HGH - Heartland Group Holdings

[Snoopy]

Big volume yesterday of 3.5m shares, well above the daily average. Didn't UDC recently note an increase in lending volumes? Maybe the buyers sense a 'better than expected' report next week.

Or sellers expect a worse than expected result as they quit near the recent share price base?

Harmoney aside, I think the result will be better than expected. The wage subsidy should have helped a lot of the small business customers and both Kia and Holden have had good years in terms of generating financing opportunities. Nevertheless the key issue is the outlook. Without the same government support for business and without Holden in the future, new small business loans and new motor vehicle funding will have to be lower going forwards. And I really don't know how REL is going in Australia. It will be interesting to see if Heartland support a Harmoney float, or if they will use the float as an opportunity to exit. Without 'peer to peer', I am not sure what the point of difference of Harmoney is, The outlook is the key. I don't think Heartland need to do a capital raise right now, but that in itself could be a reason to do one. A capital raising now at a good price will see Heartland through what will be a very uncertain year over FY2021.

SNOOPY

[Beagle]

Best time to raise new capital is well before you need it, always has been and always will be the case.

[sb9]

Bodes well for HGH..
Labour promises $1.5b extension of small business loan scheme and cap paywave fees

https://www.nzherald.co.nz/nz/news/a...ectid=12363141

[Cyclical]

Without 'peer to peer', I am not sure what the point of difference of Harmoney is

Agreed. I think there peer to peer model was a pretty neat business model...offload the risk and clip the ticket on the way through, plus it meant really quick approval for borrowers. It seems a shame they've effectively dropped that model and are now just another lender.

[winner69]

Bodes well for HGH..
Labour promises $1.5b extension of small business loan scheme and cap paywave fees

https://www.nzherald.co.nz/nz/news/a...ectid=12363141

Loans through IRD

Hope many take the IRD loan and payoff their overdue Heartland loans.

[Snoopy]

Loans through IRD

Hope many take the IRD loan and payoff their overdue Heartland loans.

If I were Jeff, and with the IRD offices unfathomably being closed nationwide under Level 2, I would be on the phone to IRD management 'quick smart' offering to set up an IRD consultant desk in each Heartland branch 'for free'. It would be a convenient conduit through which to steer some of those expiring Heartland business loans, and to add to Heartland's reputation for 'first class customer service'. I don't think Heartland shareholders would object either :-).

SNOOPY

[winner69]

Heading sub $1 again by the looks of it

Seems market reckons September 17th is going to be a bad day

[Beagle]

Here's a question for you guys. Riddle me this.

How does one reconcile the new IFRS standard that's forcing banks to be proactive with their bad and doubtful debt provisioning, (which has had a major effect on the reported profit of every other bank) with the fact that Heartland must comply with its continuous disclosure requirements and still has a profit forecast in the market of (forgive me isn't it somewhere around $75 - $80m) ?

I think "Blind Freddy" can tell you that the reported profit soon to be announced is going to be at a major variation to the forecast so how are Heartland not in breech of their continuous disclosure requirements ?

Riddle me another question if you dare. How on earth will Heartland have any idea what future bad and doubtful debts might look like seeing as previous provisioning models cannot possibly be useful in the unique Covid situation we all find ourselves ?

Doesn't it follow that at very best the pending reported profit is nothing but a best guess and how do we know that their best guess of provisioning isn't going to wildly inaccurate ?

Are the pending financial statements (in these unprecedented times with no certain way of accurately forecasting bad and doubtful debts under the new IRFS reporting standard) even worth the paper they're printed on ?

One supposes we will get an even more thorough Te Reo lesson with them this year so that might be be useful to some people.

For those that have no idea what I am talking about perhaps reflect on the recent "Harmoney" result and ask yourself if there's anything harmonious about that.

I've been saying it for years...all this reckless unsecured lending will come back to bite them sooner or later...

[Snoopy]

Here's a question for you guys. Riddle me this.

How does one reconcile the new IFRS standard that's forcing banks to be proactive with their bad and doubtful debt provisioning, (which has had a major effect on the reported profit of every other bank) with the fact that Heartland must comply with its continuous disclosure requirements and still has a profit forecast in the market of (forgive me isn't it somewhere around $75 - $80m) ?

I think "Blind Freddy" can tell you that the reported profit soon to be announced is going to be at a major variation to the forecast so how are Heartland not in breach of their continuous disclosure requirements ?

Jefff is on the ball and from what I have seen goes out of his way to keep investors well informed. He won't be wanting to anger nzx regulators so I am 100% sure that Heartland's profit guidance for FY2020 will be met. What you may have forgotten Beagle is that during the lock down, no-one could flit off overseas, or even drive around the town visiting liquor shops. So all the middle and even the bad ass class were stuck at home paying off their vehicle loans, as there was nothing better to spend their money on. Business owners were offered temporary tax relief, zero interest IRD top up loans, and subsidies for staff wages. That might not have saved all of Heartland's business loans. But it does buy business owners time to plan (and time for Jeff to transition some Heartland loans to alternative IRD loans). There would have been few new loans written over lock down. But all the existing loans written over the previous three years would have been carrying on using previously contracted terms. I am encouraged by Marilyn's example of Heartland working with a troubled borrower rather than trying to bankrupt them. People remember how banks treat them in troubled times.

Of course that doesn't mean that the picture will be rosy in FY2021. So you can expect low or even no guidance for the current year.

Riddle me another question if you dare. How on earth will Heartland have any idea what future bad and doubtful debts might look like seeing as previous provisioning models cannot possibly be useful in the unique Covid situation we all find ourselves ?

Doesn't it follow that at very best the pending reported profit is nothing but a best guess and how do we know that their best guess of provisioning isn't going to wildly inaccurate ?

Are the pending financial statements (in these unprecedented times with no certain way of accurately forecasting bad and doubtful debts under the new IRFS reporting standard) even worth the paper they're printed on?

I have already answered those questions, and I repeat the answers below.

https://www.bdo.global/getattachment...spx?lang=en-GB

From p13:

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DETERMINING SIGNIFICANT INCREASES IN CREDIT RISK

"The transition from recognising 12-month expected credit losses (i.e. Stage 1) to lifetime expected credit losses (i.e. Stage 2) in IFRS 9 (2014) Financial Instruments is based on the notion of a significant increase in credit risk over the remaining life of the instrument. The focus is on the changes in the risk of a default, and not the changes in the amount of expected credit losses. For example, for highly collateralised financial assets such as real estate backed loans when a borrower is expected to be affected by the downturn in its local economy with a consequent increase in credit risk, that loan would move to Stage 2, even though the actual loss suffered may be small because the lender can recover most of the amount due by selling the collateral."

I read that as saying that just because a loan moves up the risk scale , that says nothing necessarily about the likelihood of recovering the debt. For example those legacy sharemillker loans that Heartland has may be listed as impaired even though there is a ready market for cow meat if the cows could not be sold as milk producers. Shoot the cows and consequently the loan can be fully repaid.

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Now we move to p19

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"Various sources of data can be used to estimate expected credit losses. Entities should consider both borrower specific factors, macroeconomic conditions, and internal and external information such as internal historical credit loss experience, internal ratings, and external reports and statistics. Entities should also take into account both the current and future forecast direction of conditions at the reporting date.An entity is not required to incorporate forecasts of future conditions over the entire remaining life of a financial instrument. For long dated instruments, the standard does not require a detailed estimate for periods that are far in the future – for such periods, an entity may extrapolate projections from available, detailed information"

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That last sentence is interesting. How I read it is that if you can make a reasonable estimation of medium term losses, say one to two years out, you can then extrapolate those losses forwards. You don't have to worry about guessing what will happen much further out than twelve months, as there will be no comeback if your longer term write off guesses are wrong.

People will still need to borrow to support new businesses in the future. Heartland will remain a 'go to' player in that lending space Of course there will be uncertainty going into a recession, but that is nothing new in this investment space. If you can't handle the uncertainty, then stick your investment dollars elsewhere. For me a modelled future gross dividend yield of 11% and an expected capital raise mitigates the uncertainty.

For those that have no idea what I am talking about perhaps reflect on the recent "Harmoney" result and ask yourself if there's anything harmonious about that.

I've been saying it for years...all this reckless unsecured lending will come back to bite them sooner or later...

Harmoney was a venture into peer to peer lending. Heartland have their fingers in many other 'frontier of finance' pies, and not all of those will leave a succulent taste in the mouth. My own modelling has Harmoney very likely a failure, but that doesn't mean Heartland shouldn't have tried. Indeed Harmoney kind of did work 'for a while'. I don't expect all of Heartland's toe dipping exercises like this to have come off and failure of Harmoney will not taint my view on the rest of Heartland. Heartland now has an exit route for their Harmoney shareholding via a mooted Harmoney IPO if they want to take it. So it shouldn't be a total loss.

SNOOPY

[winner69]

another down day .....nstill a while to the 21st so price probably close to a buck by the