Some might say its share price since 2017 has tarded in the 150/200 range with the odd spurt outside this range
I see the share price in a steady up trend (10 years plus) with the occasional bursts of 'irrational selling' and exuberant buying.
The slope of the dotted line is the equivalent to 12% pa .... and for traders there has been a couple of very big swings from low to highs .... and there's a few on this thread how have sold close to those 2017 and 2021 highs and bought at the 2020 lows
Might see share price over 2 bucks early next year?
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
Thanks W69,and FM for your interesting observations.
Therefore:
$50,000 invested in a bond 10 years ago you would have received yearly interest, and your $50,000 would still be intact.
$50,000 invested in HGH shares 10 years ago you would have received yearly interest, and your $50,000 would have grown to $166,000.
And the difference works out to $11,600 per year,or over 10 years $116,000.Incredible.
"Always better to own the bank than have money in the bank"..lol
Some might say its share price since 2017 has tarded in the 150/200 range with the odd spurt outside this range
I see the share price in a steady up trend (10 years plus) with the occasional bursts of 'irrational selling' and exuberant buying.
The slope of the dotted line is the equivalent to 12% pa .... and for traders there has been a couple of very big swings from low to highs .... and there's a few on this thread how have sold close to those 2017 and 2021 highs and bought at the 2020 lows
Might see share price over 2 bucks early next year?
Great chart ... and yes, certainly a good time to buy for investors who prefer to buy low and sell dear ;
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"Prediction is very difficult, especially about the future" (Niels Bohr)
The time to buy HGH is when it is really really cheap - like 56c when I bought my first lot. That was a oncer however due to the GFC.
Getting the feeling we will get that opportunity to buy cheap again in the next 12 months.
As usual ... it depends.
Anybody who wants to have them in their portfolio can start buying now ... and sure, given that they are currently in a confirmed downtrend it might be a good idea to buy not all of them immediately, but spread the purchase somewhat out. Pretty sure that in a couple of years from now holders will be rather happy with the price they payed today.
Anybody who just wants to pick bottoms can happily wait until the confirmed bottom passed and then focus on the next bottom to miss.
Any trader probably would wait for some indicators flashing ... and yes, this is not now.
Will it go back to 56 cents? I don't know ... didn't predicted OCA at 40 cents (2.5 years ago) either, and I recon nobody else did. Just because a share was at some stage unreasonable cheap does not mean it will get there again.
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"Prediction is very difficult, especially about the future" (Niels Bohr)
All Oz bank stocks (except ANZ) were down last month. Contrary to what some think I don't think the cap raise is the main reason For HGH share price decline - mainly just following the market
Ona Price/Book basis HGH still one of the higher valued stocks relative to OZ banks ... and above the average if you exclude CBA
I get slightly different multiples to you - I think its important when talking about multiples to reference what date they relate to (IE, HGH has a 30 june year end and its FY22 year now complete, whereas ANZ, NAB, & WBC all run September YE's, and BOQ run august - none of which are finished yet and final BV's aren't available. But I presume you are referencing either the most recent YE for the 30 June YE's and the forecast P/B's for the one's who haven't release.
I disagree somewhat for the reason's behind the depreciation in HGH's share price. In my view, approximately 40% is due to a deterioration in market sentiment, and 60% due to very near term (next 12 months) deterioration in returns on equity.
In mid March 2022 I ran a screen on Australasian bank returns on equity, PE, and price to book multiples (calanderised one year forward), hyperlinked here: Attachment 14206
My new screen (based on closing prices from last Friday, and calendarised to 30 June 2023) are here: Attachment 14207
Between these two screens the average depreciation in comparable company ("CompCo") share price has been 11.4%, vs HGH's 19.8% decline (by way of reference, the last time I ran this screen was at $2.07 for HGH, which I thought was too high, let alone when it spiked much higher).
So what changed? Well, after the StockCo acquisition was announced the market was conditioned to expect it wound be funded by debt and thus EPS accretive. The actual result was the company would wholly fund it with equity, and in fact raise more capital than required for the purchase price alone to pad out growth capital reserves to grow it (and/or address some near term bond maturities). It's also my view that, in the absence of a competitive market or ignoring StockCos growth potential, HGH may have paid too much for it, which is proving to be dilutive in the short term. HGH ended it's FY22 year with ROE of 11.8%. But it likewise purchase StockCo for total consideration (totally equity funded) of ~$172m, producing an NPAT a full year proforma NPAT of $9.4m, or an implied return on equity of 5.5%. Whats more, the capital raised $198.6m or about $27m more than necessary to complete on the acquisition of StockCo, reducing ROEs.
Excluding the StockCo purchase, HGH actually beat its consensus ROE forecast for FY22, for a variety of reasons. But given the nature of the funding of StockCo, FY22's ROE of 11.8% is forecast to decline to 10.6% in FY23.
Why do I keep harping on about ROE? Because a books return on equity is singularly the most driver of valuation metrics for any bank or financial institutional group (FIG). The correlation between ROE and price to book is about the highest of any valuation correlation you will find any industry, and it that correlation in fact tightened since the last time I ran my screen. The "holy trinity" of bank valuation metrics consists of price to book, PE, and divy yield - but most are simply outcomes of the ROE produced by a book. Any regression analysis would show that the change in the share price of a bank/FIG set as the independent variable, together with dependent variables including ROE, yield, or PE, would time and again show ROE to have the highest correlation and lowest standard error, and thus the important driver to total shareholder returns. From my perspective, if someone wants to forecast their total future shareholder return, they are better to focus on ROE and how that will change over time, rather than look at the current yield, price to book, or PE, which are more often than not just outputs rather than drivers to total shareholder returns.
All this said, StockCo is not low growth company, and it was not an uncontested process. Heartland believe they can TRIPPLE the size of Stockco's book in 3 years, with sufficient funding They also believe they can improve cost of funding in australia by acquiring Avenue Bank and access lower cost deposit funds, thus dramatically decreasing cost of funds and improving returns on equity, all the while growing the book extremely fast. If reality is anywhere near projection, over the long term, this is a very good acquisition, but it will take years before it is realised in the share price.
In the short-medium term it's a bit much for the market to read through, let alone price on a sensible basis (the market is not a spreedsheet particularly during periods of sentiment volatility), thus market has focused on the short term dilution and diminution in ROE. and, ignoring all change in sentiment and geopolitical risk, that could happen again, when Avenue bank is acquired.
In the long term I think the move heartland is making is actually value accretive, but the market is punishing for that, and its being compounded by what is happening in the markets. So its sensible to layer a bit of TA to the fundamental analysis. The FA suggests its a good hold, the TA suggests do not buy (or watch your sell signals if you are a trader)...but if you have excess capital to deploy, and are patient and watch the TA but remain focused on the fundamentals, there could be some exceptional long term opportunities ahead as the stock becomes oversold.
None the less - and after a painful rebalancing - Heartland is screening quite well against its comparables. Relative to the line of best fit (the red line in my scatter plots), it is on the cheaper side of all three metrics. It's P/B and PE. relative to its ROE, are below the trend line. It's dividend yield relative to its ROE is above the trend line, which is a good thing. But its taken a painful realignment to result in this equilibrium.
That said - I have some strong views on how its ROE will evolve relative to its peers, as well as its growth in receivables, and when it will unfold. That won't matter to its share price for a while, and I'll be keeping that to myself and a few others for the time being.
Thanks FM for your post! Gosh we are lucky to have you contributing in such detail!! I’d give you a rep but the computer says no.
The buying opportunity coming out of this downturn is going to amazing. Can buy in at low P/B and ride it out until it returns to long run avg. then you are hinting at expanding ROE which should translate to a higher P/B multiple. omg we are going to get catch up growth, actual growth and then expanding multiple growth. The triple crown. All the while collecting a handsome divvy.
Just need to time the entry and hope this bear doesn’t maul us. Wonder if these credit suisse bank failure rumors will scare punters off banks? It really shouldn’t affect HGH.
Agree ROE and P/B are key metrics (more so than PE) for banks.
I’ve seen some interesting discussions around whether a bank can have a too high ROE, generally resulting from high leverage.
Heartland ROE 12% …pretax 17%. One commentator commentator said the answer to a question ‘have I got an investment for you, 17% return year after year ..interested? the answer in many cases would be ‘no, what’s the catch …….just too good to be true…sounds risky as’
Last edited by winner69; 03-10-2022 at 09:22 AM.
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
Households were increasingly falling behind on their car loans, with the proportion of accounts in arrears rising for the fifth consecutive month to 4.8 per cent - which is the highest level in nearly two years.
Not sure whether HGH has still a car loan book, but I recon for the sorts of TRA is this a concerning development - and I suspect that consumers taking credit just to pay their debts are not better payers than consumers needing a loan to buy a car.
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"Prediction is very difficult, especially about the future" (Niels Bohr)
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Originally Posted by winner69
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