HGH - Heartland Group Holdings

[Grimy]

Only a cent lower than a week ago.....

[value_investor]

My take on the results

- Solid results from first glance, interest income is going to continue generating cash into the future especially with interest rates going up, it also means that impairment will be going up. Interesting to see in 6 months how that looks, how many loans financed at low rates. Rates are going up in at least the next 3 announcements, so by the FY result its likely we'll see a hike up at a minimum 0.75% (all things remaining equal to now).

- The above can already be seen, if you go into note 4 asset impairment expense is up from $4.5m to $8.5m. Expect this to continue going up in the future, with rates increasing. I think that expected credit losses going forward, depending on the risk profile will creep up. Mostly a question of how much considering the general economy. Keeping in mind we are at record low unemployment and higher income tax takes than ever before indicating we are quite frothy from a liquidity stand point. See here https://www.interest.co.nz/public-po...t-extra-14-bln

- Dividends growing again at a steady pace, I think there is actually room to increase these again at the FY result considering the effects of Covid probably didn't present as much as we first thought. However, they chose to be prudent during those times and there could still be a flow on effect of that as mentioned above.

Overall, its a pretty solid result given the general market. I think we are seeing prices being suppressed on the back of it with everything else that is going on. Interest rate rises, Covid, Ukraine/Russia conflict. The outlook is still strong and could be a buy if it goes lower. Currently sitting at a PE of 14.5, which I would say given the industry is just above fair value. Anything sub $2.00 is a fantastic buy, and without the constraints mentioned its probably touching $3.00 with a cheeky guidance update between now and the FY result.

Disc: long term holder.

[alokdhir]

Brutal end to day eh …..jeez 233

Was just short term punters squaring in disappointment as didn't get the bounce as wanted ...it will be back around $ 2.40 mark or over before it goes ex

[Greekwatchdog]

For Bars Review.
UNDERPERFORM


HGH's 1H22 result was below our expectations with NPAT of NZ$47.1m lower than forecast NZ$49.5m, driven by softer than expected yields across its portfolio, generating a disappointing level of net interest income. Going forward we expect to see a modest slowdown in loan receivable growth given the introduction of the new CCCFA responsible lending regulations and anticipate some additional impairment pressure from rising rates and stimulus roll off. HGH has historically traded at an average -12% forward PE discount to its Australian banking peers, which we feel is appropriate given the considerable differences in scale, position in the market, competitive advantage and quality of assets. With HGH now trading at a material premium of +19% to these Australian banking peers, we reiterate our UNDERPERFORM rating. ​​​​​


link
NZX Code HGH
Share price NZ$2.35
Target price NZ$1.84 (from 1.95)
Risk rating High
Issued shares 574.3m
Market cap NZ$1,350m
Avg daily turnover 364.8k (NZ$774k)
link
Financials: Jun/ 21A 22E 23E 24E
NPAT* (NZ$m) 87.9 91.7 97.1 97.4
EPS* (NZc) 15.1 15.4 16.1 15.8
EPS growth* (%) 24.0 2.4 4.5 -1.8
DPS (NZc) 11.0 12.0 12.5 13.0
Imputation (%) 100 100 100 100
*Based on normalised profits
link
Valuation (x) 21A 22E 23E 24E
PE 15.6 15.2 14.6 14.8
EV/EBIT n/a n/a n/a n/a
EV/EBITDA n/a n/a n/a n/a
Price / NTA 2.0 1.3 1.1 1.0
Cash div yld (%) 4.7 5.1 5.3 5.5
Gross div yld (%) 6.5 7.1 7.4 7.7
What's changed?
Earnings: FY22 NPAT decreased -NZ$2m (2%) from NZ$94m to NZ$92m
Target price: Decreased -11cps (-6%) from NZ$1.95 to NZ$1.84 driven by 1) WACC changes, and 2) minor earnings revisions
Amortisation expense treated as non-recurring?
Following a 1H22 amortisation charge of NZ$3m vs NZ$7m in 1H21 we note that HGH's FY22 earnings (and guidance) will be inflated by removal of a one off amortisation charge of NZ$4.3m (accounted for as a one off exceptional item at FY21). Taking this into account and applying the FY22 NPAT guidance (reported) of NZ$93m–NZ$96m we believe the market will interpret the underlying range to be nearer NZ$90m–NZ$93m. Our underlying FY22 forecast NPAT decreases from NZ$94m to NZ$92m (the mid point of this range) given minor earnings revisions driven by recent regulatory changes and rising interest rates.


New lending rules a headwind for residential mortgage aspirations
Following changes to the Credit Contracts and Consumer Finance Act (CCCFA), from December 2021 the eligibility criteria on the affordability of credit has narrowed and lenders have been required to tighten lending criteria. We believe the impact will be felt most at the higher risk end of the market (historically HGH's share of the market, as shown by the RBNZ dashboard). This may be a significant headwind as HGH looks to break into the residential mortgage market and for future growth in its motor division.


The Deposit Takers Act — additional regulation to negotiate
The Deposit Takers Act, currently in draft format and indicatively scheduled to become law in 2023, creates a single regulatory regime for all deposit takers. It also introduces the Depositor Compensation Scheme, covering losses of up to NZ$100k for each depositor. The scheme will be overseen by the RBNZ and funded by all deposit takers, including HGH. Whilst the indicative cost to HGH is yet to be confirmed, the Act highlights the complex and costly regulatory environment in which HGH continues to operate in.

[percy]

https://sendy.tarawera.co.nz/l/J6oLV...CU892yqqSvQrLQ

[X-men]

Never trust frosty crook....

[850man]

This isn't helping either - from this article below (paywalled) "The decline rate for Heartland Bank's vehicle lending has tripled since the Government tightened consumer credit laws, its chief executive Chris Flood says.And the company is having to use four times as many employees to process its loans with approval times for a standard car loan increasing from 20 minutes to two hours."

https://www.nzherald.co.nz/business/...R7HJTBWWAUDF4/

[winner69]

Chris Flood has a lot to say - hates spending more to do less

Bank boss: Decline rate for motor vehicle loans has increased three-fold after credit law change

https://www.nzherald.co.nz/business/...R7HJTBWWAUDF4/

[winner69]

Beagle won't agree with this but from Forbar ..... but then again it's Forbar after all

HGH has historically traded at an average -12% forward PE discount to its Australian banking peers, which we feel is appropriate given the considerable differences in scale, position in the market, competitive advantage and quality of assets. With HGH now trading at a material premium of +19% to these Australian banking peers, we reiterate our UNDERPERFORM rating. ​​​​​

[Ggcc]

Chris Flood has a lot to say - hates spending more to do less

Bank boss: Decline rate for motor vehicle loans has increased three-fold after credit law change

https://www.nzherald.co.nz/business/...R7HJTBWWAUDF4/

And from a large local dealer I spoke with, they all moved to Oxford to get stuff done quicker than the banks. This was only short term as the banks will adapt eventually.