HGH - Heartland Group Holdings

**nztx** · 17-01-2021, 10:12 PM

Originally Posted by winner69

ANZ hinted they were probably going to reverse their special covid provision.

Jeff has essentially already said that ...and included in F21 guidance of $85m

If Forbar included this their forecast in line with company forecast ......they come up with a $1.61 target because they think lower multiples than say Oz banks is appropriate.

Interesting but look at where the ANZ & WBC SP's have now gone in recent weeks ..

The Aussie banks have exposure to considerably more risk accounts than here with
natural events, poor state of farming, fires & longer Covid lockdowns across the ditch

Should we believe Forbar or discount their summation of things ?

**Beagle** · 18-01-2021, 10:32 AM

Nice to see HGH getting some love from investors last week.
On Friday's closing price I have the peer group I follow (off market screener, average of all analysts)
FY21 PE
BEN 17.5
BOQ 17.3
NAB 17.0
WBC 15.2
ANZ 14.5
CBA 18.7
Average of the group excluding the outlier CBA is 16.3

According to quite a number of analysts on CNBC financials do well in a rising interest rate environment and financials are believed to have a high Covid recovery Beta which probably explains why the Australian banks are trading well above their historically normal PE range as the hope of a recovery from the effects of Covid emerge with the range of vaccines available.

Clearly there is risk from Covid strain mutation but investors in Australian financials do not appear to be overly concerned by that..

Over many years I have observed that HGH's forward PE is fairly closely aligned with this peer group and it remains at a material discount at 12.5 based on official HGH forecast. I backed the truck up at $1.35 in November when I observed that the variance was even greater so a 33% return since then is very nice but for what its worth I still think HGH's SP has quite a bit of room to run but there are clear risks.

The range I have observed over many years is a forward PE of 11 - 17.5 for HGH, with the mid point being 14.25. With ultra low interest rates and heading into what is hopefully an economy that will recover this year I see the potential for a fair forward PE of 15-16, in line with its peer group and eps according to average analyst on market screener of 15 cps for FY22 rising to 16 cps in FY23 I see a target price range of 15-16 PE x 15 cps = $2.25 - $2.40 one year hence.

RBNZ will probably take the dividend restrictions off at some stage this year so I see about 11 cps fully imputed = 15.27 cps gross in dividends for FY22 which gives a gross yield of 8.5% @ $1.80.

The clear risk is mutations with the Covid virus and / or problems with the vaccine roll out and / or its efficacy. With that in mind I think the shares are good value at $1.80 but am a holder rather than a buyer at this level.

Forbar have been consistently negative on HGH in recent times and been consistently wrong.

**Rawz** · 18-01-2021, 10:35 AM

Welcome back Beagle, good to have you back. Thanks for your post.

**Old mate** · 18-01-2021, 10:37 AM

Welcome back beagle

**BlackPeter** · 18-01-2021, 10:44 AM

Welcome back, beagle ... we missed you.

Lets hope and wish for the sad reminder of the newest year will be nice to all of us - shall we?

Re HGH ... agree, there still should be some head room for them to grow ... though they clearly looked more attractive around $1.35

: I recon they will grow with the other bank shares until the stock exchanges pop the latest bubble.

**iceman** · 18-01-2021, 11:01 AM

Good post straight after sabbatical Beagle. Hope you had a good festive season.
It sure looks like financials are in favour with Biden's promises of much more expenditure and hence more likelihood of inflation appearing quicker with rising interest rates a remote possibility in a year or two. Banks are expected to do well in that situation

**oldtech** · 18-01-2021, 11:03 AM

Welcome back Beagle! Good to see you out of the dogbox ...

**winner69** · 18-01-2021, 01:06 PM

Heartland PE ratio - for what it's worth

All numbers based on monthly share price closes and the PEs are the forward looking ones

Between Jan 2013 and Feb 2020 Heartland's PE has ranged between 10.0 and 17.0. Note this excludes post Covid where PE dropped to 7.4.

In the same period Heartland's PE has averaged 12.6 (again excluded post Covid for normality but if included the average would be 12.2)

Always better to use averages than 'midpoints' (which in this case are nowhere near the median)

While Heartland's PE does tend to follow Aussie banks it is generally lower. Why - as Forbar said the other day (and other professional analysts would think the same) this is because of HGH's high risk profile in comparison to international banking peers and HGH's sub scale profile (makes up 1% of banking assets in NZ),

As a matter of interest HGH's PE at $1.81 today is 12.4 and is the same as it was in Feb last year pre Covid ....and not too far away from its average. Maybe current share price is about right on this basis.

Looking forward future shareprice no doubt will be driven by eps growth and in this respect bear in mind that this is less than earnings growth (because of new shares)