HGH - Heartland Group Holdings

[Bjauck]

You’re right about Aussie farmers culling their cattle in record numbers and dumping it into the market.
That creates a lot of immediate pressure on farmers in NZ that could be requiring dome bridging funding.

The Aussie farmers will be requiring support from 2024 onwards.

Rural life is particularly tough in Oz. They seem to bear the brunt of the vagaries of climate. Although entertainment*, there was a great program “Rain Shadow” which gives you a glimpse of rural SA through the lens of a young vet.
https://www.youtube.com/watch?v=QR7jiYMTBaY

*The entertainment was a bit gritty as well. It only lasted for one season.

[winner69]

Only mentioned StockCo because they’ve become a decent chunk of Heartlands earnings …like in FY23 StockCo profit before tax $23m out of $134m fir the Group

[Snoopy]

You’re right about Aussie farmers culling their cattle in record numbers and dumping it into the market.
That creates a lot of immediate pressure on farmers in NZ that could be requiring dome bridging funding.

I am a bit behind on modern agricultural construction, obviously. But that 'dome bridge' does sound like it is capital intensive. I am imagining a large dome that cows and sheep can walk over the top of, while there is simultaneously a 'cool space' underneath. A modern version of a shelter belt that we used to have before all the trees were cut down. But with better utilisation of space given that you could grow grass on top of the dome as well as below. Probably more suitable for Australian conditions where they have less shelter belt trees to start with and more money.

After reading the counterpoints to my last post (16808) I am trying to construct a more 'zoom out' view of the situation. Ultimately it is the weather that provides the growing conditions, favourable or not, for stock feed. For an individual farmer, it is best if they have lots of rain and warmth, while all the neighbouring farms are dry and dusty. Thus the farmer over the fence has to sell off their stock cheaply at low body weights, because they are unable to feed them. Meanwhile our 'green paddock' farmer is fattening up her animals, ready for the end of the season when there is less stock left to process. That means she will be offered top dollar per kilo, but also benefit from having more kilos to sell. A double win on both price and quantity. The question is can financing via Stockco, or their ilk, change this picture for those less lucky farmers?

The first point to realise is that during a drought there is less feed available in total, something that can only be fixed by importing more supplementary feed from outside the province or country. A shortage of supplementary feed for sale will mean that the price of that will go up. So our dry farmer is being squeezed from both sides with higher feed costs and lower prices for animals. Whether they can overcome this depends on how good a farmer they are, with the phrase 'good' also encompassing how 'well capitalised' they are. The problem with NZ farmers is that when they become well capitalised, they tend to look over the fence and eye up buying the neighbours farm. That little exercise, debt funded, allows them to slip back into the less well capitalised farming community company. Maybe this is less so in Australia where some farms in the outback are the size of small countries? I don't know.

Step 1 for StockCo would be to identify those 'good farmers'. But how would they do that (and I am not talking about just looking at a balance sheet here)? This is where a rural supplies company doing finance has a huge advantage as they know their customers well. But how does a pure finance company like StockCo know their farmers? I know that in New Zealand the Heartland owned rural finance company took so long to approve livestock loans, they could not compete. Is a similar thing likely to happen in Australia with StockCo as farming conditions deteriorate?

The Aussie farmers will be requiring support from 2024 onwards.

But StockCo will be unable to provide it? Why all this negative thinking on StockCo? Are you all saying that StockCo is doomed? Why wasn't I paying attention when HGH acquired StockCo!?!

SNOOPY

discl: Worried shareholder now!

[iceman]

I am a bit behind on modern agricultural construction, obviously. But that 'dome bridge' does sound like it is capital intensive.


But StockCo will be unable to provide it? Why all this negative thinking on StockCo? Are you all saying that StockCo is doomed? Why wasn't I paying attention when HGH acquired StockCo!?!

SNOOPY

discl: Worried shareholder now!

I'm sorry my spelling mistake (dome instead of some) has confused you that much. I hope you recover quickly.
Nothing in my comment about Aussie farmers dumping beef into the markets this year was "negative thinking on Stock Co". Not sure where you get that from !

[Rawz]

Haha I thought the dome bridge with grass on top and shade on the bottom was real!! I’m disappointed now

[Snoopy]

Haha I thought the dome bridge with grass on top and shade on the bottom was real!! I’m disappointed now

Well it could be real. It certainly sounded like a good idea when iceman mentioned it. Actually it would be extra useful in Iceland as the cattle could get under that dome in times of volcanic fall out. But since iceman has seemingly distanced himself and gone cold on the idea, perhaps you and I should go into business Rawz? Do I admit to a bit of Chindogu influence at the concept design stage? Well maybe just a little......

SNOOPY

[winner69]

Big Deloittes Top 200 Awards dinner tonight ……everybody dressed up in their best gear etc etc

Finalists in the 2degrees Best Growth Strategy section are

Heartland
Comvita
Scales Corp

Jeez, tough call …who’ll get the bragging rights

[Sideshow Bob]

https://www.nzx.com/announcements/423497

Heartland FY2024 performance update (based on unaudited results to 30 November 2023)

Heartland Group Holdings Limited (Heartland) (NZX/ASX: HGH) has achieved YTD Receivables growth of 4.7% , with Australian and New Zealand Reverse Mortgages notably achieving YTD growth of 20.4% and 17.8%, respectively. Despite this, Heartland has experienced a slower than expected start to the financial year ending 30 June 2024 (FY2024). This is due to:

• a decrease in the purchase of new cars, with motor consumers expected to defer purchases until the 2024 calendar year due to expected policy changes
• adverse Australian climactic conditions continuing to impact livestock purchases and
• later than expected repayments of lower yielding loans and a tighter deposit market delaying net interest margin (NIM) recovery.

A stronger second half of FY2024 (2H2024) is expected, particularly as the anticipated backlog of stalled car purchases clears, and through the impact of now more favourable climactic conditions in Australia. Heartland continues to expect NIM to improve in calendar year 2025 as the deposit market eases and lower yielding loans are repaid.

Heartland has gone through a process of revising its FY2024 net profit after tax (NPAT) guidance to reflect the following:

• short-term operational performance challenges – which have an impact of $8 million to $10 million
• Heartland Bank Limited’s (Heartland Bank) proactive response to issues affecting a subset of legacy lending via a post-COVID-19 overlay, a non-cash item – which has an impact of $11.5 million, and
• the expected FY2024 impact on underlying NPAT related to the acquisition of Challenger Bank Limited (Challenger Bank) , positioning Heartland for its next stage of growth (Challenger Bank NPAT) – which has an impact of A$3.5 million.

Heartland now expects NPAT to be in the range of $93 million to $97 million, excluding any impacts of fair value changes on equity investments held and the impact of the de-designation of derivatives. Excluding the impact of the (non-cash) post-COVID-19 overlay and Challenger Bank NPAT, the range is $108 million to $112 million, reflecting Heartland’s underlying operational performance. The guidance range was previously $116 million to $122 million, excluding any impacts of fair value changes on equity investments held, the impact of the de-designation of derivatives, and any costs related to the acquisition of Challenger Bank.
 
Operational performance

Motor Finance

Pre-election announcements to repeal the clean car discount scheme, and the consequent removal of internal combustion engine taxes on new vehicles from 31 December 2023, is believed to have caused consumers to delay new vehicle buying decisions until the 2024 calendar year. Despite this, Motor Finance Receivables increased 8.1% and stronger Motor Finance performance is expected in 2H2024 as vehicle purchases increase.

Australian Livestock Finance

Livestock prices continued to fall in the first five months of FY2024 due to adverse weather conditions and drought concerns. Many producers destocked or consolidated debt from selling livestock at lower rates, while others retained livestock for longer periods to gain weight and recoup value. The resulting impact has seen growth challenges and compressed NIM for Heartland’s Australian Livestock Finance portfolio.

Heartland expects these issues to dissipate in 2H2024, with good recent rain fall across the eastern states and the chance of prolonged drought now reduced. Livestock prices are up 35% in recent weeks and, given grass growth, a strong start in calendar year 2024 is expected.

Net interest margin

Heartland Bank’s lower NIM Motor Finance and Asset Finance loans are rolling off, but these are taking longer to repay than anticipated as borrowers hold assets for longer in the current economic environment.

Rising interest rates in New Zealand and Australia have created a more challenging environment in which to manage margins. Heartland intentionally delayed passing the full impact of these increases onto some borrower customers, specifically in the case of New Zealand Reverse Mortgages and Australian Livestock Finance. While this did not maximise potential NIM, it was considered the socially responsible and more sustainable approach.

In addition, heightened competition is being seen in the deposit market, impacting Heartland Bank’s cost of funds. Heartland Bank expects this to continue through calendar year 2024 as participants in the Funding for Lending Programme replace this funding with deposit funding.

NIM improvement is anticipated in calendar year 2025 as the deposit market eases and low yielding Motor Finance and Asset Finance loans are repaid.
Post-COVID-19 overlay
Overall, Heartland Bank’s asset quality, credit origination standards and capital and liquidity positions remain strong. There is a good pipeline across its four core lending portfolios (Reverse Mortgages, Motor Finance, Asset Finance and Livestock Finance) and portfolio composition continues to shift towards lower risk exposures.
However, Heartland Bank has determined it appropriate to proactively respond to issues affecting a subset of legacy lending described below via a post-COVID-19 overlay of $16 million (pre-tax) which, whilst required out of prudence, may not be utilised in full.

• Legacy Business and Relationship lending – Economic conditions have impacted on these older Legacy Business and Relationship loans in segments of the market to which Heartland Bank no longer lends, decreasing confidence in their collectability. In response to this, Heartland Bank has conservatively taken a $5.5 million overlay.
• Longer standing Motor Finance loans – As post-COVID-19 economic conditions have become more challenging for borrowers, a subset of arrears has emerged in longer standing Motor Finance loans, which pre-date Heartland Bank’s shift to higher quality assets. Post-COVID-19 staff turnover, illness and a focus on the core system upgrade (which is now complete) in Heartland Bank’s Collections & Recoveries area have resulted in collection efforts being constrained. These challenges are being actively resolved, but coupled with the passage of time, confidence in the collectability of these arrears has been eroded and Heartland Bank considers it appropriate to take a $10.5 million overlay.

Overall, impairments continue to perform within expectations with a YTD impairment expense ratio (annualised impairment expense as a percentage of average Receivables) of 0.35% (1H2023: 0.29%). In respect of the Motor Finance portfolio, loans originated in the 2023 calendar year are performing better than prior years.
Strategic update – Challenger Bank acquisition

Over the last decade, Heartland has built a significant Australian business lending to parts of the market which are traditionally underserved. In Australia, Heartland is the leading provider of reverse mortgages and, through its 2022 acquisition of StockCo, is a leading specialist provider of livestock finance.

To support continued growth in Australia, Heartland Bank is seeking to acquire Challenger Bank, an Australian Deposit Taking Institution (ADI). The acquisition, which remains subject to regulatory approval, will be a significant milestone for Heartland, making Heartland Bank the first New Zealand registered bank to acquire an ADI.

When FY2024 guidance was provided, it excluded any costs related to the acquisition of Challenger Bank. As the acquisition nears completion, it is appropriate that guidance is updated to reflect the impact of Challenger Bank becoming part of Heartland. The impact to underlying NPAT for FY2024 is expected to be a net loss of A$3.5 million, reflecting underlying NPAT of Challenger Bank. This is expected to transition quickly to a profit-making position as material deposit raising occurs.
An additional A$3 million (pre-tax) of transaction related costs are expected to be expensed in FY2024 which are one-off, non-recurring in nature and do not impact underlying performance.

Looking forward

A stronger 2H2024 than the first half of FY2024 is expected as overall performance continues to demonstrate the resilience of Heartland’s portfolios and ‘best or only’ product strategy.

While the regulatory approval process continues, Heartland is hopeful that the Challenger Bank acquisition will be completed by 31 March 2024 – positioning Heartland well for its next stage of growth. Heartland will provide a further update to the market in due course.
– ENDS –

[Rawz]

wow.. im a bit shocked

[bull....]

no surprise to me. been warning for a while nim declining going forward , economic conditions would hurt them as well. same happening in aus with smaller outfits like hgh.

still think there being optimistic looking ahead to next yr when rate increases are still tightening conditions more in nz.