HGH - Heartland Group Holdings

[dreamcatcher]

@SNOOPY thanks for your thoughts ..... will continue to watch

4-Traders Low to High TP $1.48 - avg$1.57 - $1.70 ..........1-sell : 2-hold : 1-buy

[Snoopy]

Was referring to the poster's posts on this thread,not the poster,who I went to the trouble of introducing to "our Jeff" at the last agm..

Yes he did. Percy and I have had robust exchanges on this forum before and no doubt will have more of them in the future. Percy is very passionate about his investments. Passion is good. But passion can overflow at times. I understand this.

SNOOPY

[Beagle]

Yes, you and I both know these Aussie banks have issues (although LNG is widely regarded as a suitable transition fuel on the way to to lower carbon economy, and all mineral prospecting has risk). Now that these issues are out in the open the Aussie banks can do something about them. I expect the behaviour of these Aussie banks to improve. I am not denying that the Aussie banks have issues. I think these issues are very serious and a PE discount to HGH of at least 1 is warranted in the circumstances.

You are talking about the likes of ANZ,NZ. You cannot buy shares in ANZ.NZ. You have to buy shares in the whole group. The capitalization of the whole group is being dealt with by the Australian Reserve Bank. I am talking about the group. The Australian Reserve bank will have different and lower capitalisation requirements but that still means the group is dangerously undercapitalised according to RBNZ

	Agricultural Loan Portfolio {A}	Total Loan Portfolio {B}	Percentage of Agricultural Loans {A}/{B]
Heartland Group Holdings EOFY2019	$741.947m	$4,787.079m	15.5%
ANZ Bank EOFY2019	$38,562m	$618,295m	6.2%

What the above table doesn't show is that the ANZ 'agricultural' figure also includes mining. Take that out and you can see that it is likely that the rural exposure of HGH is very likely triple that of the parent ANZ, in relative terms.
Its the weekend, I can't be bothered checking your figures at this stage

I didn't say that. I said future dividends would likely not be fully imputed if the Australian expansion goes to plan. I am quite comfortable with this, if the growth strategy pans out.
They don't pay out all profits and the vast majority of profits at this point and for the foreseeable future will be made in N.Z. so I am confident that dividends will remain fully imputed for the foreseeable future

I am not talking about Heartland Bank. I am talking about Heartland Australia the non-banking group with a BBB- credit rating (below the BBB of Heartland Bank). Heartland Australia has no access to depositors and is set up to run on wholesale funding entirely. You may not be worried about any funding mismatch but Jeff is. Furthermore Jeff is doing something to fix it. Perhaps you had better e-mail Jeff and tell him to cease and desist and stop wasting time?I am certainly not going to do that, I will leave him to run the thing and not pretend to be a banker, like some are on here
I thought about that. $1.85 is some 13% above my fair valuation. Many shares on the NZX are overvalued by that amount or more. When it gets to 20% above my fair valuation I will think again,

SNOOPY

I think the risk free rate is going to stay low for the foreseeable future. I agree many shares are overvalued on the NZX at present but in my opinion HGH isn't one of them.

[Snow Leopard]

As far as I am concerned fair value for HGH, right here, right now, IS $1.75 being made up of the an underlying $1.725 + $0.025 of the next dividend (assume/hope 4c will be declared).

Obviously not buying more at current SP.

With me selling down 10% of my ARV recently HGH is once more currently my largest NZX holding.

[Snoopy]

Snoopy wrote:
"You are talking about the likes of ANZ,NZ. You cannot buy shares in ANZ.NZ. You have to buy shares in the whole group. The capitalization of the whole group is being dealt with by the Australian Reserve Bank."

I am talking about the group. The Australian Reserve bank will have different and lower capitalisation requirements but that still means the group is dangerously undercapitalised according to RBNZ

I think your interpretation of what the RBNZ was commenting on is wrong Beagle.

The NZ Reserve Bank was criticising the ANZ in NZ as chaired by John Key. This is what I term "ANZ.NZ". The RBNZ was commenting on the capitalisation of the NZ branch of the ANZ Group, the whole group headquartered in Australia. That is the listed entity ANZ, and this is what you can buy on the ASX or NZX - shares in the whole group. Yes the Australians were grizzling about Adrian Orr's suggestion that ANZ,NZ was not well enough capitalised. But that was because they would have to supply the extra capital to bolster the balance sheet of their NZ arm. Adrian Orr said nothing about the capitalisation of the ANZ group as a whole. The Reserve Bank of New Zealand has no jurisdiction in Australia and it would be inappropriate of Adrian to comment on what the ANZ in Australia should do.

A similar argument in reverse applies to HGH shareholders who 'take some confidence' that the Reserve Bank of NZ is keeping a watching oversight over HGH. The Reserve Bank is keeping tabs on the NZ subsidiary Heartland Bank only. But as far as Heartland Australia is concerned, the Reserve Bank of NZ has washed their hands of it. Heartland Australia is not a bank so there is no oversight from the Reserve Bank of Australia either. Heartland Australia is an unregulated wild west operation that can more or less do what it likes.

What does this mean for those taking out reverse mortgages? The guarantee of lifetime occupation between a retiree to occupy their house indefinitely into retirement and Seniors Australia will operate until the death of one of the parties to that reverse mortgage contract. I am sure that all retirees sign this thinking it will last until their own death or their voluntary move from their house. But it could be 'Seniors Australia' that dies first, particularly now because it operates under the wild west umbrella of 'Heartland Australia', a grossly undercapitalised shell (under any recognised oversight, which of course they are exempt from complying with), that exists only at the behest of the HGH board. Where would these retirees be if HGH decides to cut Heartland Australia loose? I bet those retirees haven't thought about that!

SNOOPY

[Beagle]

Why would they cut it loose seeing as its so profitable with high growth, low risk and a high NIM...(in case you are wondering Snoopy, that's a rhetorical question).

[Snoopy]

Why would they cut it loose seeing as its so profitable with high growth, low risk and a high NIM...(in case you are wondering Snoopy, that's a rhetorical question).

I know you don't want an answer Beagle but...

Heartland Australia needs wholesale funding to operate. Without supporting wholesale funders, either directly approached by Heartland Australia to take on Heartland Bonds or via bank securitrzation of loans, the Seniors Australia reverse mortgage business would find it very difficult to operate at all. So profitable or not, Heartland Australia can only operate at the behest of its wholesale funders. Wholesale funders will determine whether the Reverse Mortgage business still exists in three years time - not Heartland Australia. Jeff is working very hard now to make sure the wholesale funding does continue. But it is not a done deal,

Heartland's biggest wholesale funder is still CBA bank, a former provider of reverse mortgages themselves, until early 2019. Yet CBA have chosen to abandon this "profitable, high growth, low risk and a high NIM market" as you put it. Will they continue to support Heartland Australia into the future to carry on in this market they have themselves abandoned? I think Jeff will earn his pay cheque this year!

SNOOPY

[percy]

I know you don't want an answer Beagle but...

Heartland Australia needs wholesale funding to operate. Without supporting wholesale funders, either directly approached by Heartland Australia to take on Heartland Bonds or via bank securitrzation of loans, the Seniors Australia reverse mortgage business would find it very difficult to operate at all. So profitable or not, Heartland Australia can only operate at the behest of its wholesale funders. Wholesale funders will determine whether the Reverse Mortgage business still exists in three years time - not Heartland Australia. Jeff is working very hard now to make sure the wholesale funding does continue. But it is not a done deal,

Heartland's biggest wholesale funder is still CBA bank, a former provider of reverse mortgages themselves, until early 2019. Yet CBA have chosen to abandon this "profitable, high growth, low risk and a high NIM market" as you put it. Will they continue to support Heartland Australia into the future to carry on in this market they have themselves abandoned? I think Jeff will earn his pay cheque this year!

SNOOPY

From what I understand the Aussie Banks do like RELs,however compliance is an issue for them.They can arrange/approve a standard mortgage in 24 hours,however a REL takes a little over a month to be processed,with the applicant needing legal advice and usually family consultations.They see too many steps where they can make errors,[and be legally liable].Basically they are not set up for RELS.Just too difficult.Maybe branch networks work against them.?They do have a history of giving bad advice,as The Australian Banking Royal Commission proved.
HGH have spent time and effort making sure their process is right.This has been in consultation with both NZ and Australian regulators.HGH's process is so good it has been approved by Consumer in NZ,and needed little [if any] change to comply with Australian Royal Banking Commission requirements.
Excellent security [ and margins] will always attract funding,particularly bonds and wholesale funding.HGH being listed in Australia means Australian funds etc can legally invest in HGH's funding products.

[Snoopy]

From what I understand the Aussie Banks do like RELs,however compliance is an issue for them.They can arrange/approve a standard mortgage in 24 hours,however a REL takes a little over a month to be processed,with the applicant needing legal advice and usually family consultations.They see too many steps where they can make errors,[and be legally liable].Basically they are not set up for RELS.Just too difficult. Maybe branch networks work against them.?They do have a history of giving bad advice,as The Australian Banking Royal Commission proved.

Westpac demerged their BT fund management business from the parent bank a few years ago, despite funds management being seemingly very profitable. Today people, if they go into a bank branch, want instant (or at least 24 hour) service. Retirement Savings and Reverse Mortgages are not things where a fast solution is necessarily a desirable solution, It may be that with ever increasing legal requirements that getting staff qualified in these specialist areas is not straightforward. Thus Heartland's approach: centralizing expert staff at a call centre, may be the way of the future? Jeff at the AGM certainly said that when questioned on the subject. I don't see why the likes of big banks couldn't take a similar approach though. These days with video conferencing technology, customers could be ushered into a special room at the branch and hooked up live with a bank employee expert at a video call centre. That to me would be a more credible solution than being handed a Seniors Australia card and being told to go home and ring them.

Personally I have a real problem with dealing with any financial institution with no local branch. When things go well it can seem easy. But when things go wrong,..? I would like to think I can go in and 'thump on a desk' somewhere local.

HGH have spent time and effort making sure their process is right.This has been in consultation with both NZ and Australian regulators.HGH's process is so good it has been approved by Consumer in NZ,and needed little [if any] change to comply with Australian Royal Banking Commission requirements.
Excellent security [and margins] will always attract funding, particularly bonds and wholesale funding. HGH being listed in Australia means Australian funds etc can legally invest in HGH's funding products.

The problem is that as a wholesale institution if you want a two year bond and the people paying that interest are on average on a 6-8 year term there is a cashflow timing mismatch after two years. Heartland might have to offer higher interest rates to new providers of cash bonds. The banks might up their securitization interest rates ti Heartland. Or maybe Heartland Bank might be required by parent HGH to pay a 'special dividend', so that HGH could use such money to recapitalise their Australian operations (wouldn't the RBNZ like that)? It is not clear if recovering such cost increases from Reverse Mortgage holders could be done in a way that does not anger them and torpedo future reverse mortgage business in Australia . Hence Jeff's mission to lock in a longer term lending source at a low fixed rate.

SNOOPY

[percy]

A lot of "speculation" on your part.