HGH - Heartland Group Holdings

[Snoopy]

For my money Snoopy me old doggy mate, there's ten's of thousands of SME's in Auckland who have been hanging on by their fingernails. Another protracted lockdown will see widespread carnage.

Are those the SMEs that Jeff has skillfully shepherded over to the IRD loan scheme?

SNOOPY

[nztx]

For my money Snoopy me old doggy mate, there's ten's of thousands of SME's in Auckland who have been hanging on by their fingernails. Another protracted lockdown will see widespread carnage.

Same thoughts here Beagle -- added to the large pile still just hanging in down south

[Cyclical]

With the share price back within my buying range, thanks to the second Covid-19 shock I topped up today at $1.18.

Well thanks Snoopy. With all the effort you put into analysing the banking sector, I was more than happy to take your cue today and dip back into HGH, after offloading the last lot too early at $1.27.

[Beagle]

Are those the SMEs that Jeff has skillfully shepherded over to the IRD loan scheme?

SNOOPY

Might be something in here worth getting your snout into. https://www.harbourasset.co.nz/resea...age-deferrals/

[Snoopy]

Well thanks Snoopy. With all the effort you put into analysing the banking sector, I was more than happy to take your cue today and dip back into HGH, after offloading the last lot too early at $1.27.

While your sell decision was probably made long before Covid-19 arrived on the scene Cyclical, your assessment of $1.27 as 'fully priced value' may yet prove correct. What I see going forwards is a fairly dull finance company, a bit more risk averse than in the past and consolidating around their reverse mortgage offering. Oh and rural lending will just 'chug along'. I see SBS entering the REM market in NZ as adding credibility to the Reverse Equity Mortgage business model. I don't doubt the difficult position of many small businesses throughout NZ. But new small businesses will spring up and someone has to fund them. I don't want to bang the same drum endlessly. But I think it might be instructive to see my three 'future scenarios' stacked up alongside each other.

Three Profit Forecast Scenarios	Pessimistic View (Post 13411)		Middle View (Post 13429)		Optimistic View (Post 13438)
	FY2021	FY2022	FY2021	FY2022	FY2021	FY2022
Baseline Reference Profit	$74.5m	$74.5m	$74.5m	$74.5m	$74.5m	$74.5m
Reverse Mortgage Adjustment	$23.7m	$36.8m	$33.0m	$51.8m	$54.1m	$87.3m
Motor Vehicle Finance Adjustment (New)	($11.4m)	($17.1m)	($11.4m)	($17.1m)	($11.4m)	($17.1m)
Motor Vehicle Finance Adjustment (Used)	($11.3m)	($22.6m)	($11.3m)	($22.6m)	($11.3m)	($11.3m)
Business Finance (Part 1) O4B Adjustment	($6.3m)	($3.6m)	($5.3m)	($2.1m)	($5.3m)	($2.1m)
Business Finance (Part 2) 'Intermediated' and 'Relationship' Adjustment	($15.5m)	($15.5m)	($15.5m)	($15.5m)	($10.9m)	($5.4m)
Rural Finance Adjustment	$0m	$0m	$0m	$0m	$0m	$0m
Harmoney and Other Consumer Lending Adjustment	($3.6m)	($7.6m)	($3.6m)	($3.6m)	($3.6m)	($3.6m)
Total Forecast NPAT	$50.1m	$44.9m	$60.4m	$65.4m	$86.1m	$122.3m
No. Shares on Issue	581.0m	581.0m	581.0m	581.0m	581.0m	581.0m
Earnings Per Share	8.6cps	7.7cps	10.4cps	11.3cps	14.8cps	20.1cps

In the middle case, $1.27 would represent a PE of 11 by FY2022. That might be as good as it gets for the next few years. Yet a dividend of 10cps would be a gross dividend yield of 11%. That has be be pretty attractive against getting less that 2% in a term deposit.

For nztx and Beagle, I am forecasting a 'total profit hit' on business loans to be $19.1m (pessimistic), $17.6m (medium) and $7.5m (optimistic) by FY2022. So I am not trying to downplay your concerns. - they are real.

SNOOPY

[Snoopy]

Might be something in here worth getting your snout into. https://www.harbourasset.co.nz/resea...age-deferrals/

I hereby declare author Harbour Asset's Simon Pannet as an 'honorary Beagle'. That is a very good bit of sniffing!

Pannet is talking about 'more that 10%' of SMEs requiring an 'interest holiday'. In my 'middle scenario' I am talking about a 15% reduction in direct to customer 'Business Relationship' lending combined with a 10% reduction in lending through downstream 'Business Intermediaries' lending. This looks to line up with Pannet's thinking.

"How those borrowers restart their payment habits will have a material bearing on banks’ earnings."

I am assuming in my Heartland modelling that they will not restart payments at all. Between 10% and 15% of loan revenue will be permanently gone. Too pessimistic?

" are more interested in the potential for losses from the small business sector, especially in light of the data for Australian banks which shows that 16% of bank loans to Australian SMEs remain on deferred terms"

The Australian position, if you include Melbourne, is likely to be worse than NZ. So from an investment perspective, I am happy with my modelling of between 10 and 15 percent of SME lending (in my dominant medium and pessimistic scenarios) in NZ going to the wall. I am not happy about what happens to those individual business owners of course!

My $1.18 median buy price for FY2021 looks to line up with Harbour Asset Management's dark assumptions. So I have no regrets about purchasing HGH shares at that $1.18 price I did.

SNOOPY

[percy]

We must be aware of the ripple effect.
Two I know the history of.
1] Biggish motor repair business went into liquidation, after their major client went broke.
2] Auckland book distributor told me, that year's profit had gone, after two very large book shops went broke,owning him far to much.
Snoopy.Take a walk down to South City, and tell me if you think any shop, other than The Chemist Warehouse ,is profitable, and will still be in business this time next year.Same with "The Strip" bars.[Hate to think which bank financed their fit outs,] Check out Westpac Centre while you are there.First floor empty,Second floor empty,however Third floor has a tenant.
Eastgate is a disaster,Barrington has more empty shops,Northlands and The Palms have that decay look about them.
Job losses have yet to begin.Very few jobs advertised,and I doubt any bank is keen to help new businesses.

Trust Chris Lee does not mind me taking the following out of his this week's taking stock.
"As the stresses of Covid-19 lead to hardship or losses, weak, unfit, improper people will cover up their errors or misdeeds, rather than accept the responsibility of fixing the problems."
"Selfish, greedy people always try to avoid accountability, and will take risks with other people's money to evade detection. Their backbone is amoeboid."

[tommy_d]

We must be aware of the ripple effect.
Take a walk down to South City, and tell me if you think any shop, other than The Chemist Warehouse ,is profitable, and will still be in business this time next year.Same with "The Strip" bars.[Hate to think which bank financed their fit outs,]

trying to figure out a good buy price for MOA, any thoughts?

[Beagle]

Talk on the news tonight (if Auckland goes into a protracted lockdown) of Grant Robertson thinking of another extension to the wage subsidy program. Just keep on with the stimulus and printing money...what could possibly go wrong

My sense is this virus is a really big problem that's going to come back and bite over and over and over again. My nose for trouble is telling me there's a heck of a lot coming. I hope I'm wrong.

To me Snoops me ol mate. Your optimistic view suggests you are fond of smoking a certain substance that we're supposed to be voting on whether to legalize or not.
Its fantasy land stuff mate, sorry, but I have to call it as I see it. There is no way in the world that's going to happen. I think your mid point scenario should be your optimistic one and your pessimistic scenario looks most realistic to me.

HGH currently trades a little over 1.1 times book value. I think that's about right at present but the risk is very much weighted to the downside if Covid bites over and over and over again...and I think it will. What I have seen at the coal face of the effects on my small client base deeply concerns me.
This dog is very glad he is close to retirement and has buried an ample supply of bones.

[+++++]

Maybe a Mars colony isnt such a bad idea.