HGH - Heartland Group Holdings

[Harvey Specter]

Breathers are healthy after a big rally.....this breather is 6 months and counting...

Is that a breather or a hibernation?

[Hoop]

Is that a breather or a hibernation?

Good point.......I think due to this length of time it should be considered a hibernation event,
EDIT: usually a hibernation event is referred to Bears...not sure what you call a sleeping bull........a sleeping bull???? a bulldozer

[Harvey Specter]

a bulldozer

Love it!!!

[percy]

Love it!!!

I hate it.!!!!!!!!!!!! lol.

[Snoopy]

In your assessments of cash flows, and imaginings of the needs for extra capital, what allowance have you made for HNZ shareholders subscribing to the dividend reinvestment programme and its discount?
The payout total for the current dividend is $9.7M. Should holders of one third of HNZ shares subscribe to the DRP, HNZ's share capital will increase by almost 10%.

Just rereading the thread and I don't think I ever replied to this question on 19-09-2013. From the annual report, page 61.

"On 26 August 2013, the Directors resolved to pay a final dividend for the year ended 30th June 2013 of $9.7m, representing 2.5cps. The dividend is payable on 4th October 2013"

We then go to the NZX website and the 4th October release for what happened:

Number issued: 3,850,604. Issue price: $0.826. That adds up to $3.181m

$3.181m/ $9.7m = 33% (round numbers)

So it looks like owners representing one third of the shares on issue shares on issue took new shares rather than the cash dividend.

Total equity at balance date was $370.546m.

Total equity after the dividend was paid was therefore:

$370.546m - $9.7m + $3.181m = $364.027m

Any way you look at it, paying a dividend -with some of that reinvested- has resulted in a decrease in Heartland equity. You suggested that Heartland's capital might increase as a result of this process Under Surveillence? Sorry don't see where you were coming from there! Either way in the grand scheme of things this one off smallish dividend is immaterial in the grand capital structure of HNZ, IMO.

SNOOPY

[Under Surveillance]

You really shouldn't have been at pains to respond now, Snoopy. Let's just agree that HNZ has $3.181m more total equity for dividend reinvestments than it would have had without them. And that punters who took shares under the DRP last October at 82.6 cents have reason to be congratulated given the price increase meantime. And that those who weren't in last time might usefully subscribe to the DRP for the final dividend due in a couple of months.

[iceman]

And that punters who took shares under the DRP last October at 82.6 cents have reason to be congratulated given the price increase meantime. And that those who weren't in last time might usefully subscribe to the DRP for the final dividend due in a couple of months.

You are not wrong there US. I think us long term holders are pretty happy with the performance of HNZ and the DRP. Sadly, the last sentence in your post applies to Percy who did not subscribe to the last DRP. Hopefully he will be "better positioned"for the next one

[Snoopy]

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.

Over the last few weeks I have been concentrating on Heartland's operational statistics. It is all very well being a good zookeeper, feeding out the straw and clipping the customers ticket as they come through the door. However, it can all mean very little if as a keeper you go home and find an elephant in your lounge. So I want to look again at Heartland's elephant.

Here is what Fitch said when they inspected Heartland's elephant on 3rd November 2013.

"The weak asset quality performance of HBL's non-core property assets remains a drag on profitability and capital. A change in strategy to reduce these loans, which totalled NZD107m at financial year end 30 June 2013 (FY13), is likely to support a faster run-off. Provisioning of the portfolio is high, covering a significant proportion of impaired assets. Should further provisioning be needed, HBL benefits from sound pre-impairment operating profits, providing some absorption capacity. Fitch views the legacy property portfolio as one of the main constraint to a higher rating."

Now that $107m figure surprised me. $107m represents 27.5cps of capital. That is around three years worth of normal operating profit which brings all the day to day Heartland zookeeping into perspective.

If you look at the 30th June 2013 balance date, you will see that Heartland value their "investment property portfolio" (problem property bucket) at only $58.287m. That still leaves some $49m unaccounted for. I can only assume that the 'missing' problem properties are still in the 'finance receivables' part of the balance sheet.

Of course that $107m does not mean that this capital is lost. It just means that some but hopefully not all will be difficult to recover. But something else caught my eye in the Fitch statement (my bold).

"The weak asset quality performance of HBL's non-core property assets remains a drag on profitability and capital."

I had presumed that Heartland will still be racking up interest on these risky loans. But does the drag on 'profitability' mean Heartland have given up collecting interest on part of this portfolio to the extent that even the interest they are still collecting is not enough to balance any loans that have already collapsed?

Heartland. From a public perspective they have been quite good zookeepers over FY2013. But nothing was done to address their elephant, apart from making it incrementally bigger.

SNOOPY

[Snow Leopard]

Over the last few weeks I have been concentrating on Heartland's operational statistics....

...Now that $107m figure surprised me. $107m represents 27.5cps of capital. That is around three years worth of normal operating profit which brings all the day to day Heartland zookeeping into perspective.

If you look at the 30th June 2013 balance date, you will see that Heartland value their "investment property portfolio" (problem property bucket) at only $58.287m. That still leaves some $49m unaccounted for. I can only assume that the 'missing' problem properties are still in the 'finance receivables' part of the balance sheet.

Of course that $107m does not mean that this capital is lost. It just means that some but hopefully not all will be difficult to recover. But something else caught my eye in the Fitch statement (my bold)...

...I had presumed that Heartland will still be racking up interest on these risky loans. But does the drag on 'profitability' mean Heartland have given up collecting interest on part of this portfolio to the extent that even the interest they are still collecting is not enough to balance any loans that have already collapsed?

Heartland. From a public perspective they have been quite good zookeepers over FY2013. But nothing was done to address their elephant, apart from making it incrementally bigger.

SNOOPY

Weeks concentrating on this and this is your understanding?

Best Wishes
Paper Tiger

[percy]

Heartland's 6 month result up to 31/12/2013, will be announced on Tuesday 25th February 2014.