HGH - Heartland Group Holdings

[Snoopy]

In the second to last paragraph, why did he use net yield when for the two other banks he used gross yield. A 9% yield is good and slightly higher than the other banks to reflect the higher risk.

NZ investors cannot access Australian franking credits. So in a general sense the 'gross yield' available to NZ investors holding an Australian share is equivalent to the 'net yield quoted in Australia. Over the last year both ANZ and Westpac have muddied this picture a little. Because they make good profits in New Zealand, they generate NZ imputation credits and at last those credits are being passed on to NZ investors. However the imputation credits are small compared to the Australian franking credits generated on the same profit. So as a 'rule of thumb' it is still more correct to compare the net yield from an Australian newspaper perspective on an Australian company with the gross yield quoted in NZ newspapers for a New Zealand company, from an NZ domiciled investor perspective.

IMO Hunter, in the SST article, should have talked about the Australian net yield verses the NZ gross yield, because as NZ taxpayers, that is what NZ residents should be interested in.

Disc: hold and considering buying more. Now it is closer to NTA, the value play has reduced and it is becoming a growth stock with a good dividend.

Are you not mixing up a rise in share price with a change in value play CJ?

If you recall PGW, it rose up into the mid 40c range, before crashing back to below 30c. The rise in PGW share price from 30c to 45c had no fundamental backing. It was a pure speculative bubble. The same could easily be happening to HNZ right now. We won't know until all the 30th June financial figures are published. And you may gather from this I am not talking about profit which is almost irrelevant to the ongoing financial viability of banks. If HNZ is in a speculative bubble the value play still exists, but the market may be mis-pricing the share, temporarily hiding the still existing value play from those in the market today.

The fact that HNZ is now trading closer to NTA (I would argue it is now trading above NTA when the as yet undisclosed next round of property write downs happen) means the market has already assumed that there will not be any more serious repercussions from property write downs. This may or may not be the case. The only real indicator will be published with the full accounts, when we can see the risk classification of all HNZ loans. But I do agree CJ that there is no value in assuming that all the loans are OK.

If the value 'on market' has disappeared, the point I agree with you on CJ, I don't think it follows that the company is therefore in growth mode. It could equally well bobble along with a shrinking loan book, as per last year, for many years into the future as the poor loans are exited. Looked at another way, if the loan book grows by 5% via new loans and an equal gross value of bad loans are exited in the same year, net 'growth' in HNZ is zero. With a bad loan book HNZ will have to run extra hard just to achieve minimal growth.

SNOOPY

[Snoopy]

Alas, this is "pub economics", Snoopy, and is only superficially true when one uses very long moving averages (5 years or more). I-rates move by central bankers to inflate or deflate economies are very, very blunt weapons.

True Belg. I should add that I was speaking from the perspective of a long term investor, an investor that holds the share for long enough so that reserve bank action on interest rates does trickle through. A trader with a shorter term perspective might rightly ignore Mr Wheeler.

SNOOPY

[Snoopy]

And in response to Snoopy:

1. Naturally, but we are not talking about the market. Rather, those who have been supportive of Heartland as an investment have done so on two major counts, firstly that HNZ trades at a discount to NTA, which is 89/90c. Secondly that HNZ has forecast significant earnings growth in 2014.

Fair point

2. I am not sure that's as profound as you allege. Heartland is avoiding land and property financing, and is focusing on the cashflow positive assets in a business, like livestock, new car purchases or farm equipment. Wheeler is aiming to dampen demand in property, so while there will be some flow on from rises in interest rates, I wouldn't see interest rate rises directly affecting combine harvester purchasing, though perhaps some indirect effects. The global price of milk might be more influential, for example.

Heartland may be avoiding new property financing, but do they not have a legacy exposure for example through the Canterbury based building societies that they absorbed?

3. I am comfortable that Heartland have sufficiently accounted for most if not all of the non-core property asset (NCPA) write downs. They were quite thorough in their announcement on 5 June, which announced effectively a triage of their NCPA portfolio, being a) assets they are happy to hold until they get an offer of interest, b) assets they want to ready for quick sale and c) loan assets which they want to convert into real estate and sell over the medium term.

Heartland has not outlined the impairments allocated for each property in their NCPA register for commercially sensitive reasons, but would note that Central Otago (Lakes District) property prices rose between 11-15% in 2012 (depending on the endpoint), which suggests some enthusiasm returning to the district.

http://www.scoop.co.nz/stories/BU130...n-auckland.htm
http://www.globalpropertyguide.com/P.../Price-History

Heartland have a plan to deal with their difficult property assets in Central Otago which is good. But that doesn't mean the cost of executing that plan will not be significant. IIRC they have already exhausted their provisions for bad debts on the books. So any further land write down will hit the books this year just finished, with perhaps more next year and the year after....

Nevertheless, I respect your decision to wait until you have more certainty, though again I urge you to contact Heartland directly to seek comfort on your concerns.

Heartland would not be allowed to release any market sensitive information to me, and not the wider market. I imagine the sensitivity of those difficult loans is being gone through in Heartland back offices right now. All will be revealed when those annual results are published. Only a few weeks to wait. I am prepared to wait in the same line as everybody else.

SNOOPY

[CJ]

Snoopy - your point on gross v net was exactly what I mean - incompetent reporting in my view.

Re value play, I have made the assumption that the NTA is correct and therefor I bought 90c of assets for 70c. The recent write downs were hopefully aggressive making the NTA realistic - I accept your view that this is unknown till the assets are disposed.The value gap is narrowing and will soon be within the margin of error in relation to the estimates they made for the write down.

As a small new bank, it is obviously a growth play. Sure it is higher risk than the big banks but a gross 9% yield reflects that.

Therefore a value play, with growth potential and a good yield.

[percy]

From Direct broking site.No idea if they are correct or not.
. NTA Share price
HNZ 90 cents 83 cents
WBC A$10.71 A$29.11
NAB A$14.03 A$29.94
ANZ A$12.56 A$28.72
So CJ you have plenty of value on your side.A fast growing bank, paying a superior imputated dividend.Wise investing.

[percy]

We must also be aware of very strong headwinds that the Australian banks face,which Heartland are unaffected by;
Decline in resource sector is leading Australia into a recession.Growing unemployment, questionable housing values.Car manufacturing and all other manufacturing facing increasing challenges.Retail sector going backwards.The Australian banks also face problems with wholesale funding,and will need to face up to NZ Reserve Bank requirements for more capital.

[mouse]

Looking at all the comments today, and yesterday, I have a suspicion that the weather is pretty bad over NZ.
I wonder when it will improve. Can the weather affect the sharemarket?

[mouse]

two forecasts for $0.82 and $0.90 in 12 months with 6% dividend today. calling for shorts on the aussie banks as recession threatens and heartland looks set to weather any downturn while the big ones suffer. good time to hold and earn some well deserved divvies for thos who bought under $0.50!

Heartland has to drop in price if shares in the aussie banks go down. Its a sort of Lemming activity. Since the sector, banking, is under pressure.

[noodles]

Heartland has to drop in price if shares in the aussie banks go down. Its a sort of Lemming activity. Since the sector, banking, is under pressure.

Are you sure? Correlation seems to have broken down a couple of months ago.

https://www.google.com/finance?chdnp...UbjdPMiKlAWdRw

[janner]

. good time to hold and earn some well deserved divvies for thos who bought under $0.50!

Have been adding all the way up.. Will continue to add.. It is still a good time to buy IMHO....