HGH - Heartland Group Holdings

[iceman]

"cautious, disciplined and in no hurry" . That's what I like to hear. I hope they find a niche in the household or rural sectors where they can put our money to good use rather than a share buyback.
Very pleased with the result. I think we are now starting to really see the benefit of lower cost of funds after bank registration reflected in increasing NOI.

Non core property reduction continues to be reduced slightly ahead of schedule and a reduction in rural loans where they are in direct competition with the big banks. HNZ will instead continue to look for higher yielding niche lending in this and other sectors.

Motor vehicle loan book has a steady and healthy growth.
They have also managed to reverse the HER loan book decline in NZ and started growing it in June and July. The development of this part of the business will be very interesting to watch both in NZ and Australia in the next year or two.

Well done HNZ, steady as she goes !

[Beagle]

"cautious, disciplined and in no hurry" . That's what I like to hear. I hope they find a niche in the household or rural sectors where they can put our money to good use rather than a share buyback.
Very pleased with the result. I think we are now starting to really see the benefit of lower cost of funds after bank registration reflected in increasing NOI.

Non core property reduction continues to be reduced slightly ahead of schedule and a reduction in rural loans where they are in direct competition with the big banks. HNZ will instead continue to look for higher yielding niche lending in this and other sectors.

Motor vehicle loan book has a steady and healthy growth.
They have also managed to reverse the HER loan book decline in NZ and started growing it in June and July. The development of this part of the business will be very interesting to watch both in NZ and Australia in the next year or two.

Well done HNZ, steady as she goes !

Well said mate.

[noodles]

I respect your opinion but in my experience it takes quite some time for a new acquisition to get traction and I expect better weighted average EPS growth in 2016. SP seems fair and reasonable to me where it is for now. Good hold in my opinion.

I tend to agree. From what I have read, there will be additional costs throughout FY15 for the HER business. The real bottom line benefit will come FY16. I still don't see much upside this year. As you say, a good hold.

[winner69]

Would you guys be in for HNZ Bonds?

A Bond issue before the next acquisition announced?

[Snow Leopard]

Accounts for the group as a whole and the banking group look OK to me.

Should survive another year in reasonable circumstances.

Quite a dramatic shift with the reduction in the non-core property and the Sentinel acquisitions.

No plans to buy any more or sell any at the moment except for the dividend recycling.

Best Wishes
Paper Tiger

[SCOTTY]

The increasing fully imputated dividend should also be taken into account espically when comparing HNZ with Aussie banks.
Say 7 cents pa ? Nett yield at 95cents 7.36% Tasty.!!!

Hi Percy

I agree with you regarding the net yield. Looking at a gross yield it looks even tastier; ie. the final divi of 3.5c carries imputation credit of 1.361c which totals a gross divi of 4.861c. Should the interim be the same, then the annual gross divi would be 9.722c and @ a share price of $1.00 this would be a gross yield of 9.722%. At the current share price of 95c the gross yield would be 10.23368%. It certainly beats bank deposit rates which are always quoted @ a gross return rate.

Cheers

[Snoopy]

An update from the previous reporting period, FY2013.

The underlying debt of the company according to the HY2014 statement of financial position is: $32.612m

To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:

$2,492.090m - ($1,905.850m +$61.481m + $255.427m) = $269.332m

We are then asked to remove the intangible assets from the equation as well:

$269.332m - $22.891m = $246.441m

Now we have the information needed to calculate the underlying company debt net of all their lending activities:

$32.612m/$246.441m= 13.2% < 90%

Result: PASS TEST

This means the position has improved usefully over the latest half year.

The underlying debt of the company (borrowings removed) according to the full year statement of financial position is: $39.375m + $0.431m = $39.806m

To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:

$3,016.888m - ($2,607.393m +$24.888m + $238.859m) = $145.748m

We are then asked to remove the intangible assets from the equation as well:

$145.798m - $47.421m = $98.327m

Now we have the information needed to calculate the underlying company debt net of all their lending activities:

$39.806m/$98.327m= 40.5% < 90%

Result: PASS TEST

SNOOPY

[Snoopy]

Results are out for HY2014 so time to update.

Updating for the half year result HY2014. The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs

EBIT (high estimate) = $100.500m-$32.417m= $68.083m

Interest expense is listed as $48.114m.

So (EBIT)/(Interest Expense)= ($68.083)/($48.114)= 1.42 > 1.20

Result: PASS TEST, a significant improvement from the FY2013 position. Perhaps that drop in interest being paid to debenture holders as a result of becoming a bank is starting to come through?

Updating for the full year result FY2014:

The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs

EBIT (high estimate) = $210.297m - $64.739m= $145.558m

Interest expense is listed as $101.221m.

So (EBIT)/(Interest Expense)= ($145.558)/($101.221)= 1.44 > 1.20

Result: PASS TEST, a significant improvement from the FY2013 position, which confirms the improvement reported during HY2014.


SNOOPY

[Snoopy]

Updating this number for the half year HY2014

Equity Ratio = (Total Equity)/(Total Assets)

Using numbers from the Heartland FY2013

= $382.510m/$2492.090m = 15.3%

This is an improvement on the FY2013 position. It does not include any effect from the just announced reverse mortgage acquisitions. Nevertheless the underlying loan book continues to shrink away, albeit by a miniscule 0.5%.

Updating this number for the full year FY2014

Equity Ratio = (Total Equity)/(Total Assets)

Using numbers from the Heartland FY2014

= $452.622m/ $3016.888m = 15.0%

As at EOFY2014, there is a significant jump in the capital base of Heartland compared to last year. $20m of the increase has come from a capital raising on 18th February 2014 (note 30). New Zealand and Australian Home Equity Release mortgage businesses were purchased from Seniors Money International Limited ("SMI"). This acquisition was part paid for by issuing $37.8m worth of Heartland shares on 1st April 2014. That means total new capital put into Heartland during FY2014 was a hefty $57.8m.

Take the $57.8m worth of new capital away from the end of year equity position and I get $394.82m of residual historical equity. This means that of the new equity in Heartland during the year only

$394.82 - $370.543 = $24.290m

or 30% has come from re-organizing the FY2013 model Heartland business.

The customer loan base has increased in proportion, meaning the whole business has upsized.

SNOOPY

[Snoopy]

Once again there is no mention of Tier 1 or Tier 2 in the Heartland HY2013 report.

The 'best case' scenario is that all loans are Tier 1. $2,097.553m of loans are outstanding. 20% of that figure is:

0.2 x $2,076.968m = $415.4m

Heartland has total equity of $382.5m which is still below the 20% of loan target no matter what the tier classification of the loans.

Result: FAIL TEST

Once again there is no mention of Tier 1 or Tier 2 in the Heartland FY2014 report.

The 'best case' scenario is that all loans are Tier 1. $2,564.266m of loans are outstanding. 20% of that figure is:

0.2 x $2,564.266m = $512.9m

Heartland has total equity of $452.6m which is still below the 20% of loan target no matter what the tier classification of the loans.

Result: FAIL TEST

PS Other posters have protested at my 20% of equity to back up the loan measuring stick in the past. 20% is not too far away from the 17% which by implication is judged acceptable by management under the watchful eye of Reserve Bank chairman Graeme Wheeler. The Reserve Bank further qualifies their views that a company of Heartlands credit rating still has a 1 in 30 chance of going broke in any year. I prefer to think in business cycles and 30 years will contain around five of those. So you could restate the Reserve Bank's view as saying that HNZ has a one in five chance of going broke at the bottom of the business cycle.

For me that investment risk is too high. So I am sticking to my 20% equity requirement, even if the Reserve Bank will settle for less.

SNOOPY