HGH - Heartland Group Holdings

[Beagle]

Jeez ... when all the gurus agree - isn't this when one should run for the hills?

Anyway - topped up yesterday during the AGM, holding less cash should make it easier to run :.

LOL I was thinking exactly the same thing and we all concur with the directors that its great value here so that's got to be a worry but I am leading the pack attack so I better stay focused and buy even more...what could possibly go wrong lol

[RTM]

LOL I was thinking exactly the same thing and we all concur with the directors that its great value here so that's got to be a worry but I am leading the pack attack so I better stay focused and buy even more...what could possibly go wrong lol

What is your maximum portfolio % these days Beagle.
Just out of curiosity.......
RTM

[winner69]

What is your maximum portfolio % these days Beagle.
Just out of curiosity.......
RTM

Could be 10 stocks each at his self imposed max of 15%

[Snoopy]

The results from FY2020 at last being in the public domain has allowed me to fine tune my Scenario model. I am continuing to use FY2019 as my 'base year' from which the changes outlined in the table below are made.

Three Revenue Forecast Scenarios	Pessimistic View	Middle View	Optimistic View
Reverse Mortgage Adjustment (Post 13708)	2.5% Growth => 6.7% + 2.5% = 9.2% compounding of loans	8% Growth => 6.7% + 8% = 14.7% compounding of loans	8% Growth => 6.7% + 10% = 16.7% compounding of loans
Motor Vehicle Finance Adjustment (New) (Post 13725)	25% reduction in new three year contracts => 8.333% reduction in annual revenue (FY2021) with an additive a 8.333% reduction in annual revenue (FY2022)	25% reduction in new three year contracts => 8.333% reduction in annual revenue (FY2021) with an additive a 8.333% reduction in annual revenue (FY2022)	25% reduction in new three year contracts => 8.333% reduction in annual revenue (FY2021) with an additive a 8.333% reduction in annual revenue (FY2022)
Motor Vehicle Finance Adjustment (Used) (Post 13715)	10% reduction (FY2021) with a further 10% reduction (FY2022)	10% reduction (FY2021) with a further 10% reduction (FY2022)	10% reduction (FY2021) with revenue stabilizing (FY2022)
Business Finance (Part 1) O4B Adjustment (Post 13770)	80% of loans wiped out for two months (FY2021). Reduction in remaining loan balances of 15%, not compounding (FY2021 & FY2022)	80% of loans wiped out for two months (FY2021). Reduction in remaining loan balances of 10%, not compounding (FY2021 & FY2022)	80% of loans wiped out for two months (FY2021). Reduction in remaining loan balances of 10%, not compounding (FY2021 & FY2022)
Business Finance (Part 2) 'Intermediated' and 'Relationship' Adjustment (Post 13771)	Relationship: 16% compounding loss over two years to EOFY2021, then stable Intermediated: 10% loss from base level (not compounding)	Relationship: 16% compounding loss over two years to EOFY2021, then stable Intermediated: 10% loss from base level (not compounding)	Relationship: One off 16% loss from base level to EOFY2021 Intermediated: 10% fall over FY2021, before recovering all of that fall in FY2022
Rural Finance Adjustment (Post 13747)	Rural Relationship Loans - minus 8%, Livestock Loans - minus 5%	Rural Relationship Loans - minus 8%, Livestock Loans - minus 5%	Rural Relationship Loans - minus 8%, Livestock Loans - minus 5%
Harmoney and Other Consumer Lending Adjustment (Post 13749)	Collapse of Harmoney over a two year period	Harmoney halved in size from FY2021	Harmoney halved in size from FY2021

SNOOPY

As at the end of October, which is the first four months of FY21, NPAT is tracking at $29.9 million (versus full year guidance of $83 million - $85 million).

Margin and Costs have been maintained, with NIM and Cost Income Ratio both in line with expectations
FY 20 dividend of 7c per share but returning to “normal” in 2021. I expect 10c

Overall balance sheet growth has been flat.

Repayments from non-core area of Relationship Lending, Open for Business (O4B) and Harmoney have offset growth in core areas of Business 4 Intermediated (up 13% per annum); Motor is up 11.5% per annum; Reverse Mortgages are up 4.4% and 11% respectively per annum in New Zealand and Australia (excluding the FX impact).

Lower interest rates and customers utilising the government’s packages appear to have contributed to the level of repayments.
Impairments way down
Economic overlay of $9.6m not been used but kept for 2021
Intermediated (up 13% per annum); Motor is up 11.5% per annum; Reverse Mortgages are up 4.4% and 11% respectively per annum in New Zealand and Australia (excluding the FX impact). Livestock is also down due to seasonality reasons.

Time for a quick 'pit stop' at the four month mark, and a quick check on how my assumptions for FY2021 are tracking.

A trick to remember with Reverse Mortgages is that even with no new customers signed up in a year, the portfolio will still grow by 6.7%. Looked at in this light, the NZ portfolio is actually going backwards. Overall it looks like we are heading down my 'pessimistic scenario' road, which is disappointing.

Motor vehicle loans growing at 11.5%+ is way ahead of even my own optimistic scenario. However I always expected the first half to be much better than the second. That is because most of the Holden business I expect to be concluded in the first half. So I expect the full year result to drift back towards my optimistic scenario.

O4B and Harmoney are declining as I expected.

I was picking 'business intermediated lending' to fall by 10% when in fact it has grown by 13%. One interpretation of that is that third party funders are growing their businesses faster than Heartland who is supplying the capital for them to do their increased lending. The listed entity Zip (ZIP on the ASX) is one of those. The ZIP share price has tripled since Covid-19 lows, and is 50% above pre-covid levels. Meanwhile some of Heartland's other intermediated loan partners are vehicle distributors, which would tie in with motor vehicle loans performing much better than I expected.

The reduction in livestock lending on the books is seasonal, and so not reflective of what will happen in the full year. The reduction of 'Relationship Loans' (largely including rural?) I had budgeted for.

Overall I am a little concerned at how weak the Reverse Mortgage lending is compared to what I had thought. Although it may be true that this four month period has put many pensioners into a 'stunned mullet' trance, with normal reverse mortgage lending to resume shortly. It really is too early to make a good guess on the FY2021 year result. Despite the bolting motor vehicle loan portfolio in the year so far, I still think it could slow. I am happy to be able to have used the 'Covid panic' to get my HLG average entry price down to $1.30. In the process I boosted by HGH portfolio position from 'very underweight' to just 'slightly underweight'. With the share now trading at $1.47 I certainly won't be selling. But neither will I be chasing the price up further. There are still enough market risks around to keep me from further topping up at today's prices.

SNOOPY

[nztx]

To add to your worries I concur with the directors and both of you ....lol.

I’m more bullish than both of you and what directors are saying (with a smirk on their face if you knew what I knew like)

Proactive provisioning and that bottom drawer trick ...Jeff a master at that

I'm with Winner & a good number of you others here ..

Still filling up the truck with this one & plenty more spare space left for more

IMO very very good value in a market where others have already risen, somewhat leaving HGH behind..

The believers may be well rewarded, perhaps in 2021..

[winner69]

Close over $1.50 today?

That's at least back to what it was early March

I see $2.20 coming soon

That'll be when real value investors will sell .... buy low (undervalued) sell high (when over valued)

[King1212]

Sound like me master winner..lol

[nztx]

Close over $1.50 today?

That's at least back to what it was early March

I see $2.20 coming soon

That'll be when real value investors will sell .... buy low (undervalued) sell high (when over valued)

Agree

I look at it this way - where can one 'Buy the Bank' @ 1.50 a shot for a good Div Paying stock that can only
see further increased DPS pay out - when banks are released from Govt imposed straight jackets ?

Compared to others - even non dividend paying companies at current levels suggests reasonable value IMO ..

[Beagle]

What is your maximum portfolio % these days Beagle.
Just out of curiosity.......
RTM

I have adapted my approach and will now buy up to an absolute maximum of 15% for very high conviction positions. If something then heads materially above 15% I rebalance after that on a case by case basis but generally won't allow anything to be more than 20% of my listed net worth.

I prefer to hold positions of 10% or less but if there's a decent size feed involved I am happy to back myself but set limits just in case I am wrong because...well, you don't know what you don't know. FWIW I am 11.5% in HGH at this point. I want more but would prefer to buy any more on a slight dip, (wish me luck with that, I think I might need it lol).

[Cyclical]

Time for a quick 'pit stop' at the four month mark, and a quick check on how my assumptions for FY2021 are tracking.

A trick to remember with Reverse Mortgages is that even with no new customers signed up in a year, the portfolio will still grow by 6.7%. Looked at in this light, the NZ portfolio is actually going backwards. Overall it looks like we are heading down my 'pessimistic scenario' road, which is disappointing.

Motor vehicle loans growing at 11.5%+ is way ahead of even my own optimistic scenario. However I always expected the first half to be much better than the second. That is because most of the Holden business I expect to be concluded in the first half. So I expect the full year result to drift back towards my optimistic scenario.

O4B and Harmoney are declining as I expected.

I was picking 'business intermediated lending' to fall by 10% when in fact it has grown by 13%. One interpretation of that is that third party funders are growing their businesses faster than Heartland who is supplying the capital for them to do their increased lending. The listed entity Zip (ZIP on the ASX) is one of those. The ZIP share price has tripled since Covid-19 lows, and is 50% above pre-covid levels. Meanwhile some of Heartland's other intermediated loan partners are vehicle distributors, which would tie in with motor vehicle loans performing much better than I expected.

The reduction in livestock lending on the books is seasonal, and so not reflective of what will happen in the full year. The reduction of 'Relationship Loans' (largely including rural?) I had budgeted for.

Overall I am a little concerned at how weak the Reverse Mortgage lending is compared to what I had thought. Although it may be true that this four month period has put many pensioners into a 'stunned mullet' trance, with normal reverse mortgage lending to resume shortly. It really is too early to make a good guess on the FY2021 year result. Despite the bolting motor vehicle loan portfolio in the year so far, I still think it could slow. I am happy to be able to have used the 'Covid panic' to get my HLG average entry price down to $1.30. In the process I boosted by HGH portfolio position from 'very underweight' to just 'slightly underweight'. With the share now trading at $1.47 I certainly won't be selling. But neither will I be chasing the price up further. There are still enough market risks around to keep me from further topping up at today's prices.

SNOOPY

Typically excellent post from whom I consider to be the master of the sector.

Snoopy, regarding the reverse mortgage sector not performing to your expectations, could this just be the quiet before the storm, before this low interest rate environment means the oldies burn through their remaining liquid capital (stuff all interest in addition to reduced buying power), but enjoy the gains on their property value? How's the NIM likely to hold up in this part of the business?