HGH - Heartland Group Holdings

[Snoopy]

let's use this 80% reinvestment rate as a rule of thumb and see how the cash deficit looks over the next year:

Expected Cash Reinvested = ( 0.8*0.8*0.8*0.8*$452.201m + 0.8*0.8*$859.386 + 0.8*$387.333 )
= $185.221 + $550.007 + $309.866 = $1045.094m

That takes care of the $780.094m projected cash deficit. But is the 80% retention rate really realistic?

The best answer to my question is to stress test my assumptions and assume only a 60% reinvestment rate.

Expected Cash Reinvested = ( 0.6*0.6*0.6*0.6*$452.201m + 0.6*0.6*$859.386m + 0.6*$387.333m )
= $58.605m + $309.379m + $232.400m = $600.384m

That leaves us with a $180m shortfall on the $780m projected cash deficit. That could be covered by the $240m in undrawn bank loans. But I doubt if a company of Heartland's size could cope with an undrawn bank ceiling of only $60m. I would guess a significant cash issue to shareholders might be required under this scenario.

SNOOPY

[macduffy]

[QUOTE=Snoopy;425208]In the light of no-one else offering an explanation, yours is the most plausible Macduffy. Did you see this note on the two securitsed trusts in the outlook statement?

"(3) Heartland Trust and CBS Canterbury Charitable Trust were deconsolidated on 1 July 2012."

What does it mean?


I assume that it means that the accounts of the two trusts were removed/extracted from HNZ's consolidated accounts. Without knowing the circumstances here I would think that control of the trusts has been removed from HNZ, possibly to put them onto an independent footing. Closer followers of HNZ would have a better idea of the reason?

[Snoopy]

Snoopy write:In the light of no-one else offering an explanation, yours is the most plausible Macduffy. Did you see this note on the two securitsed trusts in the outlook statement?

"(3) Heartland Trust and CBS Canterbury Charitable Trust were deconsolidated on 1 July 2012."

What does it mean?

-------
I assume that it means that the accounts of the two trusts were removed/extracted from HNZ's consolidated accounts. Without knowing the circumstances here I would think that control of the trusts has been removed from HNZ, possibly to put them onto an independent footing. Closer followers of HNZ would have a better idea of the reason?

I wonder if the deconsolidation is prelude to winding up these trusts when they become due for repayment early in 2014?

SNOOPY

[Snow Leopard]

Note 38 refers to the forecast cashflows over selected future time periods, assuming no new deposits taken in or lending. When they produced an unfavourable picture you suggested that the no new deposits scenario was not realistic...

Did you read ALL of Note 38?

Snoopy I realise that you are determined to prove that Heartland is a risky investment and yes there does exist the possibility that circumstances arise that stress HNZ to the point where shareholders (and depositors) take a hit, but if your take a more even approach I am sure that you will better improve your financial analysis skills.

Best Wishes
Paper Tiger

[Snoopy]

Snoopy I realise that you are determined to prove that Heartland is a risky investment and yes there does exist the possibility that circumstances arise that stress HNZ to the point where shareholders (and depositors) take a hit, but if your take a more even approach I am sure that you will better improve your financial analysis skills.

Best Wishes
Paper Tiger

I am not determined to prove anything about HNZ Paper Tiger. Indeed as of last week, I don't even have an indirect interest in HNZ, now that the company I do hold shares in, PGW, has sold down their HNZ holding. So I have no interest at all in what happens to HNZ as of right now because I am completely out of it. What I do know is that five years ago many investors in finance companies lost a huge amount on the property market and that in turn wrecked the fortunes of most debenture holders and shareholders of the finance companies in NZ. I also know that outside of Auckland there has been no underlying improvement in lending risk to the residential property market since those days. So any company that has a large amount of their loan portfolio tied into property should be treated with a large degree of skepticism.

What I am interested in finding out is whether this years HNZ results can justify the hype, just as I would stress test any of my potential investments. I made the decision not to make an investment in HNZ last year because of the lack of clarity with the bad property portfolio. This turned out to be a good decision because despite the special vehicle property writedowns at HNZ, the gross extent of the 'monitor +' loans has hardly changed. The provision for bad debts has gone up though, and that will at least cushion the headline profit figure of any future writedowns. As to whether HNZ is a good investment from here going forwards, well that is what I am currently finding out.

SNOOPY

[Snoopy]

Did you read ALL of Note 38?

What you are suggesting is that I use the Expected Maturity Profile of Financial Assets and Liabilities, not the Contractual Liquidity Profile of Assets and Liabilities? Well my Contractual Liability Profile with certain reinvestment assumptions should be somewhere near the 'Expected Liability Profile', but let's see.

From note 38, HNZ Expected Cash Reinvested (12 month forward view) = $4.522m + $342.029m + $231.600m = $805.229

Compare that with the figures I calculated of $1,045.494 ( 80% reinvestment rate ) or $600.384m ( 60% reinvestment rate ). Since the actual figure is in the middle of my guesses, one might conclude that the actual reinvestment rate of debentures that are due within one year is somewhere near 70% (likely closer to 75%) . Of course that is simplifying a lot of data. But is nevertheless a useful insight of the overall debenture reinvestment rate at Heartland.

SNOOPY

[winner69]

Would the pretty charts on Slide 13 of their results presentation help you Snoopy?

[Snoopy]

Of course that is simplifying a lot of data. But is nevertheless a useful insight of the overall debenture reinvestment rate at Heartland.

Back to note 38.

Next job is to look at the difference in the contracted 'finance receivables' and the expected 'finance receivables' over the next twelve months. That should give a measure of the new (or re-signed up) business that Heartland is expecting over the next twelve months.

Contracted: 0 + $562.696m + $283.289m = $845.985m

Expected: 0 + $520.198m + $421.900m = $942.098m

So Heartland is planning to sign up some $100m of new short term loans over the year. Interesting.

SNOOPY

[Snoopy]

Would the pretty charts on Slide 13 of their results presentation help you Snoopy?

Thanks for pointing that out Winner. Yes interesting information there, although those graphical answers do not directly address the specific questions that I am asking.

What is with slide 15? It shows the retail deposit book building up steadily until a sudden trend reversal in May 2013. Why after so many months of growth are retail deposits going down?

SNOOPY

[winner69]

Thanks for pointing that out Winner. Yes interesting information there, although those graphical answers do not directly address the specific questions that I am asking.

What is with slide 15? It shows the retail deposit book building up steadily until a sudden trend reversal in May 2013. Why after so many months of growth are retail deposits going down?

SNOOPY

I noticed that the other day but didn't want to upset Percy et al by pointing it out.

Could be shareholders not taking up the special rates ..... No not that

Maybe Coop Bank is the preferred small BANK for NZ depositors ....never never so not that

Maybe part of the overall downsizing strategy?

Interesting chart though .... Reasonable dip though ....but one needs proper glasses to see it ...not the rose tinted ones