HGH - Heartland Group Holdings

[percy]

Jarden says 16cents?

I hope they are right....lol.
Not like them to be so wrong.

[Muse]

Jarden says 16cents?

last one i saw from them was ~12cent something

the brokers all do their forecasts on the business as it is, not with the acquisition (as not information available to have a sensible crack at it). If they get the license and can acquire challenger, the question becomes how do the fund the acquisition & any growth capital required. That'll probably require a capital raise and I'd imagine canning the interim dividend is a discussion point at the board meeting

[Rawz]

Sorry I should clarify. The jarden dash board says historic dividend is 16 cents.

Anyways, canning the interim dividend.. mum and dad won’t like that

[percy]

Sorry I should clarify. The jarden dash board says historic dividend is 16 cents.

Anyways, canning the interim dividend.. mum and dad won’t like that

Off course they will not as they only received 11.5 cents...lol
FY2023 final dividend of 6.0 cents per share (cps), resulting in a FY2023 total dividend of 11.5 cps, up 0.5 cps on the FY2022 total dividend.

[clearasmud]

If FY24 EPS only 13.2 how will they pay a 16 cent dividend?

10c if we're lucky.

[Greekwatchdog]

For Bar Review

Heartland Group (HGH) downgraded its FY24 underlying NPAT guidance -20% at the midpoint, a mix of short-term operational headwinds, costs relating to the purchase of Challenger Bank and additional provisioning. The negative 2023 September quarter New Zealand GDP print, released the same day as the guidance downgrade, underscores the risks for HGH in the face of a weakening consumer environment. Material potential upside remains in the form of lowering Australian borrowing costs when HGH completes its acquisition of Challenger Bank, though the uncertain path for the NZ consumer over the coming months leads us to maintain our NEUTRAL rating with a target price of NZ$1.70.

What's changed?

• Earnings: FY24 lowered to within new guidance range, later years decreased due to lower forecast receivable growth
• Target price: Lowered -15cps (-8%) to NZ$1.70.

NPAT downgrade a mixture of one-offs and ongoing challenges


New FY24 guidance is for underlying NPAT of between NZ$93m to NZ$97m compared to prior guidance of NZ$116m to NZ$122m. The key changes are: 1) the introduction of a NZ$11.5m provision linked to low quality legacy loans in the Motor and Asset Finance divisions, 2) a NZ$8m to NZ$10m negative impact from NIM compression and lower than expected receivable growth, and 3) -NZ$3.5m of expected operational losses from three months owning Challenger Bank. There is an additional -NZ$2.1m (after-tax) of one-off transaction costs relating to the Challenger Bank acquisition.

Modest lending rate increases and competitive deposit market squeezing NIM


HGH's conservative policy on hiking lending rates and increased competition in the deposit market, with competitors no longer having access to the RBNZ's Funding for Lending programme, is hurting its NIM. HGH has limited increases in its lending rates, particularly in its Reserve Mortgage and Livestock divisions, despite upwards pressure from rising deposit rates. NIM is also being suppressed by a decrease in churn in lower rate Motor loans. We forecast NIM to bottom in FY25 before rising as rates moderate.

Completion of Challenger Bank the key focus, timeline pushed back to March 2024


HGH's near-term priority remains the completion of the acquisition of Challenger Bank Australia. HGH had been hoping to receive regulatory approval before the end of 2023. It is taking longer than anticipated and the company is now targeting the end of 1Q CY24. The purchase would grant HGH a deposit takers license in Australia, enabling it to replace higher cost wholesale financing. How quickly HGH is able to lower its cost of funding then depends on the pace it can build its deposit book. HGH expects Challenger Bank to contribute a net NPAT loss of -NZ$3.5m in FY24 but breakeven in FY25.


Downgrade summary

1. Operational challenges (-NZ$8m–$10m NPAT impact): HGH has experienced a slowdown in receivable growth, particularly in the Motor and Australian Livestock divisions. The slowdown in Motor is linked to generally lower levels of consumer demand for vehicles and a delay in the purchase of vehicles due to the imminent reversal of the Clean Car Feebate scheme by the new coalition government in NZ. The low level of growth in Australian Livestock is due to adverse weather impacts. HGH has also experienced pressure on its NIM from a combination of higher deposit costs and its cautious approach when raising lending rates.
2. Legacy loan provisioning (-NZ$11.5m): The NZ$11.5m provision is split between Motor (NZ$7.5m) and Asset Finance (NZ$4.0m). HGH has a lower level of confidence in the collectability of legacy loans in this division. These loans pre-date HGH’s shift to improve the quality of its loan book. Overall HGH’s FY24 YTD annualised impairment expense is 0.35%, consistent with our forecast.
3. Challenger Bank acquisition (-NZ$3.5m): HGH expects to complete its acquisition of Challenger Bank by 31 March 2024. Challenger Bank is currently loss making and forecast to decrease HGH’s NPAT by -NZ$3.5m in FY24, though it is expected to move to breakeven in FY25. In addition, one-off transaction costs incurred in FY24 are expected to amount to -NZ$2.1m.

Earnings revisions

Changes to FY24 earnings are material, though the one-off impacts of the economic provision and Challenger Bank acquisition costs do not flow through to future periods. We modestly reduce earnings expectations in future years due to the softer than expected receivable growth in the Motor and Australian Livestock books, as well as a lower NIM expectation.

inancials: Jun/	23A	24E	25E	26E
Rev (NZ$m)	n/a	n/a	n/a	n/a
NPAT* (NZ$m)	95.9	95.1	124.9	143.0
EPS* (NZc)	13.5	13.2	17.2	19.4
DPS (NZc)	11.5	11.5	12.0	12.5
Imputation (%)	100	100	100	100

*Based on normalised profits

[Rawz]

the above is why I will never ever bother with a DCF model. Big fat waste of time. Always need 'adjusting' even by the paid professionals that spend all day pouring over data to come up with the future numbers. The reality is nobody really knows. Not even management who provide guidance based on what they see happening in the business to the second...

[winner69]

Jeff often reminds us that Heartlands fortunes to a large extent depends on how the economy is going and employment

Nicola Willis painted a gloomy economic picture today …….but worse they don’t seem to have any real plans as how to fix it.

Treasury forecasts Re employment are pretty dire ..and they were prepared before last weeks poor GDP print They say -

- Unemployment has increased and expected to now hit 5.2%
- Wage growth is slowing

That's not good news for Heartland

Share price sliding once Willis started talking …..and closed at 148 ….ouch

[alokdhir]

Simple question for our experts ....Is HGH now a SELL ? If not then whats its fair value at present ? still $ 2.10 or below ?

Next year EPS as per guidance and new equity is 16.3 Cents ...so basically flat !!

Thats when it was very clear to all ...get out ...many like me did 23rd August 2022 ...its SP still struggling and its becoming so clear that its in trouble that previous hardened supporters have become foes ...lol W69

[Valuegrowth]

Once this was a hot thread. I was thinking about buying some stocks of this NZ bank. Fortunately, I didn’t buy after reading 6 books on few value investors. I learnt one important thing from them. “Buy stocks when they are out of favour”. In the current environment I would like to buy hidden gems, strong balance sheet firms and future turnaround opportunities if they come under my criteria. I think HGH can have some kind of turnaround in 2026. I’m going to keep it under my radar.

Jeff often reminds us that Heartlands fortunes to a large extent depends on how the economy is going and employment

Nicola Willis painted a gloomy economic picture today …….but worse they don’t seem to have any real plans as how to fix it.

Treasury forecasts Re employment are pretty dire ..and they were prepared before last weeks poor GDP print They say -

- Unemployment has increased and expected to now hit 5.2%
- Wage growth is slowing

That's not good news for Heartland

Share price sliding once Willis started talking …..and closed at 148 ….ouch