HGH - Heartland Group Holdings

[King1212]

Dang ...got 2 thumbs up from Master Beagle for above post n MET post.

I learnt well eh Master Beagle.

Admin....I think I deserve more strips.... any chance to get promoted? possible more strips?

[Baa_Baa]

The key phrase in the 18th March update from Jeff is the last sentence.

"This situation appears is developing very quickly, and Heartland will continue to monitor conditions and provide further market updates if and when required."

IOW everything is so uncertain that it would be misleading to give updates because they might be out of date the next day anyway.

Jeff will no doubt be awaiting the resolution of this discussion on this forum so he can figure out what he 'market' expectations of any write down is. It saves Heartland money if we do this work for him - see how smart Jeff is? Then some time next week Jeff will announce the write down to 'meet the market' and remind shareholders that it is a 'non-cash adjustment' so doesn't materially affect any previous forecasts made by him. That's how these things work isn't it Winner?

SNOOPY

Tongue in cheek hopefully 👍😀

I guess we all know and love your FA and the discussion it attracts, though we also know you’re not really into ‘market sentiment’ or how it affects share prices. Like poles apart.

A long term holder who has no intention of selling ever, might be interested in whether their company is still sound and their dividends sustainable. FA is an important informer of that. As it is to the extent above or below fair value.

Occasionally though, even for us unlikely to ever sell our assets, the market presents from time to time opportunities to buy well below our estimate of fair or reasonable value. Likewise when it’s above or way above estimated value.

It’s these extended events that FA abandons us, only helpful for underlying value and we need a mechanism to determine whether to take advantage of lower than value prices and accumulate, or higher than value prices and take some of the table enjoying a capital gain for re-investment later.

And particularly when to act.

In my time I’ve not found a better complement to FA (what to buy or sell) than TA (when to buy or sell). It is a reliable indicator of the market sentiment when it over or under runs fair value. Combined with these insights and a willingness to have a predetermined strategy, one can act and improve overall long term returns, over and above relying on one analytics technique or another.

[Snoopy]

For what its worth Snoopy, Westpac initial provisioning was 2.5% of market cap so on an adjusted basis that suggests ~ $17m for HGH.
As you suggest they have very different business models but I would suggest whatever level of specific and general provisioning banks bring to account in their books is nothing better than a very wild guess anyway as everyone is effectively just throwing darts at a dartboard while blindfolded as we're in unchartered waters and nobody has a playbook for this thing or how its going to affect their customers.

Concentrate of the level of their capital adequacy and liquidity, those are the more reliable indicators we have, right at the moment.

I want to reprise this topic, as it remains an operational risk for Heartland going into the future, albeit not a current one, The risk here is that Heartland will run out if money to pay their depositors back because of a mismatch in time between when a depositor wants their money back and when the lender , who the deposit money has passed through to, wants to pay it back. Heartland funding capital is approximately 75% term deposits from bank customers and 25% form various institutional bonds. These bonds at half year balance date are listed in order of maturity date.

Bond	Amount	Issue Date	Repayment Date
Two Year Unsubordinated Notes	$A50m	08-03-2019	08-5-2021
Medium Term Note (MTN) Debt Issuance	$A100m	13-11-2019	13-05-2022
Five Year Unsubordinated Notes	$NZ150m	21-11-2017	21-11-2022
Five Year Unsubordinated Notes	$NZ125m	12-04-2019	12-04-2024
Other Certificates of Deposits (1)	$NZ69.811m	??-??-????	??-??-????
Registered New Certificates of Deposits (1)	$NZ20m	16-03-2020	??-??-????

(1) Reported on 18th March market update.

Note that in contrast to previous years all Subordinated Notes and Bonds have been redeemed. Why is this important? Because a subordinated debt is an unsecured loan or bond that ranks below other, more senior loans or securities. That means in the event of a partial default, Heartland now only has to pay their unsubordinated back debt back ahead of most other creditors. I think that includes Heartland bank account depositors,

For those who have forgotten (I had) there is a particularly detailed summary of the Heartland Reverse Mortgage business from pages 15 to 33 in this Heartland Presentation.

http://nzx-prod-s7fsd7f98s.s3-websit...018/290747.pdf

On page 20 we learn that the weighted average length of a reverse mortgage turns out to be 6.1 years in Australia and 7.1 years in New Zealand. These are average figures at the discretion of the house owners, and it is the owners who decide when a reverse mortgage contact is terminated, not Heartland. Reverse mortgages are terrible for liquidity because Heartland has to stump up cash now, with no interest income or capital repayments to be collected until the reverse mortgage contract is terminated. The Heartland bond program is =time wise= out of step with the average repayment schedule for Reverse Mortgages However Jeff can patch up any holes in the mismatch by inducing NZ small scale depositors to put money into Heartland Bank accounts. All that is fine as long as depositors retain confidence in the bank. Confidence, however, can be fickle in tough times. IMO retaining the BBB credit rating, which Heartland has done, is crucial in maintaining customer confidence. Well done Jeff - so far! Where are those longer dated wholesale bond investors you were going to obtain for us though?

How worried am I about the liquidity mismatch at Heartland? I have to say that:

1/ I am not too worried, BUT
2/ I am also aware that he liquidity risk right now is way way higher than it ever has been over the whole existence of Heartland.

SNOOPY

[winner69]

Jeff says "This situation appears is developing very quickly“ (Covid that is)

We should be pleased that Jeff (and his Heartland) are very agile and resilient and full of vitality (Rob Campbell uses these terms term a lot but I don’t think he’s a good example of what they stand for)

Nearly three months have passed and no doubt Jeff has done a lot of monitoring. The year end is only a few weeks away as well so Jeff wil know what the answer is.

No news is good news. Heartland don’t have much need to increase provisions and that $75m to $80m profit F20 is safe as houses. No worries here

Bit of a worry PERCY packed a sad bailed from his beloved Heartland (he was a trader rather than an investor after all) ...I’d be gutted if Jeff gave him The nudge nudge wink wink thing and left other shareholders in the dark.

[Snoopy]

How worried am I about the liquidity mismatch at Heartland? I have to say that:

1/ I am not too worried, BUT
2/ I am also aware that he liquidity risk right now is way way higher than it ever has been over the whole existence of Heartland.

I went to bed last night and woke up worried. So time to do a bit more work on this liquidity question. Looking just at the year ahead, from an EOFY2019 perspective, I have taken the contracted loan maturities from Heartland Group Holdings ( AR2019 p43 )and subtracted from that the equivalent figures for subsidiary Heartland Bank ( Heartland Bank Disclosure statement for June 2019 p64 ). The difference, of course, represents largely the Heartland Reverse Mortgage business in Australia.

Loan Maturity	HGH FY2019 Financial Receivables Maturity: Contracted	less HBL FY2019 Financial Receivables Maturity: Contracted	equals Heartland Australia FY2019 Financial Receivables Maturity: Contracted
On Demand	$80.584m	$45.228m	$35.356m
0-6 months	$1,020.160m	$1,003.319m	$16.841m
6-12 months	$646.123m	$618.563m	$27.560m
Deposit Maturity	HGH FY2019 Financial Liabilities Maturity: Contracted	less HBL FY2019 Financial Liabilites Maturity: Contracted	equals Heartland Australia FY2019 Financial Liabilities Maturity: Contracted
On Demand	$895.290m	$898.292m	($3.002m)
0-6 months	$1,531.594m	$1,512.358m	$19.236m
6-12 months	$620.836m	$611.382m	$9.454m
Loan-Deposit Maturity			Loan-Deposit difference is Heartland Australia FY2019 Financial Receivables - Liabilities: Summation
On Demand			$38.358m
0-6 months			($2.395m)
6-12 months			$18.106m

So what does this table mean?

The loan maturity is ostensibly the money that is coming in, and the deposit figure is the wholesale loan supporting the Reverse Mortgage that has to be repaid. When the difference figure between loans and deposits becomes negative Heartland Australia has a problem. Because that means there isn't enough money coming in to pay the depositors back. The 0-6 month period in the tables represents the time period starting 1st July 2019 and finishing 31st December 2019. Heartland obviously survived this negative difference period, because they are still trading. I imagine some small change from Heartland Bank (it was only a $2.350m deficit after all) must have been shuffled off to Australia to meet the contractual shortfall. But this was pre-Covid. And right now the NZ Government has legislated that 'dividends' from NZ banks have been ordered not to be paid. So what would have happened if this shortfall had occurred within the current 1st January 2020 and 30th June 2020 time frame? I think Heartland Australia, and by extension Heartland Group Holdings could have been in trouble. With Heartland Australia now 'out on a limb' seemingly cut off from Heartland Bank funding, I think the monitoring of the liquidity of Heartland Australia is something that we shareholders will now have to watch closely.

SNOOPY

[justakiwi]

Bit of a worry PERCY packed a sad bailed from his beloved Heartland (he was a trader rather than an investor after all)

So anybody who makes a decision to exit a holding, is automatically a trader? That’s BS. Read Percy’s post properly as he clearly explained the reasoning behind his decision to exit HGH.

...I’d be gutted if Jeff gave him The nudge nudge wink wink thing and left other shareholders in the dark.

I really hope this was joke because if it wasn’t, you should be ashamed of yourself. I don’t know Jeff, but I know Percy well enough to know he would never be part of something like that!

[winner69]

So anybody who makes a decision to exit a holding, is automatically a trader? That’s BS. Read Percy’s post properly as he clearly explained the reasoning behind his decision to exit HGH.


!

Yep, I read Percy’s reasoning why a divorce from HGH was necessary

I think you and me have different meanings / interpretation for the term ‘investor’

My interpretation of percy to exit ...circumstances changed so he closed out his (long term) trade in Hgh

[King1212]

Come on guys...peace talk...we have enough tension between china n usa.

Don't want any more here...after all it is only a share company.

Right or wrong...market will determine it at last.

People are more worry about HGH...than AIR or SKT... funny that. That what I said....no rule in the market. At the end....the market will price it to the human emotion

[Baa_Baa]

Attachment 11638
Chill, it's a beautiful day.

[justakiwi]

So what, pray tell, is your definition of investor then, and how is it different from trader?

Yep, I read Percy’s reasoning why a divorce from HGH was necessary

I think you and me have different meanings / interpretation for the term ‘investor’

My interpretation of percy to exit ...circumstances changed so he closed out his (long term) trade in Hgh