HGH - Heartland Group Holdings

[Arbitrage]

Despite the sceptics, this stock appears to be trending upwards.

[Arbitrage]

Yes.

The analytical side of the brain says stay away, but for an interesting punt, it could be fun as long as the finger is hovering over the sell button. Certainly the graphs are heading in the right direction and the 60 cent level may be closer than we think.... On a percentage basis that is not a bad capital gain on todays price. However the analytical side may still be right.

[Balance]

A few positives kicking in :

1. George Kerr out of the way - he has been selling HNZ shares to pay for PGC shares.

2. Market is extrapolating current turnaround profit of $6m into full year's future profit of $24m pa from hereon in = PE of 8 times on current share price.

3. Expectations of banking license?

If they announce banking license, expecting sp will close gap towards NTA of 72 cents?

[Arbitrage]

My opinion is that the banking licence is not a "must have". If it happens it happens. More importantly the company has brought together a few companies that appear to be starting to gel and making money. These companies survived the finance company purge so they must do something right.

[SCOTTY]

A few positives kicking in :

1. George Kerr out of the way - he has been selling HNZ shares to pay for PGC shares.

2. Market is extrapolating current turnaround profit of $6m into full year's future profit of $24m pa from hereon in = PE of 8 times on current share price.

3. Expectations of banking license?

If they announce banking license, expecting sp will close gap towards NTA of 72 cents?

And there is 87cps nta in the tool kit. A reasonable return on that (say 10% = 8.7cps or 15% = 13cps) would put a rocket under the share price.

[Snoopy]

And with all those other finance companies out of the way ... up goes the margins and market share.

There are plenty of companies still out there still competing for customers. Most of them end in the word 'bank'.

SNOOPY

[Snoopy]

The analytical side of the brain says stay away,

PGG Finance was sold to Heartland in the early part of the FY2012. As part of the sale investment banking and corporate finance entity “Northington Partners” did an independent review of the buyer, Heartland.

Heartland is now a listed independent entity in its own right. I think it is useful to look at how the look forward view of Heartland in June 2011 compares with the actual progress made to date.

The Northington Partners review of Heartland concentrates on:

1/the value of the retail funding [term deposits], and
2/the value of the wholesale funding [securitisation (aggregated loans as presold parcels) and available bank facilities].

Critical to the ongoing retail funding is the aimed for 80% term deposit reinvestment rate target (when averaged over a year). This is critical not only in maintaining target asset growth, but also to maintain an adequate liquidity buffer.

Of other performance metrics to monitor, Northingtons were looking for a reduction in the operating expenses to income expenses to happen, a result of improving economies of scale. Stabilization of any impairment expenses was listed as another performance metric to look out for. Failure to obtain bank status was seen as a risk that could lead to a blowout in the cost of funds.

PGW Finance is now part of Heartland. But back in November 2009, PGW Finance was regarded as an integral and ongoing part of PGG Wrightson future in the new capital-raising ‘Simplified Disclosure Prospectus’. The prospectus was issued after the global financial crisis and so encompasses still current thinking on how a financial organization should be structured post GFC. P44 gives the banking syndicate banking facilities restrictions that PGW Finance entered into at the time:

1/ EBIT to interest expense > 1.2
2/ Liquidity buffer ratio (including bank lines) >10%
3/ Gearing Ratio (Total non-risk share liabilities to total non risk tradeable assets) < 90%
4/ Single new customer group exposure (as a percentage of shareholder funds) <10%
5/ Minimum Equity Contribution:
Tier 1 Risk Share Lending (basic equity capital and disclosed reserves) > 20%,
Tier 2 Risk share lending (this applies to undisclosed debts, and provisions against bad debts) > 30%.

Forget all of the results information about profit that Heartland has been headlining. I think that if you wander through the above calculations as they relate to Heartland, then and only then will you discover how Heartland is really doing.

One more quote from the prospectus for those who might be wondering when they might get a dividend out of Heartland

“No distributions (i.e. dividends) will be permitted while the interest cover is less than 1.3 times after such a payment has been made.”

SNOOPY

[K1W1G0LD]

Yes , looks like HNZ shareprice turning positive at last, its good to see a lot more buyers than sellers too, lets hope it stays that way.

[Arbitrage]

More press for Heartland: http://www.nzherald.co.nz/business/n...ectid=10799352

[Balance]

Sp action smells of banking license decision coming soon.