HGH - Heartland Group Holdings

[Rawz]

You can't be serious that comments on here materially affected the share price. The market was very well aware HGH had a very serious level of exposure to the embattled dairy sector at the time and was reacting rationally to a very real risk of huge financial losses. Heartland took the risk to carry farmers through the crisis and in my view they were lucky to get away with it. My analysis shows Heartland badly underperformed the NZX50 during the dairy crisis...I suppose a lot depends upon what start and end dates you use to define this ill defined crisis. Fortunately these days the percentage of exposure to this sector is much lower relative to their expanding balance sheet.
Agree with your other points and I am very pleased to see their level of exposure to unsecured lending being dialed right back.
For the purposes of my own analysis I have already written off the value of their stake in Harmoney.

Oh my giddy aunt. You reckon HMY going bust?

[Beagle]

Oh my giddy aunt. You reckon HMY going bust?

Its not a business model I believe in. Algo's are completely unproven in a deep recession (unsupported by rampant central bank Covid support). Remember what happened to almost all finance company unsecured lending in the GFC ? How many dozens of finance companies went under ?...forgive me I've lost count / can't remember exactly, think it was more than 40 from vague memory. Geneva finance one of only a handful of survivors, (lucky Beagle clan dodged a bullet there, we had more than a few quid in them), and to this day, 15 years later they still have unused tax losses carried forward. Remember Handover, opps sorry, Hanover finance advertisements ? Richard Long extoling the virtues of them and saying they had "the strength to withstand any financial conditions", can I have a Tui to go with that LOL

Maybe Harmoney is a company targeting a new generation of investors who weren't investing back in the GFC ?
I would take a guess many of the current generation of investors chasing the Kathy Wood Ark investment style tech companies on the Nasdaq weren't around in the dot com bust 20 years ago.

[Rawz]

Its not a business model I believe in. Algo's are completely unproven in a deep recession (unsupported by rampant central bank Covid support). Remember what happened to almost all finance company unsecured lending in the GFC ? How many dozens of finance companies went under...forgive me I've lost count can't remember exactly, think it was more than 40 from vague memory. Geneva finance one of only a handful of survivors and to this day, 15 years later they still have unused tax losses carried forward.

If that tier 2 or 3 lender Geneva survived HMY should be just fine.

I wasnt that economically aware during GFC times but my understanding was all those finance companies that went into liquidation were involved in very very risky property lending and building resorts on Fiji etc?

Southern Cross, CBS Canterbury and MARAC survived as well

[Beagle]

If that tier 2 or 3 lender Geneva survived HMY should be just fine.

I wasnt that economically aware during GFC times but my understanding was all those finance companies that went into liquidation were involved in very very risky property lending and building resorts on Fiji etc?

Southern Cross, CBS Canterbury and MARAC survived as well

Geneva finance survived by the skin of their teeth and considerable multi year forbearance from the Bank of Scotland and several other private investors. There was all sorts of reckless finance company lending and misrepresentations to investors going on back then.
Of course Harmoney will tell you this time with their very special software programs and IT systems its different. Good luck with that but for me at 9 p.m. its definitely time for that Tui.

[Muse]

You can't be serious that comments on here materially affected the share price. The market was very well aware HGH had a very serious level of exposure to the embattled dairy sector at the time and was reacting rationally to a very real risk of huge financial losses. Heartland took the risk to carry farmers through the crisis and in my view they were lucky to get away with it. My analysis shows Heartland badly underperformed the NZX50 during the dairy crisis...I suppose a lot depends upon what start and end dates you use to define this ill defined crisis. Fortunately these days the percentage of exposure to this sector is much lower relative to their expanding balance sheet.
Agree with your other points and I am very pleased to see their level of exposure to unsecured lending being dialed right back.
For the purposes of my own analysis I have already written off the value of their stake in Harmoney.

I think its disingenuous to say HGH took a cavalier risk & attempted to carry farmers through the milk price downturn in hopes to "get away with it." The reality was then that their lending was concentrated on land & PPE, and not sharemilkers, which was the story being spruiked at the time.

Your "write-off" of HGH's stake in harmoney, equates to 1.5 cents per share on a mark to market basis (8.518m HMY shares, multiplied by $1.07 SP, equals $9.1m, divided by 592.9m HGH shares on issue). Doesn't seem like you have done much work on it, as despite all your fear mongering on this specific point, heartland's exposure to HMY is in rapid run off, and its stake in HMY is valued at only 1.5374 cents per HGH share. Doesn't seem like anything to get worked up over, even if one took your view on unsecured lending. so let's call it what it is - down ramping.

[Beagle]

Agree to disagree, no interest in relitigating the issue even if some more established posters on here seem incapable of letting it go. I'm not super proud of how dogmatic I was with the issue but you obviously don't know that I've apologized for that already years ago. If some people on here can't let that go after all these years, frankly that's their problem.

I'm well aware Harmoney is a very small part of their book. Its not hard to crunch the numbers even on my rusty old abacus LOL. All banks get put under the pump in a recession. Notice earlier how the link I posted to the YTD 21% reduction in the US bank index broadly reflects the reduction in HGH's share price this year ? Some US banks are already on a PE of 9. I still have some HGH shares. They go down to a PE of 9 in times of real trouble and are a great buy then.

Have a look at my very emphatic post in November 2020 when they were on that metric and I called them a great buy @ $1.30 and backed the truck and trailer up. They could easily go back to the same PE (about $1.53 based on forecast FY23 earnings), or maybe they stabilise around this level, and weather the coming recession okay...who knows, only time will tell. What is not in dispute is that the vast majority of banks are now firmly established in a bearish downtrend. In my experience buying into a confirmed downtrend with no TA support signals almost invariably gives more financial pain in the short term....an experience I have a fresh reminder of in respect to recent GNE purchases...silly old me.

[Rawz]

Geneva finance survived by the skin of their teeth and considerable multi year forbearance from the Bank of Scotland and several other private investors. There was all sorts of reckless lending and misrepresentations to investors going on back then.
Of course Harmoney will tell you this time with their very special software programs and IT systems its different. Good luck with that but for me at 9 p.m. its definitely time for that Tui.

HMY actually showed the market a wee bit about how their credit risk committee thinks- during 2nd qrt 2020 they basically shut up shop and stopped lending. Ultra conservative move. HGH and others carried on lending (correct move with hindsight).

Anyways- lets hope the Bank of Heartland doesnt become Harmoney's Bank of Scotland with the above said situation

[Beagle]

HMY actually showed the market a wee bit about how their credit risk committee thinks- during 2nd qrt 2020 they basically shut up shop and stopped lending. Ultra conservative move. HGH and others carried on lending (correct move with hindsight).

Anyways- lets hope the Bank of Heartland doesnt become Harmoney's Bank of Scotland with the above said situation

I sincerely hope not but that's certainly a potentially much more significantly sized fly in the ointment than the value of their ownership stake.

[Bjauck]

HMY actually showed the market a wee bit about how their credit risk committee thinks- during 2nd qrt 2020 they basically shut up shop and stopped lending. Ultra conservative move. HGH and others carried on lending (correct move with hindsight).

Anyways- lets hope the Bank of Heartland doesnt become Harmoney's Bank of Scotland with the above said situation

I am not certain now but I think, compared to Heartland, Harmoney's lending is still generally in a more risky market segment.

Although Harmoney is no longer P2P, the volume of new loans through the P2P Platforms such as Squirrel and Lending Crowd also dropped during the early Covid era. This may also have been because investors on those platforms took fright and started withdrawing their free balances from perceived "risky" P2P platforms, and deposited the proceeds in loans with greater security or in bank accounts.

https://www.squirrel.co.nz/blogs/fin...-2-of-lockdown

[Muse]

I am not certain but I think, compared to Heartland, Harmoney's lending is generally in a more risky market segment.

Although Harmoney is no longer P2P, the volume of new loans through the P2P Platforms such as Squirrel and Lending Crowd also dropped during the early Covid era. This may also have been because investors on those platforms took fright and started withdrawing their free balances from perceived "risky" P2P platforms, and deposited the proceeds in bank accounts.

https://www.squirrel.co.nz/blogs/fin...-2-of-lockdown

P2P lending does incur higher levels of incurred credit losses and provisions for future credit losses, although it tended to charge higher interest rates to attempt to compensate for that risk. None the less, p2p, for hmy at least, proved to be an inferior model to tradational warehouse and securitised lending, at the all important net lending margin line (interest income, less interest expense, less incurred credit loss). And a bit moot specific to HMY as they never held the lending on balance sheet, as it was done via trusts, and they were a service provider, not an actual lender. it proved very difficult to make money out of facilitating (as a service provider) p2p loans, as a lot of it was tide to originations and minimal if no tail on the lending itself.

Credit stats vary significant from p2p (oldco) to warehouse to securitisation (newco). thats for & covered on a different thread.

Specific to Heartland, they do still have a small exposure to p2p receivables, but is being repaid rapidly. HGH made sounds a year or so ago about expanding lending to HMY's warehouse/securitised on balance sheet business, but unclear where that is at. Sharing for interest some PM's I've had on HGH exposure to HMY.

QUESTION: I didnt know HGH didnt have a wholesale facility into HMY..?
But now that i think about it- could have meant it was p2p stuff. Which must be almost all repaid by now

they definitely have a facility but initially at least they were lending through HMY's p2p business. A lot of hmy's initial p2p / off balance sheet lending was funded by instos, some who specialised in p2p, as well as individuals. I actually dont understand how that works, how can an insto be considered p2p??? but the characteristics were the lending was in trust and off balance sheet from a HMY financial perspective. HMY stopped writing off balance sheet / p2p loans and those are running off. HGH FY21 receivables via harmoney was down 37%, and then at half year it more or less haved vs the pcp. the lending they were doing via hmy looked very profitable (at least at a NIM level, dunno about NLM) so must have been p2p

I forget when it was, perhaps in the FY21 result, hgh made noises that it was working to offer HMY an on balance sheet lending facility to support its transition to an on balance sheet/warehouse business. I didn't see any update from HGH in their 1H FY22 about it or other press articles, and given how fast its receivables declined in the 1H FY22 I just assumed it hasn't been completed yet.

hmy announce from time to time they got another warehouse provider but they are always cagy about saying who it is, so we cant be sure one of those was actually HGH. the last one they announced in february was one of the aussie big 4