HGH - Heartland Group Holdings

[BlackPeter]

One thing which sort of dawned to me during this AGM is that whenever they talk about "customer" they think about quite different and non overlapping customer groups. I suppose that their typical recipient of an Australian reverse mortgage (elderly, not digitally fluent and the process will take months and requires lots of legal advise) might have quite different needs and views related to a great "digital" experience" than e.g. the typical small business loan recipient (3 minutes at the mobile phone and you have your loan) or the typical Harmoney customer - or the B to B customer they talk with when providing their car loans. This makes the job of the people defining this experience quite challenging.

[BlackPeter]

Ah yes - and one more impression from the AGM: I don't think I have ever seen an AGM with that many board members and senior managers sitting in a row (16 altogether). The fact that they did seat boys and girls alternating was probably not an accident ; I noticed as well lots of younger faces (and not all "white"). This leadership team is clearly a great example for diversity.

If this company is at some stage not successful (which heaven might forbid - I am holding), than it certainly is not due to its lack of diversity of board and SMT.

[pierre]

Thanks Snoopy for a great report.

HGH is 17% of my portfolio so I must make a point of getting to the AGM next year - that's if Im not once again swanning around the world somewhere spending my lovely divvies.

[winner69]

Actually very good reports from you guys

Market listening ....share price on verge of getting into the 170s

[Beagle]

Actually very good reports from you guys

Market listening ....share price on verge of getting into the 170s

The more I think about it a forward FY20 PE of 12.2 is cheap and I think earnings growth is going to be stronger in FY21 and FY22 than FY20. Need to think ahead eh mate

[percy]

The more I think about it a forward FY20 PE of 12.2 is cheap and I think earnings growth is going to be stronger in FY21 and FY22 than FY20. Need to think ahead eh mate

Just spend time on page 16 of today's presentation.
Total Assets add up to 5.014 billion.
Superior assets ie ROE above 15% make up approx 28.5% of total assets.Growth rates between 13.3% and 48.2%
In line assets ie ROE between 11-15% make up approx 37.2% of total assets.Growth rates between 11.4% and 31.4%
Inferior assets ie ROE between 0 -11% make up approx 34.7% of total assets.Minus growth rates.
What this tells us is HGH are working hard to recycle inferior assets into either Superior assets, or In line assets.The amount involved is 1.740 billion.
This is where the improving ROE rate will come from.

[Snoopy]

Related to the funding of the Australian REL -

I thought Geoff was referring to the quite different funding model in Australia where they basically get their money by issuing capital notes to institutions and bundling
securitisation of mortgages instead of increasing their capital by issuing shares or bonds through the stock market ...

This is something they can do quite flexible (on a monthly or even weekly schedule) and without the need to park any equity in the Heartland Group Holding.

Thanks BP, perhaps you are right and this is what Jeff was getting at. There are a couple of issues with your theory though.

1/ The first note issue to institutions by HGH in Australia raised $A50m in FY2019. Yet if you look at the share capital raised over FY2017 (being share issues plus the dividend plan reinvestment) it came to $50.991m and for FY2018 it was $71.726m (again shares). So the quantum of the main 'capital raising' (which were notes in FY2019) was actually very similar over the last three years. Furthermore the amount of capital notes approved for FY2020 is $100m. So that means the capital raising going forwards looks to be getting more lumpy, not less lumpy.

2/ As for the securitisation of loans, the dollar ceiling has certainly gone up and Heartland are now using three different banks for securitisung their loans, not just one. But in the annual report, we are only given the current total with no idea of how big the bundles that make up the total are, or what the timetable of their collection was. It could be that Heartland will in the future be using smaller loan bundles to securitise, consistent with smaller amounts of capital being raised to support those loans. That would certainly be more 'capital efficient'. But there is no reason that Heartland could not have done this from day 1. of securitisation. There is nothing new here that could not have been done originally that would necessarily affect capital efficiency in the updated securitisation arrangements.

The objective of the exercise is to make Heartland more capital efficient in line with other comparable listed banks. But rejigging of the capital used in Australia is now outside of the 'Heartland Bank' structure. IOW the bit being rejigged is no longer included within Heartland Bank, but is being used to make the return of Heartland more 'bank like', as it lines up with other banks. It seems to me to be that this 'adjustment of equity used' outside of bank structure is a disingenuous or even a dishonest adjustment to make in that comparative context.

SNOOPY

[percy]

...............................................

[winner69]

...............................................

Agree 100% percy

[winner69]

Somebody offered you 20% pa guaranteed return forever you’d ask ‘sounds too good to be true, what’s the catch’

That’s what Heartland Group is offering