HGH - Heartland Group Holdings

[luigi]

http://www.interest.co.nz/business/6...nz-governor-an

Does anyone see ICBC competing in Heartland's space or (more likely) just funding commercial property development?

[fiasco]

You would think that Heartlands target demographic are perceived to be different than ICBC, but I could be wrong. I would have thought reaching more rural areas is more up HNZ's alley way.

[vorno]

I suppose they expect expatriate Chinese to flock for their services as well as commercial opportunities.
I do not see them influencing Heartland's space. More opinions?

[luigi]

Main area of competition would be SMB finance rather than rural.

[percy]

Heartland have always stated they are "niche" market operators,and they do not want to compete head on with the large banks.
I therefore think they will be operating in different parts of the financial market.
From what I read of the announcement ICBC appear to be looking at Auckland waterfront development.

[vorno]

Saw an opportunity to top up this morning - 85c

[vorno]

Finally got all my shares at 84cps yesterday.

A good price. I thought there were too many wanting them at .84 & that they would go up.

[percy]

There is a very good presentation given by HNZ's Michael Jonas at NZX Emerging & Mid Cap Companies Conference.
To find the link I went to thread NZSX50 Good News ,post 1320,where Harvey Specter gave the link.

[luigi]

Link here: https://www.youtube.com/watch?v=x8_eCTsNU_0

[Snoopy]

There is an interesting article in the "Press" Business Day section today; C21 - A Brokers View. The article by Grant Davies was looking at Westpac and ANZ Banks. Although these two banks operate in different markets to Heartland the thing that caught my attention is the 15.3% return on equity for ANZ and 16% for Westpac.

For this financial year, HNZ is forecasting a profit of between $34 - 37m. By my calculations, the $34m bottom range projection equates to a 10% return on shareholder equity (88cps) which is about 9c per share. On say a pe of 12, this would give a share price of $1.08. Looking into the future, a return of 15% without any increase in equity but keeping the pe @ 12 would put the share price at $1.62. In reality the price should be higher with a re-rated pe and a higher NTA due to growth in assets and retention of earnings.

Good discussion here on ROE, but I think some of you Heartlanders see ANZ on a pedestal that is higher than it should be. From a bankers perspective the amount available to loan is tied to the amount of 'tier' capital available to be loaned against. In the case of Heartland 'Tier Capital' and shareholders equity are one and the same thing. But the ANZ and the other big banks have other sources of 'Tier capital' not available to Heartland.

Perusing my latest ANZ report (from 2012) page 58 lists total shareholders equity as $41.22 billion.

Now go over to page 117 and you will $752m of US trust securities (currently also Tier 1 capital) and three issues of ANZ convertible preference shares adding up to $5,114m (I believe these currently rank as Tier 2 capital). Perpetual subordinated notes of $953m add more tier 2 capital.

Below that is a list of more subordinated notes. Those maturing five years into the future can be fully regarded as more tier 2 capital amounting to $5,265m. Those maturing in four years time ($582m) need to be discounted 20% to arrive at yet more tier 2 capital of $466m.

(Note 20% discount factor from Reserve Bank capital adequacy notes as they apply to a four year time horizon loan)

As at 30th June 2012 ANZ has $5,114m + $5,265m + $466m = $11.046b of Tier 2 capital. That is less than 50% of the available Tier 1 capital ($41,220m + 752m = $41.972b).

So all of that tier 2 capital is available to be borrowed against.

Summing up all the Tier 1 and Tier 2 capital then, ANZ has $53.018b of Tier 1 and Tier 2 capital to back up their loans.

For FY2012 the ROE based on end of year shareholders equity is:

$6,011m/$41.220m = 14.6%

(Note: Normalised ANZ profit of $6,011m comes from p5 of AR2012)

But if you do the same calculation on tier 1 and tier 2 capital, the Return on 'backing capital' is a rather lower.

$6,011m/$53,018m = 11.3%

That is close to the 10% ROE that Heartland is projected to achieve for FY2013.

In addition to this Heartland in common with all other banks will be facing the new Basel III capital conservation buffer (CCB) requirements that will increase the backup equity required to be held on the balance sheet significantly.

Even assuming all those doubtful Heartland property loans on the books coming good (no more capital destroying provisions for bad debts) , the picture that emerges here is irrefutable. Heartland has a very fully stretched balance sheet as everything stands now. There is very little room for growth beyond FY2013 with such a constrained capital base

SNOOPY