HGH - Heartland Group Holdings

[baller18]

Let me also say here that HNZ is the largest single investment I ever had in a publicly listed company and as such I have been through these accounts very carefully, if there is something dodgy I want to know about it, quick.


Is HNZ your largest holding tiger?

[Snoopy]

CJ.
Heartland have an agreement with Kiwi bank,where Heartland pass on home mortgages to them.[ I expect they collect a finders fee]
They see ample growth in the areas they want to be in.Home loans is not one of them.
That is not to say they willn't do home loans.
Your statement about them staying niche is right.

I have just reread Heartland profit announcement Percy, and remembered your 12th May post 1724 (quoted above).

"There was a $76.1m increase in the “core” business net finance receivables (Rural, Business and Consumer channels). However, due to a reduction in non-core assets of legacy Property and Retail Mortgages, net finance receivables reduced in total by $67.9m (from $2.1bn at 30 June 2012 to $2.0bn at 30 June 2013)." (my bold emphasis)

I knew that HNZ were quitting legacy property assets, but it had escaped me that they were quitting retail mortgages as well. But I guess your post suggesting retail mortgages were being passed on to Kiwibank with a finders fee is consistent with this. My previous impression was that Heartland were trying to get better balance in their loan book by going after seasonal financing, loaning more to business etc. I hadn't appreciated there was an active plan to exit retail mortgages. Is this still your understanding of Heartland's current outlook?

SNOOPY

[winner69]

Retail mortgages not a HERO product ..not niche enough

[Snoopy]

Let me also say here that HNZ is the largest single investment I ever had in a publicly listed company and as such I have been through these accounts very carefully, if there is something dodgy I want to know about it, quick.

I am happy with the risk/reward ratio they provide, and I am hoping for good long term capital appreciation and dividends.
However this is not a recommendation to invest, or not, without doing your own research.

My interest in Heartland is quite different. I have been a PGW shareholder, and as a consequence PGW finance shareholder, from as long ago as when they sold their 'first' finance division to Rabobank. Realising their mistake PGW created a new finance division which they then gave away to Heartland. As part of that gifting PGW took up a modest holding in Heartland shares. This then went south in value until the rebound over the last year that saw PGW sell out of Heartland at a modest profit.

This means that as of last week, or thereabouts, this is the first time I haven't had a direct or indirect interest in rural sector financing for a long time. My question then is should I perhaps sell some of my holding in existing 'finance' company, Turner's Auctions, and put that money into Heartland? One argument for that is that Heartland are trading near net asset backing and some see that as a good springboard from which Heartland can trade on higher price to NTA ratios as enjoyed by other finance companies and banks (the glass half full argument). The glass half empty argument is that Heartland are already performing at the level of other financial companies, and the relatively high NTA value that the company trades at is because some of those assets are overvalued on the books. Hence my fascination with digging into the quality of Heartland assets that are on the books.

For those who came in late, I hope this gives some context to my postings on Heartland.

SNOOPY

[Snoopy]

Snoopy and the Temple of the Doom?

You have $50M5 of impairments of which $41M5 is Corporate Property [FY2013 37(e)] you quest is complete.

That $41.512m of corporate property provision for impairment that is the large part of the sum of the grand total of $50.491m of the overall provision for impairment is management's assessment at balance sheet time of then current risks based on the then current state of the market.

$15.961m of that total figure can be read, from note 37d, as the provision for collectively impaired assets from the 'Judgement Portfolio' and $34.771m can be read, from note 37c as the impairment from the individually impaired asset portfolio. Those two figures add to $50.732m which is close enough to the previously declared total in 37e for me ($50.491m, note 37e).

For the 'Judgement Assets' the provisions are based on the assigned grade of the loan and done to a formula (except for grade 9 that for those loans are individually assessed). For individually assessed loans the classification process looks to be more 'yay' or 'nay'. My point in all this is that these impairments are variables. They may be captured at balance sheet time but an investor should not regard these figures as 'cast in stone'.

SNOOPY

[percy]

I have just reread Heartland profit announcement Percy, and remembered your 12th May post 1724 (quoted above).

"There was a $76.1m increase in the “core” business net finance receivables (Rural, Business and Consumer channels). However, due to a reduction in non-core assets of legacy Property and Retail Mortgages, net finance receivables reduced in total by $67.9m (from $2.1bn at 30 June 2012 to $2.0bn at 30 June 2013)." (my bold emphasis)

I knew that HNZ were quitting legacy property assets, but it had escaped me that they were quitting retail mortgages as well. But I guess your post suggesting retail mortgages were being passed on to Kiwibank with a finders fee is consistent with this. My previous impression was that Heartland were trying to get better balance in their loan book by going after seasonal financing, loaning more to business etc. I hadn't appreciated there was an active plan to exit retail mortgages. Is this still your understanding of Heartland's current outlook?

SNOOPY

Heartland see their future in areas the big banks are not concentrating on,so retail mortgages they are staying out of.[ie deal with Kiwi Bank].In an earlier post I stated the areas HNZ were concentrating.Livestock,seasonal.factoring are very short term lending.etc.
I have often said one should look at HNZ as a finance company with a banking licence.I think this is the correct way to view HNZ.
I too have TUA shares.Very pleaded with them too.My wife and I have 9 times as much invested in HNZ as we have in TUA.
So you can see where our money is.
We all laughed at HNZ achieving 4% ROE.Greenslade said at last agm they were aiming at 10% plus.I thought they would go from 4% 2013 to say 6.5% 2014 and 10% 2015,so I am very excited that they will achieve it [10%] a year early ie 2014 year ending 30/6/2014.
Heartland have a record of achieving what they set out to do.
To better understand HNZ one must attend the agm,to be held at Addington Raceway at 3pm on Friday 1st November.2013.
I received a lot of PMs thanking me for my posts after last years agm.The presntations are full and are excellent.Even more so when you can be certain they will do what they say they will.Last year I offered to take you to ths year's as I thought it would be in Ashburton again.With it being in ChCh I think you should attend.The business is being improved all the time,and you will get to understand how they are achieving such splendid results.

[percy]

SNOOPY;
Loan book balances ,funding.
First of all HNZ have no funding issues.None.Xerof explained this.
Do not look for issue here as there are none.
Changing balances in lending.This is and will continue to change as HNZ concentrate on more profitable niches.
What we will see is better ROE and EPS figures.
Property loans.Again HNZ have faced up to them.Making huge progress.Arguing over this is a waste of time. Whether they realise the $60mil at 30/6/2114 or $70mil or $50mil will alter the momentum not one bit.I am more interested if/when/ they are opening a Timaru office.I have not entered your discussions with Paper Tiger as you are wasting his and your own time.
What I will be looking to hear at the agm is what the target ROE will be for the year ended 30/6/2015. 12.5% 15 % ?????And what they feel the ROE will be in future years.

[Snoopy]

Heartland see their future in areas the big banks are not concentrating on,so retail mortgages they are staying out of.[ie deal with Kiwi Bank].In an earlier post I stated the areas HNZ were concentrating.Livestock,seasonal.factoring are very short term lending.etc.
I have often said one should look at HNZ as a finance company with a banking licence. I think this is the correct way to view HNZ.

I do find it ironic that now that Heartland have earned themselves the right to be called a bank, and aggregated other financial entities into a more balanced whole, the underlying entity is looking less and less like a bank and more like a finance company, as I believe you have correctly observed Percy!

SNOOPY

[percy]

I do find it ironic that now that Heartland have earned themselves the right to be called a bank, and aggregated other financial entities into a more balanced whole, the underlying entity is looking less and less like a bank and more like a finance company, as I believe you have correctly observed Percy!

SNOOPY

100% RIGHT there SNOOPY.

[Snoopy]

In an ideal world HNZ would have a Tier 1 Capital Ratio of greater 14.5% but 20% would be excessive.

At 30 Jun 13 HNZ was:
Tier 1 CR: 13.8% (min 12%)
Total CR: 13.8% (min 12%)

by comparison at 30 Jun 13 ANZ (NZ) was:
Tier 1 CR: 10.7% (min 6%)
Total CR: 12.4% (min 8%)

So although HNZ would breach it conditions earlier in a crunch it is as 'robust' as the next bank (ANZ).

Just starting to digest the very comprehensive Heartland Bank Disclosure Statement that Heartland released with their annual results. Perhaps more important than this are the underlying Reserve bank of New Zealand references on banking both drafted in the first half of FY2013

First there is the 'Connected Exposures Policy'

http://www.rbnz.govt.nz/regulation_a...ok/3272069.pdf

and the 'Capital Adequacy Framework'

http://www.rbnz.govt.nz/regulation_a...ok/3272068.pdf

SNOOPY