HGH - Heartland Group Holdings

[Harvey Specter]

Then you will ensure 越来越好立场.

Can we please stop with the foreign language. It all loos Greek to me.

είμαστε καλά τοποθετημένο

[percy]

Plain English then;
"we are well positioned."
sorry PT.!!!! lol.

[janner]

Plain English then;
"we are well positioned."
sorry PT.!!!! lol.

I say I say I say !!.. Are we not a multi-cultural nation now ??

Not good enough .. eh .. what ??

It's just not cricket !!.. Eh .. Eh.. speak up man .. Speak up !!..

[Snow Leopard]

The book The Galactic Pot-Healer by Philip K Dick presented a future world where a group of people are so bored that there main pleasure in life is to play a little game where they use computers to translate a phrase from language to language eventually arriving back at the original language in a much mangled form.

It appears that this nightmare scenario is finally arriving.

Best Wishes
Paper Tiger

[janner]

The book The Galactic Pot-Healer by Philip K Dick presented a future world where a group of people are so bored that there main pleasure in life is to play a little game where they use computers to translate a phrase from language to language eventually arriving back at the original language in a much mangled form.

It appears that this nightmare scenario is finally arriving.

Best Wishes
Paper Tiger

Off topic PT..

But you are priceless .. hahahaaaa..

[Snoopy]

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 $4,632m. Those maturing in four years time ($582m) need to be discounted 20% to arrive at yet more tier 2 capital of $466m.

As at 30th June 2012 ANZ has $5,114m + $4,632m + $466m = $10.212b 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 $52.184b 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%

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/$52,184m = 11.5%

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

The other comparison you Heartlanders like to make is with Westpac. The WBC Annual report for 2013 landed in my mailbox last week. Using the profit from p83, and the balance sheet equity, the Return on Equity figure for Westpac was as follows:

$6.368b / $46.618b = 13.7%

However, as with ANZ Westpac makes their loans dependent on their holding of 'total Tier capital', which includes additional elements to just shareholders equity. On p173 of this report Westpac lists the following additional Tier 1 equity.

$1,177m (Westpac Convertible Preference Shares)
$1,367m (Westpac Capital notes)
$906m (Stapled Preferred Securities)
$616m (Convertible Debentures and Trust Prepared Securities)

Add in the shareholders equity and I get total Tier 1 equity of $50.684b

In addition there is $4.886m of subordinated Tier 2 debt which I have reduced by $270m to take into account the early maturity(less than five years) of some 2015 debt, and to which must be added $378m of Tier 2 subordinated perpetual notes. That amounts to $4.994b of tier two debt in total for calculation purposes.

If you now do the same return calculation on tier 1 and tier 2 capital, the Return on this 'total backing capital' is a rather lower.

$6.368b / ($50.684b + $4.994b) = 11.4%

That is within one decimal point of the ANZ FY2012 figure.

SNOOPY

[Snoopy]

If you now do the same return calculation on tier 1 and tier 2 capital, the Return on this 'total backing capital' is a rather lower.

$6.368b / ($50.684b + $4.994b) = 11.4%

That is within one decimal point of the ANZ FY2012 figure.

Just to bring this back to the Heartland context, here are the figures that Scotty worked out:

"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."

If the bottom range figure of $34m is a 10% ROE then the top range figure of $37m is 10.9%. These figures seem entirely consistent with a smaller bank without the extra tier capital resources available to bigger banks. Why some here feel so resolute that Heartland can outperform the larger banks by so much on a tier capital basis (as a 15% ROE would imply) remains a mystery.

SNOOPY

PS I should add that since the annual report has been released NTA as of 30th June was confirmed at:

$331.2m/ $388.7m = 85c, not 88c. That in turn means the the projected ROE for FY2013, assuming NTA remains constant is forecast by Heartland themselves as between 10.3% and 11.3%.

However for those who insist on an ROE of 15% close your eyes and say "I believe, I believe, I believe." Who knows, it might just come true for you.

[Snoopy]

Since the annual report has been released NTA as of 30th June was confirmed at:

$331.2m/ $388.7m = 85c, not 88c. That in turn means the the projected ROE for FY2013, assuming NTA remains constant is forecast by Heartland themselves as between 10.3% and 11.3%.

However for those who insist on an ROE of 15% close your eyes and say "I believe, I believe, I believe." Who knows, it might just come true for you.

FY2013 looks to be shaping up quite well for Heartland. Looking further forward than that the new basal 3 Capital Conservation Buffer adding 2.5 percentage points to the amount of capital that must be held, plus another 0-2.5 percent for the countercyclical buffer means very little if any spare capital. So no growth beyond FY2013 if current dividend levels are maintained. A PE of 10 sounds about right in those circumstances.

Round figures I will go for an 11% ROE on shareholders equity of 85c giving earnings of 9.35c. A PE of ten translates that to a share price of 94c. Sounds about right.

However, all that assumes no more bad property debts that would further reduce the equity base. I would discount the share price by 10% to take account of that risk, and that leaves fair value at 85c, exactly where Heartland trades today. Heartland, a good solid company that is fairly and fully priced at 85c.

SNOOPY

[blobbles]

The book The Galactic Pot-Healer by Philip K Dick presented a future world where a group of people are so bored that there main pleasure in life is to play a little game where they use computers to translate a phrase from language to language eventually arriving back at the original language in a much mangled form.

It appears that this nightmare scenario is finally arriving.

Best Wishes
Paper Tiger

I read that book also!

I am learning Chinese though so don't need google translate to help me... most of the time! But definitely not on that one

[winner69]

I think Snoopy is on the verge of saying HNZ is a BUY .... yes a BUY

Better get in quick before the recommendation comes