HGH - Heartland Group Holdings

**horus1** · 12-09-2018, 03:16 PM

A long term hold. The only NZ bank I can invest in with good management and divs. I have a lot,voting for the new structure.

**moka** · 12-09-2018, 03:21 PM

Originally Posted by winner69

Getting prepared to do that at the AGM maybe

But sadly I think all thius diversity stuff is just one big charade to give themselves the warm fuzzies or maybe they think its good 'marketing'

I still remember the horrified look the Chairman had at a AGM a couple of years ago when a shareholder said the Board was a pack of fuddy duddys ...he seriously looked shooked, in other words he just doesn't get this diversity stuff.

Yes, the Chairman would have been insulted by the comment. However Ray Dalio from Bridgewater Capital gets this diversity stuff and invites feedback from his employees about his performance at meetings, and on this TED talk gives an example of employee giving him feedback “Ray, you deserve a D- for your performance today in the meeting because...”
Rather than thinking I am right he started to ask himself “How do I know I am right.” And he uses algorithms to this. This is a good example of how AI can be used for better decision-making.

https://www.youtube.com/watch?v=HXbsVbFAczg
How to build a company where the best ideas win | Ray Dalio
Learn more about how these strategies helped Dalio create one of the world's most successful hedge funds and how you might harness the power of data-driven group decision-making.

**forest** · 12-09-2018, 03:34 PM

I am leaning towards voting against the new structure,

As I have mentioned before, risk manager resigned AND sold his complete shareholding, 2 directors do not own any shares in HBL and as far as I understand only 1 of the remaining directors took the opportunity to increase his shareholding in the April 18 DRP.
My impression is that management is not uniform in their enthusiasm for this major change in direction.

I like companies in general to grow relatively slowly (10 to 20%), this reduces a lot of risk. HBL is able to grow under the present structure in a controlled way and it was not that long ago that the present structure was created.

**Filthy** · 12-09-2018, 03:46 PM

Originally Posted by hamish

I attended the Wellington Shareholder presentation last night. Spoke with CFO, Deputy CEO, Investor Relations. Anyone else there?

Based on the presentation and conversations..

The plusses
- Heartland team members spoke very well, clearly understand their business model. Expertise seems high. Strong line of sight of their revenue streams, capital sourcing and capital efficiency.
- Were able to articulate what Heartland does in terms of value for their customers and their segments
- Strong revenue growth in some products such as Motor/RELs and they demonstrated a clear way of thinking about products (eg rural livestock) and how they meet customer needs.
- Appear to do very well with intermediary relationships - from who they Partner with, why, and when in the value chain
- Soon to launch App mass market, via TV advertising their "O4B - Open For Business" SME loan origination and fulfilment. 3 mins origination (apply and approve) based on AI, credit risk logic of 100 or so data points, through their mobile app for loans $50,000 (I think they were meaning on average there). Seeking to drive 40% increase in SME base (not stated the current baseline).
- I asked about relationship with RBNZ in terms of transparency, trust etc (I have shares in CBL - so would not want a repeat with HBL) and risk of any negative review, impositions, etc resulting from proposed restructure or in general. Response was that great relationship with RBNZ, low risk of interventionism, who 'support' the proposed structure (take that with a grain of salt I think as not sure Govt Agency would 'support'..HBL might 'comply')

The minuses

- EPS Growth - Notwithstanding the predicted revenue and profitability growth, EPS likely to remain flat. Due DRP and (I assume) capital raise(s). The response here is that they are paying out more in net dividend $$ each year
- Their core IT system replacement was north of $20m. Had significant impact on their service centre, which in turn had impact on their collections and impairments resolution (as call centre staff pre-occupied with IT issues). When pressed, not an entirely convincing response that this is all put to bed..and also that the 'integration' between this core platform and the 'digital' solutions is streamlined / easily scaleable. So, was not clear if any remnant costs for this to occur in FY19
- Harmony business overall profitability and business model perhaps not where it was expected to be (by Harmony themselves). Heartland have 11% slice of this and returns are 'as expected'. However, the tone was lukewarm

Questions from the floor
- Why don't you promote further the 'kiwiness' of Heartland (Kiwibank do this) for awareness etc - Answer, we do this in our Annual Report and Corporate material. Not a key 'push' message with the current marketing budget
- Is Heartland still interested in UDC - Answer, we're not sure if it's for sale or not... but we'd be delighted to buy it
- "What are the biggest risks ahead for FY19 and mitigations".. The response ended up circular talking about the opportunities..not the risks. Deflected entirely, which was disappointing. Growth is easy to be positive about... what about regulatory, liquidity, political, GDP risks...?
- A few others, but I can't now recall.

There was a strong message for shareholders to (1) vote as 50% shareholders are needed to vote for resolution to pass and (2) to vote in favour for the restructure.

My personal take - I'm left reflecting and mulling it all today still. With a fairly decent shareholding now, I'm honestly erring towards halving it post receiving DRP, allocating this elsewhere, and buying back at some point.. The year ahead seems to me, that while there will be revenue and profit growth.. the EPS and SP may well just remain steady until such time as the new business model (if approved) is embedded. There's also increase risk (as I see it) with some of the product lines as they scale and possibly NZ economy .. their modelling for impairments and impacts are just that, modelling vs fully proven. Another unknown , I wish I had asked in hindsight, was what their plan for their people and resource looks like in the next 12 months. Investment in knowledge and training in particular, along with ability to scale and service customer needs should they grow as intended.

Oh - I asked if HBL read this forum.... Answer, YES and they even are familiar with some of the usernames...

great post, thanks for the summary mate.

**Beagle** · 12-09-2018, 03:55 PM

http://nzx-prod-s7fsd7f98s.s3-websit...712/286553.pdf

Fitch affirms rating, worth a read.

**minimoke** · 12-09-2018, 04:11 PM

Not sure if its my greatest decision. But I'm back in at $1.66 after selling out at $1.75 and missing out on the 5.5 c divi. Lets see where we are after the vote. (Divi yield vs risk of SP dropping significantly got the better of me)