HGH - Heartland Group Holdings

[Rawz]

So this is trading 0.88x book value? So quite cheap now ?

[alokdhir]

HGH and KFL same price ....which better value now ? Maybe both ...HGH looks scary but ....

[ralph]

big volumes selling this week something smelly ?

How long before it gets to 1 $ Could be interesting then very Smelly H M Y could be a better option

[Muse]

big volumes selling this week something smelly ?

did you read that profit update? there was heaps to not like about it and has set off some heavy volumes this week which I can only imagine is an insto(s) selling down their position....2023 calendar year ave daily volume was about 300k - this week up to 816k. Some of the key things on the minds of many:

* Challenger expected to lose A$3.5m in the 3 month period from 31 March to 30 June 2024. This doesn't include expenses associated with the transaction. Mgmt say "This is expected to transition quickly to a profit-making position as material deposit raising occurs" but I think its fair to be weary on how long it will take to be efficiently & economically raising deposits in Australia in scale. What channel will they quickly raise deposits from? People know HGH in NZ - how are they going to attract depositors in Australia - I would have thought it would take time to build up brand awareness. The company is paying cold hard cash for a business that is presently deeply loss making. I don't think anyone realised what a loss making business this was and mgmt could have done a better job at communicating and taking shareholders along the journey, rather than surprising all with this. This will result in more goodwill being included on the balance sheet, and they already included a whack of goodwill after (in my view) overpaying for StockCo - so goodwill as a proportion of BV is increasing. Should probably be reflected in a lower price/bv multiple.

* The company has lost some credibility in my view regarding provisioning. In post #167222, I talked to how they used up $5.6m of the $8m economic overlay, and did not top it up (and hence why I regarded the FY23 result as a miss to their guidance), and how their provisioning as a % of gross receivables actually fell when one would normally have thought it'd go up with the macro backdrop. It's clear to me that they should have topped up their provisioning last year. and with a potential, and in my view, likely, equity raising coming to support the acquisition of challenger, it raises fair questions of have they provisioned enough, or are they trying to soften the blow in the lead up to the acquisition? I note the extra provisions this year relate to old/historic loans to auto retailers & motor book (nothing written in the last 5 years), so good to see its not happening on the new loans written after they changed lending mix, but still not a good look.

I think they have screwed the pouch a bit.

Had they just provisioned more at 30 June 2023, the market wouldn't have liked it, but it'd would have had time soak in and readjust & re-rate. Or at least include increased provisions in the initial FY24 guidance. They didn't do any of that & went ahead and issued quite bullish guidance and talked a big game of 5 year npat growth, only to have to backtrack on guidance very quickly. It looks naive at best, to me. That has unnerved the market, probably fairly so, and now the SP is tanking right at the time they will probably have to do a decent sized equity raising. It will in my view have to be at a pretty discounted level to get it done given sentiment. If its underwritten it will be quite expensive. And it'll be meaningful - the chit chat is $150-200m, when the marketcap is at about $915m as of today. Given the weak share price and potential size of the issue, it'll be well dilutive particularly for any of those who aren't in a position to take their pro rata. I also wouldn't be surprised to see the stock crash below its theoretical ex price or discounted raising price, like it did during the StockCo placement & rights issue.

So I think there are a few holders like me with that on their mind and thats really impacted sentiment.

I took a bit of risk management action back when I saw El Nino starting to hit the headlines and the share price was pretty strong so I'm thankful for that, but no where near enough. a little bit more after the announcement. I still hold and while I'm cognisant of what I just wrote I sorta can't be bothered to sell anymore as I do think its below its FMV and it'll rebound well after the overhangs are removed (ie, selling at / near the bottom of the cycle often not a wise thing to do), likewise I anticipate the SP to be in a rough patch particularly if an equity raising is required. I'm certainly not buying anymore at these levels, though if a rights issue is announced sorta wont feel like I have a choice given the potential dilution, or wait for as long as possible to see if cheaper to pick up on the secondary market if below the discounted issue price. I'd quite like to do the later. I suspect an insto or two is thinking the same thing.

anyway those are my random thoughts, as of this hour. certainly not advice on what to do or what will actually happen, just reasonably held suspicions on how things could play out.

& edit - as an aside - I do openly wonder if it would become in shareholders best interest for the Challenger acquisition not to proceed, simply as a result of the possible dilution. The AU RM acquisition was a great success. StockCo they overpaid for and I think a lot of their assumptions on its future financial performance have proved faulty (ie, stock lending is an industry where 'things happen' is normal and price should have reflected that). I know getting a banking license is incredibly tough and opens the door to a lot of low cost funding which they can refinance their entire australian business with, but they are effectively already paying for their own involvement (& future upside) by buying so far above book value, taking on all these meaningful transaction losses, absorbing Challengers losses for a period of time (a year?), and then raising extra regulatory capital and working capital to fund it all.

I hope the jr banker at Jarden or whatever investment bank that is giving them advice on transaction structuring and shareholder returns has enough real world experience to address all that stuff. but not hopeful.

[bull....]

did you read that profit update? there was heaps to not like about it and has set off some heavy volumes this week which I can only imagine is an insto(s) selling down their position....2023 calendar year ave daily volume was about 300k - this week up to 816k. Some of the key things on the minds of many:

* Challenger expected to lose A$3.5m in the 3 month period from 31 March to 30 June 2024. This doesn't include expenses associated with the transaction. Mgmt say "This is expected to transition quickly to a profit-making position as material deposit raising occurs" but I think its fair to be weary on how long it will take to be efficiently & economically raising deposits in Australia in scale. What channel will they quickly raise deposits from? People know HGH in NZ - how are they going to attract depositors in Australia - I would have thought it would take time to build up brand awareness. The company is paying cold hard cash for a business that is presently deeply loss making. I don't think anyone realised what a loss making business this was and mgmt could have done a better job at communicating and taking shareholders along the journey, rather than surprising all with this. This will result in more goodwill being included on the balance sheet, and they already included a whack of goodwill after (in my view) overpaying for StockCo - so goodwill as a proportion of BV is increasing. Should probably be reflected in a lower price/bv multiple.

* The company has lost some credibility in my view regarding provisioning. In post #167222, I talked to how they used up $5.6m of the $8m economic overlay, and did not top it up (and hence why I regarded the FY23 result as a miss to their guidance), and how their provisioning as a % of gross receivables actually fell when one would normally have thought it'd go up with the macro backdrop. It's clear to me that they should have topped up their provisioning last year. and with a potential, and in my view, likely, equity raising coming to support the acquisition of challenger, it raises fair questions of have they provisioned enough, or are they trying to soften the blow in the lead up to the acquisition? I note the extra provisions this year relate to old/historic loans to auto retailers & motor book (nothing written in the last 5 years), so good to see its not happening on the new loans written after they changed lending mix, but still not a good look.

I think they have screwed the pouch a bit.

Had they just provisioned more at 30 June 2023, the market wouldn't have liked it, but it'd would have had time soak in and readjust & re-rate. Or at least include increased provisions in the initial FY24 guidance. They didn't do any of that & went ahead and issued quite bullish guidance and talked a big game of 5 year npat growth, only to have to backtrack on guidance very quickly. It looks naive at best, to me. That has unnerved the market, probably fairly so, and now the SP is tanking right at the time they will probably have to do a decent sized equity raising. It will in my view have to be at a pretty discounted level to get it done given sentiment. If its underwritten it will be quite expensive. And it'll be meaningful - the chit chat is $150-200m, when the marketcap is at about $915m as of today. Given the weak share price and potential size of the issue, it'll be well dilutive particularly for any of those who aren't in a position to take their pro rata. I also wouldn't be surprised to see the stock crash below its theoretical ex price or discounted raising price, like it did during the StockCo placement & rights issue.

So I think there are a few holders like me with that on their mind and thats really impacted sentiment.

I took a bit of risk management action back when I saw El Nino starting to hit the headlines and the share price was pretty strong so I'm thankful for that, but no where near enough. a little bit more after the announcement. I still hold and while I'm cognisant of what I just wrote I sorta can't be bothered to sell anymore as I do think its below its FMV and it'll rebound well after the overhangs are removed (ie, selling at / near the bottom of the cycle often not a wise thing to do), likewise I anticipate the SP to be in a rough patch particularly if an equity raising is required. I'm certainly not buying anymore at these levels, though if a rights issue is announced sorta wont feel like I have a choice given the potential dilution, or wait for as long as possible to see if cheaper to pick up on the secondary market if below the discounted issue price. I'd quite like to do the later. I suspect an insto or two is thinking the same thing.

anyway those are my random thoughts, as of this hour. certainly not advice on what to do or what will actually happen, just reasonably held suspicions on how things could play out.

& edit - as an aside - I do openly wonder if it would become in shareholders best interest for the Challenger acquisition not to proceed, simply as a result of the possible dilution. The AU RM acquisition was a great success. StockCo they overpaid for and I think a lot of their assumptions on its future financial performance have proved faulty (ie, stock lending is an industry where 'things happen' is normal and price should have reflected that). I know getting a banking license is incredibly tough and opens the door to a lot of low cost funding which they can refinance their entire australian business with, but they are effectively already paying for their own involvement (& future upside) by buying so far above book value, taking on all these meaningful transaction losses, absorbing Challengers losses for a period of time (a year?), and then raising extra regulatory capital and working capital to fund it all.

I hope the jr banker at Jarden or whatever investment bank that is giving them advice on transaction structuring and shareholder returns has enough real world experience to address all that stuff. but not hopeful.

im thinking nim getting savaged along with the share price again today

[bull....]

How long before it gets to 1 $ Could be interesting then very Smelly H M Y could be a better option

$1 rapidly approaching

[Ggcc]

I haven't kept an eye on this for a while but what is the certainty of a capital raise and how much does everyone feel it is. I have spoken to a major shareholder who feels maybe up to $80,000,000 but no more than that. I would be keen to know everyones thoughts. I don't mind if they did a capital raise, but I would prefer no dividend rather than a capital raise. The major shareholder is family and he believes that dividends will still be here. He has no concern to the short term share price of HGH.

[ralph]

$1 rapidly approaching

Very rapidly after todays performance !!!!!

[Valuegrowth]

Very rapidly after todays performance !!!!!

World stocks indexes are hitting all time high, but many stocks have come down or have stagnated.

[X-men]

Because AnZ economist is predicting an interest hike this coming OCR. ....then others economists are saying no....

So.....see.....bullsheet game that some brokers play. I bet today will be a massive buying ....all the fundies are playing the game and buying low.