend was declared for a total payment of $37.007m, of which $11.296m was clawed back via the dividend re-investemt scheme. That adds up to a net dividend payment of $37.007m - $11.296m = $25.711m. The DRP increased the number of shares on issue to 576,651,228
2/ On 11/03/2020 a 4.5cps dividend was declared. of $25.950m of which $5.600m was clawed back That adds up to a net dividend payment of $25.950m-$5.600m= $20,350m. The share DRP increased the number of shares on issue by 3,511,020 to 580,162,248.

This means the net increase in shareholder capital over FY2020 is therefore projected to be: $78.5m - $20.350m - $25.711m = $32.439m

Now how much capital is likely to be written off over FY2020?

The new ECL (Expected Credit Loss) method for provisioning, under IFRS9, is more conservative than the old standard it replaced. As of EOFY2018, the previous allowance from the older standard was increased by nearly $28m. Although the finance industry grizzled about this at the time, with Covid-19 emerging the increased provisions now seem prescient.

I have a big concern around small business debt. Small businesses are Heartland's customers. But the government has issued Heartland a big 'get out of jail free' card with the no interest IRD loan scheme. Jeff will no doubt be encouraging any knife edge loans that Heartland has on its books right now, to change to the IRD scheme asap! So I am picking the new ECL loan provisions on the books right now will cover any business debt write-downs.

Moving onto the motor vehicle portfolio, I have concerns on the lease deal residual values of the soon to be dead Holden marque. Now, over three years, lets say the Holdem loan book totals $225m. Let's say Heartland take a one off hit on the difference between the booked retained value (40%) and the actual retained value (maybe as low as 35%). This difference would result in a 'capital write down' of:

0.05 x $225m = $11m

Rural loans I am picking will be Okay, as Heartland continue their orderly wind back from relationship loans to more profitable seasonal lending.

Reverse Mortgages tend to be less highly geared than conventional mortgages. So I don't see any capital write downs here, even if house prices drop 10% overnight.

Harmoney must be a real concern with lots of unsecured lending to hapless consumers But the main downside to Harmoney, I believe, is to the downstream business that Heartland operates for Harmoney. IOW the wholesale money advanced by Heartland to Harmoney. This working capital, in the shadow of a probable default, should be largely protected by Senior Debt loan agreements. OTOH, what would be lost is any equity that Heartland has in Harmoney itself, about $5m as I have previously estimated.

This means the likely extra one off provisioning I am expecting from Heartland in FY2020 is a total of $16m.

The retained capital verses write-down situation looks more than manageable, and it will be boosted by the very likely non payment of any dividend in September. With all this in mind I am prepared to make a bold call. 'There will be no capital raising done by Heartland for the rest of this calendar year' Remember, you read it here first!

SNOOPY

[Beagle]

You're right mate, my last minor top up was at $1.85 in late December 2019, but most were bought in the 130's 140's and 150's.
By early February 2020 it was clear the world had changed and I sold out in the late 180's as a capital preservation measure.

IIRC the guaranteed future value of Holden's is set at just 40% so I would not be too worried about losses there as the terms and conditions on those agreements are quite strict both in terms of mileage and the condition the vehicle is returned in.

Capital adequacy looks sound to me and I note Fitch recently reaffirmed their credit rating.

In terms of Covid 19 provisioning, scaling this against other banks provisioning gives an indicative range of $9m to $30m for 2020. If we go towards the top end of that range, (just as a guess seeing as they do get into a lot of unsecured lending), and call it $25m that means they will still make ~ $53m for 2020. Not too bad and gives about 9.1 cents eps so at $1.19 they're on a PE of about 13, (BUT that level of Covid 19 provisioning is a just a total guess on my part).

A lot depends upon how the N.Z. economy tracks over the next couple of years. Mercifully, we appear to be doing exceptionally well in the battle against Covid 19 so maybe the shares are about fair value given how well we've done with the Covid battle ? As King1212 quite rightly says, there's a vast amount of stimulus money being thrown around and another $20 billion unallocated in the budget sitting in reserve.

HGH broken up through the 30 day MA so technically its starting to look encouraging too. Crikey, I've almost talked myself into buying some lol

Some random thoughts on future loan demand.
Retired folks home equity lending demand will be very strong as retirees battle 100 year low's in investment returns on fixed interest deposits.
I expect luxury car loan demand to be down ~ 50%
The average age of our N.Z. vehicle fleet is very old at about 14 years if my memory serves me correctly. Record low interest rates will be stimulatory. A lot of business's with have a freeze on capex and many households will have reduced incomes. Nevertheless there is still a vast body of people out there that will need to update their vehicles so I expect about 15-20% reduction in demand for standard type vehicle loans. Overall demand including 50% reduction in luxury cars might be just over 20% in my opinion. We will see a lot of manufacturers offering multi year interest free deals if you pay full RRP.
BMW for example are already doing 1/4 down and 3 further payments of a quarter each in the subsequent 3 years @ 0% interest.

[Baa_Baa]

HGH broken up through the 30 day MA so technically its starting to look encouraging too. Crikey, I've almost talked myself into buying some lol

It's above the 50MA was well, clear run to $1.30 resistance as banks are risk on again, a pause then on to the 61.8% fib and resistance around $1.53. It could move fairly quickly, creeps away from you this one unless you've got clear buy markers and act.

[winner69]

If Heartland 'needs' to do some big provsioning' (guesses on here from $10m to $30m or something) why haven't they mentioned it

Jeez year ends soon - they would have a pretty good idea of what's needed by now

Are we all jumping to conclusions and and seeing things that aren't there .... because if they need a huge provision the $75m to $80m or whatever profit guidance is very misleading.

[Beagle]

Maybe an announcement is coming in June so they will save face for their August reporting. As long as they announce something sometime in June they could still make the case they were complying with their continuous disclosure obligations.

[Snoopy]

If Heartland 'needs' to do some big provsioning' (guesses on here from $10m to $30m or something) why haven't they mentioned it

Jeez year ends soon - they would have a pretty good idea of what's needed by now

Are we all jumping to conclusions and and seeing things that aren't there .... because if they need a huge provision the $75m to $80m or whatever profit guidance is very misleading.

The key phrase in the 18th March update from Jeff is the last sentence.

"This situation appears is developing very quickly, and Heartland will continue to monitor conditions and provide further market updates if and when required."

IOW everything is so uncertain that it would be misleading to give updates because they might be out of date the next day anyway.

Jeff will no doubt be awaiting the resolution of this discussion on this forum so he can figure out what he 'market' expectations of any write down is. It saves Heartland money if we do this work for him - see how smart Jeff is? Then some time next week Jeff will announce the write down to 'meet the market' and remind shareholders that it is a 'non-cash adjustment' so doesn't materially affect any previous forecasts made by him. That's how these things work isn't it Winner?

SNOOPY