HGH - Heartland Group Holdings

[Snoopy]

Under Note 4 of HY2017 the 'impaired asset expense' has increased to $6.892m (HY2017, ended 31st December 2016) up from from $5.610m in the corresponding prior period (HY2016). Bad debts for the full year to 30th June 2016 (FY2016) added to $13.501m. By simple subtraction the bad debt expense for the period 1st January 2016 to 30th June 2016 ( 2HY2016 ) was

$13.501m - $6.892m = $6.609m.

This means that what we are seeing is a 4.3% rise in bad debts expense declared over the six months to December 2016, compared to the immediately preceeding 6 month period.

Under Note 4 of HYR2018 the 'impaired asset expense' has increased to $10.416m (HY2018, ended 31st December 2017) up from from $6.892m in the corresponding prior period (HY2017). Bad debts for the full year to 30th June 2016 (FY2017) added to $15.015m. By simple subtraction the bad debt expense for the period 1st January 2017 to 30th June 2017 ( 2HY2017 ) was

$15.015m - $6.892m = $8.123m.

This means that what we are seeing is a 28% rise in bad debts expense declared over the six months to December 2017, compared to the immediately preceeding 6 month period.

SNOOPY

[Beagle]

Spotted on the weekend....Average broker target price 12 months hence is $1.69...ouch !

[winner69]

Spotted on the weekend....Average broker target price 12 months hence is $1.69...ouch !

That implies they value it at 145/150 today

Bonkers

[couta1]

Spotted on the weekend....Average broker target price 12 months hence is $1.69...ouch !

Mate, you should know by now not to take any notice of analysts target prices, back to the kennel for the rest of the day as punishment.

[Snoopy]

Winner is referring to one aspect of 'the art of profit manipulation', which is one way to interpret the table in my post 9372.

Put succinctly Column 'V' is the 'Impaired Asset Provision' going into the problem loan bucket. Column 'W' is the 'Impaired Asset Expense' leaking out of the problem loan bucket. In any particular six monthly period, there is no reason these two should be exactly the same. Over time though, one might expect the 'Impaired Asset Provision' to 'fully feed' the 'Impaired Asset Expense'. If it didn't, then the impaired assets on the books would eventually disappear. And it is unrealistic to think that a bank would have no impaired assets on the books at all.

"1st April 2014: Seniors 'Reverse Mortgage' Business Acquired." This is the date I recognise as the birth of the 'modern' Heartland we see today. It is probably unfair to compare the 'modern' Heartland with the Heartland that was born with all sorts of legacy property portfolio issues. So I have cut down my table to just show the half year time periods from 1st July 2014 onwards (HY2015 onwards).

Date	'Stressed' Loans on the books (X)	Net Financial Receivables (Impairments deducted) (Y)	(X)/(Y)	Impaired Asset Expense (V)	Write Off (W)	Gross Financial Receivables (Z)	(V)/(Z)	(W)/(Z)
EOHY2015	$33.469m	$2,722.433m	1.23%	$5.102m	$1.456m	$2,749.232m	0.19%	0.05%
EO2HY2015	$32.824m	$2,862.070m	1.15%	$7.003m	$2.119m	$2,893.724m	0.24%	0.07%
EOHY2016	$29.147m	$2,928.601m	1.00%	$5.610m	$14.282m	$2,951.075m	0.19%	0.48%
EO2HY2016	$32.864m	$3,113.957m	1.06%	$7.891m	$4.381m	$3,140.105m	0.25%	0.14%
EOHY2017	$33.050m	$3,334.800m	0.99%	$6.892m	$6.552m	$3,361.934m	0.21%	0.19%
Total				$32.498m	$28.790m
Average							0.22%	0.19%

This shows a better picture with 'V' and 'W' more in balance. There is still a solid trend for X (the Stressed Loans of the Books) coming down. But this could be because we have a particularly favourable market for borrowers at the moment. Could it be that there are genuinely less stressed loans out there? Does that mean that my complaining about the divergence between the trends of 'Stressed Loans' and 'Impairment Provisions' over time is merely a product of benign market conditions? So there is nothing to worry about?

Column 'V' is the 'Impaired Asset Provision' going into the problem loan bucket. Column 'W' is the 'Impaired Asset Expense' (the actual annual write off) leaking out of the problem loan bucket. In any particular six monthly period, there is no reason these two should be exactly the same. Over time though, one might expect the 'Impaired Asset Provision' to 'fully feed' the 'Impaired Asset Expense'. If it didn't, then the impaired assets on the books would eventually disappear. And it is unrealistic to think that a bank would have no impaired assets on the books at all.

"1st April 2014: Seniors 'Reverse Mortgage' Business Acquired." This is the date I recognise as the birth of the 'modern' Heartland we see today. It is probably unfair to compare the 'modern' Heartland with the Heartland that was born with all sorts of legacy property portfolio issues. So my table just shows the half year time periods from 1st July 2014 onwards (HY2015 onwards).

Heartland in their breakdown of the 'Asset Quality of Financial Receivables' list the following three mutually exclusive problem loan categories.

a/ Loans at least 90 days past due.
b/ Loans individually impaired.
c/ Restructured assets. (this category of loan seems to have been dropped from AR2017 onwards)

These loans are partially written off, the amount of the write off being accounted for in the 'Provision for Impairment' (a separate listing category, d/).

My definition of a 'stressed loan' total can be calculated as follows:

'Stressed Loan Total' = (a)+(b)+(c)-(d)

Note that this definition of a 'stressed loan' specificxally excludes that part of any loan that has already been impaired.

Date	'Stressed' Loans on the books (X)	Net Financial Receivables (Impairments deducted) (Y)	(X)/(Y)	Impaired Asset Expense (V)	Write Off (W)	Gross Financial Receivables (Z)	(V)/(Z)	(W)/(Z)
EOHY2015	$33.469m	$2,722.433m	1.23%	$5.102m	$1.456m	$2,749.232m	0.19%	0.05%
EO2HY2015	$32.824m	$2,862.070m	1.15%	$7.003m	$2.119m	$2,893.724m	0.24%	0.07%
EOHY2016	$29.147m	$2,928.601m	1.00%	$5.610m	$14.282m	$2,951.075m	0.19%	0.48%
EO2HY2016	$32.864m	$3,113.957m	1.06%	$7.891m	$4.381m	$3,140.105m	0.25%	0.14%
EOHY2017	$33.050m	$3,334.800m	0.99%	$6.892m	$6.552m	$3,361.934m	0.21%	0.19%
EO2HY2017	$38.341m	$3,545.897m	1.08%	$8.123m	$5.119m	$3,575.633m	0.23%	0.14%
EOHY2018	$44.455m	$3,783.091m	1.18%	$10.416m	$8.082m	$3,814.979m	0.27%	0.21%
Total				$51.037m	$41.991m
Average							0.23%	0.18%

I work on the assumption that a 'stressed loan' can be indentified before any portion of that loan becomes impaired. Certainly if this wasn't true, it would show pretty poor debtor managment by Heartland!

In contrast to the pcp review, the 'stressed loans' look to have come up again to historical levels. This is comforting. It means that Heartland look to be back on top of indentifying their stressed loans. My previous somewhat dubious hypothesis -that the loan portfolio was becoming inherently 'less stressed' - can now be discarded. The fact that the stressed loans have gone up again in percentage terms is a good thing, becasue it means that Heartland are casting a more watchful eye on their loan book.

The changes to the 'provision for impaired loans' (impaired asset expense), as summed over the last seven half year reporting periods now exceeds the actual 'write offs' over the same period by 22% (up from 13% from the pcp). This is good becasue it means that Heartland are being more conservative with their impaired loan provisioning. 'Book fiddling', with unrecoverable loans being held on the books that in turn falsely exaggerate profitability does not seem to be happening.

I can't see anything to worry about here in the Heartland impaired loan department.

SNOOPY

[Beagle]

That implies they value it at 145/150 today

Bonkers

https://www.marketscreener.com/HEART...18/financials/

Something not quite right. FY18 earnings for a start aren't right, eps is 12.5 approx. not the 13 shown here and using the mid point of the companies own forecast I get 13.5 cps earnings next year.
I really like the way the home equity release loan book is growing and I think there's a good chance we will see 7-8% eps growth this year, (unless they issue lots more shares).

[percy]

Mate, you should know by now not to take any notice of analysts target prices, back to the kennel for the rest of the day as punishment.

Love it,ha ha ha.!!…….lol.

[Beagle]

Mate, you should know by now not to take any notice of analysts target prices, back to the kennel for the rest of the day as punishment.

LOL unless they agree with your own prognosis eh mate

[couta1]

LOL unless they agree with your own prognosis eh mate

I'm always weary because they are return trip ticket clippers.

[winner69]

Appears as if guru analysts just follow the market price anyway

Market goes down ....their targets go down and vice versa


Makes you wonder what their financial models say. Hard to see them tweaking them as much as their downgrades show .....Heartland must be one of the most consistent performing financially stocks there is


Suppose they cheat and just guess a PE thing think appropriate.