HGH - Heartland Group Holdings

[percy]

Good on ya mate.

I burst out of my kennel this morning with another buy order. With you and both Beagles leading the hunt what could possibly go wrong lol

In a word "plenty"....lol.

[Norwest]

Snoopy, in your bottom two tables FY19 and FY20 data is exactly the same, is that a mistake?

[Snoopy]

Snoopy, in your bottom two tables FY19 and FY20 data is exactly the same, is that a mistake?

Look right at the bottom of the post and you will see the rider 'work in progress'. You will also see that at the time you wrote your message I have not signed it. Those are my two indicators that the post is not finished. A post like this takes a while to compile.

SNOOPY

[Beagle]

While the other Beagle is extremely busy barking loud and very long I have been extremely busy biting over and over again...chunks of shares off the sellers. I wonder which will be the more profitable approach lol

My rating for HGH is BBB+ (Beagle Busy buying)

[Snoopy]

While the other Beagle is extremely busy barking loud and very long I have been extremely busy biting over and over again...chunks of shares off the sellers. I wonder which will be the more profitable approach lol

My rating for HGH is BBB+ (Beagle Busy buying)

Almost up to $0.5m in HGH shares bought on the market today Beagle. You don't do things in half measures do you?

You are happy with Heartland's lack of liquidity disclosure and the complete secrecy of Covid-19 adjustment specifics (which admittedly I just noticed myself this morning) to keep 'receivables shuffling activity' away from the eyes of the pesky shareholder then? (my post 13809)

SNOOPY

[Beagle]

Almost up to $0.5m in HGH shares bought on the market today Beagle. You don't do things in half measures do you?

You are happy with Heartland's lack of liquidity disclosure and the complete secrecy of Covid-19 adjustment specifics (which admittedly I just noticed myself this morning) to keep 'receivables shuffling activity' away from the eyes of the pesky shareholder then? (my post 13809)

SNOOPY

Good for you mate. I won't talk specific numbers other than to say I think the value is there in spades and have acted accordingly.
I leave you to do the digging on this one mate, my paws are tired from digging elsewhere. A certain amount of faith is required with this provisioning stuff...as I have said many times, provisioning is really just a best guess based on all known information and then smoothed out so that senior executives get their annual bonus's

[Snoopy]

Industry Group Risk

From AR2019 note 22, the greatest 'business group' risk in dollar terms is agriculture, with $741.947m worth of assets. This represents an increase of just $0.281m over the previous year.

$741.947m/ $4,845.570m = 15.3% of all loans

While the size of the agricultural portfolio has barely changed, this significant percentage decrease of the total is due to many more reverse mortgage loans and finance and insurance loans being written.

Indeed reverse mortgage loans, for the first time, are being declared separately as an asset class. $1,318.819m of Reverse Mortgages are declared on the HGH balance sheet. Subsidiary 'Heartland Bank' declares $561.211m of NZ based Reverse Mortgages on the books. That means we can find the size of Heartland's Australian Reverse Mortgage book by simple subtraction:

$1,318.819m - $561.211m = $757.608m

This means that 'Australian Reverse Equity Mortgages' (Aussie REM), if you regard that as a credible loan category, can be thought of as the largest category of 'Account Receivables'

$757.608m/ $4,845.570m = 15.6% of all loans



Regional Risk

From AR2019 note 22, the greatest regional area of credit risk in dollar terms is 'Rest of the North Island' , with $1,214.744m worth of assets. This represents:

$1,214.744.m/ $4,845.570m = 25.1% of all loans

The 'Rest of North Island' loans (which excludes Auckland and Wellington) have risen 8.1% in numerical terms over the year for the second year in a row. (Auckland still covers 23.3% of all loans).

The multi-year picture is shown below:

	2012	2013	2014	2015	2016	2017	2018	2019
Largest Regional Market	Auckland (30%)	Auckland (30%)	Auckland (25%)	Auckland (26%)	Rest of NI (25%)	Rest of NI (26%)	Rest of NI (26%)	Rest of NI (25%)
Largest Industry Group Market	Agriculture (24%)	Agriculture (21%)	Agriculture (16%)	Agriculture (17%)	Agriculture (18%)	Agriculture (19%)	Agriculture (17%)	Aussie REM (16%)

Overall Heartland looks less risky than at any time in its history from a 'Customer Concentration Test' perspective.

Industry Group Risk

From AR2020, the The Australian and New Zealand Standard Industrial Classification (ANZSIC) codes have been used as the basis for categorising customer industry sectors. This means that some of the previously classified loans have been reallocated to different loan categories. This means that what is declared as the same loan category from FY2020 onwards may contain slightly different building blocks to what is ostensibly the same loan category from previous years.

From AR2020 note 22, the greatest 'business group' risk in dollar terms is agriculture, with $625.141m worth of receivables assets. This represents an decrease of $63.948m, or 9.3%, over the restated figure for the previous year. This reduction is primarily driven by a stated intent to gradually reduce the quantum of what are termed 'rural relationship' loans over time.

$625.141m/ $5,211.442m = 12.0% of all loans

Reverse mortgage loans are declared on the balance sheet as a separate asset class within the larger category of 'Households Loans'. $1,538.585m of Reverse Mortgages are declared on the HGH balance sheet. Subsidiary 'Heartland Bank' declares $609.346m of NZ based Reverse Mortgages on the books. That means we can find the size of Heartland's Australian Reverse Mortgage book by simple subtraction:

$1,538.585m - $609.346m = $929.239m

This means that 'Australian Reverse Equity Mortgages' (Aussie REM), if you regard that as a credible loan category on its own, can be thought of as the largest category of 'Account Receivables'

$929.239m/ $5,211.442m = 17.8% of all loans


Regional Risk

From AR2020, Heartland only reports on two regions, 'Australia' and 'New Zealand'. This means information on more targeted regional risk is no longer available, so we cannot readily compare regional risk across previous periods.

From AR2020 note 22, the greatest regional area of credit risk in dollar terms is 'New Zealand', with $3,855.199m worth of assets. This represents:

$3,855.199.m/ $5,211.442m = 74.0% of all loans

Note that the 'Rest of North Island' region in the table below is all the North Island, excluding Auckland and Wellington.

The multi-year picture is tabled below:

	2016	2017	2018	2019	2020
Largest Regional Market	Rest of NI (25%)	Rest of NI (26%)	Rest of NI (26%)	Rest of NI (25%)	New Zealand (74%)
Largest Industry Group Market	Agriculture (18%)	Agriculture (19%)	Agriculture (17%)	Aussie REM (16%)	Aussie REM (18%)

Overall Heartland looks to have a lower risk profile that usual from the last five years, judging solely from its 'Customer Concentration Test' perspective. However, with the stated intention to aggressively grow the reverse mortgage business in Australia, I am expecting the 'Customer Concentration Risk' to increase in future years.

SNOOPY

[winner69]

I'm starting to like this creative accounting thing of investing in equities and calling it a quasi bond. Seems to be working okay with GNE and HLG...what could possibly go wrong here lol

a view of a quite a few it seems

When investors start talking like this is it a modern day ‘shoeshine boy’ moment

Interest rates are low for a reason.

Such a strategy might be OK today but one day in the future one will need to quickly implement the good old ‘capital preservation’ plan

[Snoopy]

Updating this number for the full year FY2019 for 'Heartland Group Holdings'. The equity ratio is an assessment of the balance sheet risk of the total company, with all finance receivables and the supporting borrowings (whether they be from debenture holders or parent supporting banks) included.

Equity Ratio = (Total Equity)/(Total Assets)

Using numbers from the Heartland AR2019

= $675.668m/ $4,926.404m = 13.7%

The customer loan base (finance receivables) growth year on year (+9.1%) has in relative terms has reversed again and is now growing more rapidly that the company equity (+1.7%). This means the balance sheet has been made 'more stressed' over the year.

The historical picture of this ratio is tabulated below.

	FY2012	FY2013	FY2014	FY2015	FY2016	FY2017	FY2018	FY2019	Target
Equity Ratio	16.0%	14.6%	15.0%	14.3%	14.1%	14.1%	14.8%	13.7%	-

So Heartland is now more stressed, from an equity ratio perspective, than at any time in its history.

Updating this number for the full year FY2020 for 'Heartland Group Holdings'. The equity ratio is an assessment of the balance sheet risk of the total company, with all finance receivables and the supporting borrowings (whether they be from debenture holders or parent supporting banks) included.

Equity Ratio = (Total Equity)/(Total Assets)

Using numbers from the 'Heartland Group Holdings' AR2020

= $699.980m/ $5,318.536m = 13.2%

The customer loan base (finance receivables) growth year on year (+9.1%) is growing more rapidly that the company equity (+5.3%). This means the balance sheet has been made 'more stressed' over the year.

If I do the equivalent calculation for 'Heartland Bank'

Equity Ratio = (Total Equity)/(Total Assets)

Using numbers from the 'Heartland Bank' AR2020

= $597.037m/ $4,314.159m = 13.8%

The historical picture of these ratios is tabulated below.

	FY2016	FY2017	FY2018	FY2019	FY2020	Target
'Listed Heartland' Equity Ratio	14.1%	14.1%	14.8%	13.7%	13.2%	-
Heartland Bank Equity Ratio			14.8%	14.6%	13.8%	-

So the listed Heartland is now more stressed, from an equity ratio perspective, than at any time in its history. This isn't a total surprise. When all of Heartland's operations were included within 'Heartland Bank', RBNZ expressed concern about the Australian operations in particular having the potential to upset the risk balance of what was ostensibly a New Zealand bank. This is what precipitated a Heartland restructure with the separation of the Australian Reverse Mortgage business in particular from Heartland Bank. The listed entity you could buy on the market changed from 'Heartland Bank' to the new all enveloping 'Heartland Group Holdings'. The corporate restructure was completed in October 2018. This meant the consequential change in capital position was reflected in the reporting years of FY2019 onwards. Nevertheless, if all this restructuring is disregarded, even the now subsidiary 'Heartland Bank' is still in its weakest equity ratio position on record. This is not a problem yet, but the trend needs watching.

SNOOPY

[Beagle]

It’s a danger when long time sensible intellectual investors like Beagle start talking like this .....almost a modern day ‘shoeshine boy’ moment

Interest rates are low for a reason.

Such a strategy might be OK today but one day in the future one will need to quickly implement the good old ‘capital preservation’ plan

It was intended as a tongue in cheek post.