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  1. #13711
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    yeh Snoops, I hear what you're saying but the bank could make a loan to its holding company at no interest etc....
    I am not a highly paid merchant banker but would've thought this regulatory cash flow issue from bank subsidiary to holding co could easily be circumvented.

    Its funny tho I dont actually want dividends that much, but I dont like to be misled either. Despite being a holder I do have a grudge against this company which might be ameliorated if the share price got back up to $2. haha

    And thanks for the tech advice on retrieving lost posts, I will try it next time because there WILL be a next time.
    For clarity, nothing I say is advice....

  2. #13712
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  3. #13713
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    Quote Originally Posted by Greekwatchdog View Post
    doesnt it warm the cockles of yer heart.
    For clarity, nothing I say is advice....

  4. #13714
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    Indeed and compliments the Glenfiddich 18 year old that will certainly do it..Its been a good week.

  5. #13715
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    Default Motor Vehicle Finance for FY2021f

    Quote Originally Posted by Snoopy View Post
    Prestige brands generally slow in sales during a recession though. So I am picking JLR sales might halve this calendar year.

    So what will all this do to Heartland's financing of new vehicles? Well, Heartland's financial year ends on 30th June. Only three months of the year will be 'post lockdown', so things might not be as ugly as some think. Particularly as dealers look to quit excess stock with sweet finance deals. Bad for motor dealers but ironically good for Heartland,

    The market is always forward looking though. So the real interest is, what will motor vehicle finance look like in FY2021? If you are Heartland, don't look in the mirror. You will see 'ugly'. If the base case for funding new vehicles is split for FY2020 45:45:10 between Holden:Kia:JLR (an educated guess) then FY2021 is likely to look like 0:50:5 on the same scale. That means new car financing down 45%.

    So what does this picture suggest for profitability in FY2021?

    As at December 2019 the motor vehicle finance book at Heartland was $1,124m. Let's guess new vehicle sales were $500m of that. So a 45% reduction would see a loss of:

    0.45 x $500m = $225m worth of finance business in turnover.

    Motor vehicle finance has traditionally had some of the best margins at Heartland. Heartland's AGM presentation had an ROE north of 15%. In recessionary times I am going to stick to the 15% figure. This means the earnings that Heartland will miss out on due to plunging new car finance deals will be around:

    0.15 x $225m = $34m

    Of course the annual hit won't be this much, as finance typically has a three year cycle. So the FY2021 hit will be about 1/3 of that, $11.4m

    I am guessing the FY2022 impact will be only half that in FY2021, $5.7m, but unfortunately the financing effect from FY2021 is cumulative into FY2022

    Underlying profit was around $74m in FY2019 (a bit less in FY2020?). So it looks like new car financing alone will knock Heartland's profit down to just shy of ($74m-$11m=)$63m, or a 15% drop.
    Quote Originally Posted by Snoopy View Post

    Motor Vehicle Finance

    My new vehicle funding scenario remains unchanged, I am going to add in a used vehicle funding decline of 10% (previously 0%). I estimate Heartland funded $1,248m - $500m = $748m of used vehicle sales in FY2019.
    The average growth rate in the 'motor receivables' portfolio between FY2013 and FY2018 was 11% (November 2018 investor day presentation p45). By end of FY2018 Heartland accounted for 7.3% of dealer to public sales (p47). Management sees a real growth opportunity here. So I have pumped up my pre-Covid-19 base figure by 11%:

    $1,124m x 1.11 = $1,248m

    A 10% reduction in sales equates to $75m. Again using a reference ROE of 15% from the FY2019 AGM presentation.

    FY2021/2022: -$75m x 0.15 = -$11.3m

    Because I am modelling finance deals with a three year life, this annual loss compounds.
    The Motor vehicle finance book totalled $1,089m at EOFY2019, and rose to $1,124m at EOHY2020 before topping out at $1.126m (+3.4% for the year ) at EOFY2020. I was predicting no Holden sales for FY2021, yet there are still some Holden badged American products (and rebadged Asian built Isuzu utes sold as Colorado) hanging around the dealerships. Holden have told us sales will cease by calendar year 2021. So the new vehicle downturn is certainly coming for Heartland. The other mainstream new vehicle brand that Heartland fund vehicle purchases for is Kia. Year to date to the end of August 2020 they rank second in sales only to Toyota. So Kia is definitely a brand on the rise, with their top sellers being the Sportage (medium size) and Seltos (small) SUVs (source www.mia.org.nz).

    I am reworking my estimated Holden:Kia:JLR sales split from FY2019 of 45:45:10, to 20:50:5 for FY2021. That represents a forecast sales decline of 25%. A 25% decline from the EOHY2020 sales figures, assuming new vehicles represented $500m of a total of $1,248m of all modelled vehicle receivables balances, represents a sales decline in dollar terms of:

    $500m x 0.25 = $125m

    Motor vehicle finance has traditionally had some of the best margins at Heartland. Heartland's AGM FY2019 presentation had an ROE north of 15%. In recessionary times I am going to stick to the 15% figure. This means the earnings that Heartland will miss out on due to plunging new car finance deals will be around:

    0.15 x $125m = $19m

    Of course the annual hit won't be this much, as finance typically has a three year cycle. Existing finance deals signed over FY2019 and FY2020 will continue on previously arranged terms. So the FY2021 hit will be about 1/3 of the life of contract total, about $6.3m.

    I am guessing the FY2022 impact will be more or less the same at $6.3m, but unfortunately the financing effect from FY2021 is cumulative into FY2022 for a total effect of $12.6m.

    Used vehicle sales for the whole NZ second hand market are down 6% for the calendar year.

    https://autotalk.co.nz/news/the-boun...trong-recovery

    However, I am still expecting used car sales to weaken further over FY2021 so I am sticking to my previous modelling framework.

    SNOOPY
    Last edited by Snoopy; 05-10-2020 at 02:12 PM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  6. #13716
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    Heartland review aimed at boosting value

    Jenny Ruth
    Fri, 18 Sep 2020

    Heartland Group Holdings chief executive Jeff Greenslade wouldn't be drawn on whether management's review of the company is likely to lead to a break-up of the group.
    "It's incumbent upon businesses every now and again when you see where our share price has been to ask is there something that needs to be done to get a better recognition of value," Greenslade told BusinessDesk.
    He acknowledged the announcement of such a review is often an euphemism for selling assets.
    "I understand what you're saying. We need to decide to what extent it's a problem and then look at the solutions."
    It may simply be a messaging issue, he said. "It's something we've got to look at … a range of options and that could be it." Or it may require a restructuring, he said.
    In Heartland's annual results announcement, the company said its current share price "may not appropriately reflect the underlying nature of its business," so the board has asked management how to optimise value.
    The shares rose as much as 9 cents, or 7.6 percent, to $1.28 after the announcement before ending the day at $1.26.
    It's true Heartland's share price has suffered through the coronavirus crisis, troughing at 89 cents in March and still down 27 percent from a year ago.
    Better than others
    But that's still better than three of the big four Australian-owned banks have fared – the worst affected is Westpac, down nearly 44 percent from a year ago, while Commonwealth Bank of Australia, which owns ASB Bank, is the only one to have performed better but is still down 20 percent from a year ago.
    Greenslade said that was a fair point "but within our business make-up, we have a lot of activities that they don't have."
    Heartland specialises in niche areas where it faces little to no competition, such as reverse mortgages, motor finance and increasingly in digital lending products.
    Heartland has also been backing away from relationship-based banking, where a business or farmer has a direct relationship with a bank officer looking after the gamut of their banking needs, because the major banks have been encroaching on that area and driving down margins.
    Heartland has much fatter margins than the mainstream banks and they have held steady at 4.33 percent at a time when the four major Australian-owned banks and Kiwibank have reported steep margin declines.
    Kiwibank's net interest margin shrank 19 basis points to 1.94 percent in the year ended June, while ASB Bank's contracted 12 points to 2.11 percent. The other three majors have Sept. 30 balance dates.
    Greenslade argued Heartland's specialist positioning should "justify different and potentially better valuations."
    No scandals
    Heartland hasn't suffered the reputational and regulatory issues that have been dogging the Australian banks for several years now in the wake of Australia's royal commission into financial services.
    Those scandals included money laundering, mis-selling products, charging fees for services that weren't delivered and, in Westpac's case, facilitating child exploitation in the Philippines.
    Heartland's results were certainly strong and it is forecasting a profit increase of as much as 18 percent for the current year.
    Net profit fell 2.2 percent to $72 million for the year ended June because of a $9.6 million charge against profit to cover potential covid-19-related credit losses.
    And the company is forecasting net profit for its 2021 financial year will rise to between $83 million and $85 million.
    The results also highlighted the very juicy yield available from Heartland's shares - at Wednesday's closing price of $1.19, the dividend yield was 8.2 percent.
    The best return Heartland is offering on its own term deposits is 1.85 percent for three years and, by way of comparison, ANZ Bank is offering 1.3 percent for three years.
    And the high yield comes at a time when the Reserve Bank has forbidden NZ banks from paying dividends. Heartland is able to get around this because its Australian reverse mortgage business sits outside the NZ banking group where all the rest of its operations reside.
    That allowed Heartland to pay a fully imputed 2.5 cents per share final dividend, taking the annual payout to 7 cents, although the RBNZ's restrictions meant that was down from 10 cents the previous year.

  7. #13717
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    the company said its current share price "may not appropriately reflect the underlying nature of its business," so the board has asked management how to optimise value.

    Love it!

    Hgh down to 1.30 on Feb 2019..fear of capital raising but nothing happened. It crashed to 90c in March..because covid. People were also scared this time will be a capital raising....nothing again!

    Current result showed HGH is one of the best Nz listed companies...thier performance is undoubtedly. Thanks to excellent management.

    Master Beagle....your favorite broker still put HGH a fair value of $.151
    Last edited by King1212; 19-09-2020 at 07:36 AM.

  8. #13718
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    HGH travelling a lot better than I expected....quite possibly the understatement of the week from me lol
    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

  9. #13719
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    Default Harmoney & Other Consumer Lending: FY2021f

    Quote Originally Posted by Snoopy View Post

    Harmoney and Other Consumer Lending

    The main profit that Heartland makes from Harmoney is not from the fraction of the Harmoney NPAT that they are entitled to via their partial ownership of Harmoney. No, the profit comes from the provision of funds to Harmoney to run their loan book. If Heartland fund the loan book to the extent of their shareholding, then Heartland's share of this receivables book amounted to:

    0.131 x $367m = $48m

    At a 15% return on this loan money, this level of lending would produce:

    0.15 x $48m = $7.2m of annual profit.

    I predict that Harmoney will be severely affected post Covid-19 and will struggle on at half their current size. That corresponds to a $7.2m /2 = $3.6m profit hit per annum.
    "Harmoney & Other Consumer Lending" had an OK year over FY2020 (p19 FY2020 presentation, PR2020) with the loan portfolio up 2% to $211m compared to FY2019. I am unclear as to exactly what has happened here. From the information in the link below:

    https://www.interest.co.nz/news/1067...gging-consumer

    Harmoney are now a much smaller business. (Loan Book down from $367m to just $129m). Heartland own just 11.85% of Harmoney. (source NZ Companies Register below)

    https://app.companiesoffice.govt.nz/...2BBiKNrJq6AAAA

    But 'ownership' and 'providing capital with which to make loans' are two different things, And I think Heartland do both of those things for Harmoney.

    In direct contradiction to the 'interest.co.nz' Harmoney results reference above, p19 of PR2020 shows "Harmoney receivables increasing to $199m." Who can explain that discrepency? Whatever the explanation, it certainly sounds like the Harmoney loan book is being incorporated into the Heartland loan book. But the reason for doing that is another mystery in itself (question posed below). Despite the slightly bullish tone on p19 of the AR2020 presentation, I don't see sufficient information to override my (previously stated in the quoted bubble) bearish outlook for this sector.

    The FY2020 presentation for Heartland, from pages 14 to 21 inclusive, gives the full whereabouts of Heartland's loan book:

    1/ Australia,
    2/ NZ Reverse Mortgages,
    3/ Open for Business (O4B),
    4/ Business Intermediated,
    5/ Motor Finance,
    6/ Harmoney & Other Personal Lending,
    7/ Livestock Funding, and
    8/ Relationship.

    All of these categories come to a grand total of $4,610m in receivables. For comparison, if we go to the FY2020 accounts and add up the receivables on the balance sheet, I get $4,584m. There is a small difference of $26m between these two comparable totals, but I judge this not to be material (even though I can't explain it). So it does definitely appear as if Harmoney loans are listed in the 'Finance Receivables' in the Heartland balance sheet. However, a word search for Harmoney in the FY2020 accounts comes up blank. So I am not clear where Harmoney fits into the Heartland 'Finance Receivables'. One possibility: If I look in the Segmented Analysis of the AR2020 p98, we see the 'Other Personal' category having $214.759m in assets. This is similar to the $211m in assets figure listed on p19 of PR2020 for 'Harmoney and Other Consumer Lending' (again I can't explain the small difference).

    I thought I might find Harmoney under note 11 'Investments' (AR2020 p106) under the equity sub header. But if Harmoney was an 'investment' based on the just 11.85% shareholding that Heartland held, then why have the Harmoney receivables -apparently - been consolidated inside the Heartland receivables? I don't follow how Harmoney has been treated in the Heartland accounts. So if anyone can unscramble it for me I will be all ears.

    Heartland has created an 'overlay', in effect an extra bad debt buffer, to allow for as yet unspecified expected negative downstream effects of Covid-19. The bulk of Heartland’s $9.6m pre-tax overlay has been apportioned to the Consumer and SME portfolios. We can take from this that if problems do emerge over FY2021, then this 'Consumer' section of the loan book is more than likely where a hit will be felt.

    Despite the slightly bullish tone on p19 of the AR2020 presentation (PR2020), I don't see sufficient information to override my (previously stated in the quoted bubble) bearish outlook for this sector.

    SNOOPY
    Last edited by Snoopy; 05-11-2020 at 09:54 AM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  10. #13720
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    Quote Originally Posted by Beagle View Post
    HGH travelling a lot better than I expected....quite possibly the understatement of the week from me lol
    Reoccurring theme Beagle ?

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