HGH - Heartland Group Holdings

[Beagle]

Where's your ambition Percy, and theirs

Maybe need more woman and young people on this stodgy old goods train to turn it into a an express

Haven't heard back about diversity but they need to say something in the Annual Report. Probably have to wait to then.

Rome wasn't built in a day. With all due respect mate its a Bank. I think most shareholders would prefer them to build their business in a conservative systematic way with prudent lending policies rather than the approach we've seen some other financial institutions use in the past, (South Canterbury Finance for some strange reason springs very readily to mind).

If you're looking for a stock that might appreciate 35% in the next year you're probably need to take on more risk, you know my favourite

[Snoopy]

Chris Lee's take on Heartland, (emphasis added in bold by myself)
<snip>
Net profit after tax $36.0m ($6.9m)

Note: NPAT for 2013 included a one-off pre-tax expense of $24.3m incurred as a result of the change in strategy with respect to the impaired non-core property assets. When adjusted for this one-off charge NPAT for the 2014 year was up $11.6m or 48% on the previous year.
<snip>

I would take out the impaired assets expense too, if each year to get a handle on the operational performance of Heartland. That gives the following results:

FY2014: $36.089m + 0.72($5.895m+$1.203m) = $41.140m
FY2013: $6.912m + 0.72($5.101m+$22.527m) + 0.72($7.700m) = $32.349m

So underlying performance is up 27% on the year. As far as shareholder are concerned though, it is earnings per share growth that is important, not profit growth.

At EOFY2013 there were 388.704m shares on issue
=> For FY2013 eps = $32.349m / 388.704m = 8.3cps


At EOFY2014 there were 463.267m shares on issue.
=> For FY2014 eps= $41.140m / 463.267m = 8.9cps

So underlying eps is only up 7.2% for the year

Forecast for FY2015 is $42m to $45m
=> For FY2015 eps = ($42m to $45m)/ 463.267m = 9.1 to 9.7cps

That represents a forecast gain of between 2.2% and 9.0%. Actual percentage gain in eps will be less than that, because of shares issued during the year in the dividend reinvestment plan.

SNOOPY

[Beagle]

Agreed Snoopy. This hound will be happy with 10-15% SP appreciation in the forthcoming year as well as the 10.6% gross dividend yield knowing that as the HER division gains traction there's probably stronger EPS growth to come in future years. If people are looking for greater SP appreciation than that maybe they should bark up a different tree ? These are fundamentally good numbers, (cheap PE) for a moderate risk business in a market that's choc-a-block with fully priced stocks IMHO.

[percy]

Where's your ambition Percy, and theirs

Maybe need more woman and young people on this stodgy old goods train to turn it into a an express

Haven't heard back about diversity but they need to say something in the Annual Report. Probably have to wait to then.

As I have always pointed out on this thread I am pleased as punch Heartland achieve all they set out to do. They have the right people in the right places.A winning team.

[winner69]

Equity June 14 is $450m

ROE improving they say (9.7% in last quarter) and we have aspirations to improve it (something a lot higher)

Guidance at top end end for FY15 is $45m NPAT - hey that's 10% ROE - on opening equity - you would hope that equity would increase (from DRP and retained earnings) so likely figure less than 10% ROE.

Not good

I feel some financial 'engineering' coming onto make some ratios look better. Making more money seems to be off the agenda. Has interest margin maxed out at 4.44%? Are efficiencies becoming harder to achieve (even though they say further improvements will be made)? Aren't ey going to make any money out of equity release loans?

Normalised NPAT increased by $7m from FY11 to FY12 then by $10m from FY12 to FY13 and then by $12m in FY14. Now they trying to tell us that FY15 will be up between $6m to $9m, after acquiring $700m odd of business which is going to be eps accretive and improve ROE

Doesn't seem right does it that $42m to $45m guidance

Redid my numbers - still reckon something closer to $50m has to classed as respectable.

Shucks what have I got myself into. And shareprice down again today so only marginally ahead but heck that divie is needed.

[couta1]

I'm just happy to hold long term along with Air, PGW and GNE as these are a set of lovely blue arrows amongst a sea of Red

[noodles]

Shucks what have I got myself into. And shareprice down again today so only marginally ahead but heck that divie is needed.

Winner, I have never seen you so shaken. Are you going to sell? After all, clearly the company profit expectations are short of the mark for you. I wonder how many punters like you are hanging out for that divi before they sell? Imagine what the ex-div price will be! #panicsell

[Snoopy]

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.

The bad debt position of Heartland's problem property assets has evolved. I have prepared a graphic to show what has happened over the years, and how that relates to capital risk

HNZbdebt.jpg

Now to explain.

Each year (FY2012, FY2013 and FY2014) is represented by three columns. The column to the left (total height) represents Heartlands shareholder funds at the end of each financial year. The LH column is made up of three colours. The first section, in wavy blue pyjamas, is the minimum amount of capital Heartland needs to satisfy Reserve Bank requirements. The mauve and yellow sections on top of that represent the safety margin. This is the amount of capital in excess of reserve bank requirements. The yellow section, which on the original version of this graph I drew was part of the mauve section, represents net profits earned during the financial year, less dividends paid. The yellow part therefore represents retained earnings from normal operations.

The second column (orange) represents 'doubtful debts' as taken from the company's breakdown of asset quality. The third column (red) I have labelled 'difficult debts' and this one incorporates the 'doubtful debts' as well. I calculated this by starting with the doubtful debts and adding on the next categpry of debt (not quite bad enough to be doubtful).

The effect of all the doubful debts going bad can be seen by subtracting the height of column 2 from column 1. You can see that for all three years that if all of the doubtful debts went bad, it wouldn't affect Heartland that much. The capital buffer above minimum reserve bank standards is still largely intact. However, if all the 'difficult debts' went bad, then that is where things could get interesting.

SNOOPY

[winner69]

Rome wasn't built in a day. With all due respect mate its a Bank. I think most shareholders would prefer them to build their business in a conservative systematic way with prudent lending policies rather than the approach we've seen some other financial institutions use in the past, (South Canterbury Finance for some strange reason springs very readily to mind).

If you're looking for a stock that might appreciate 35% in the next year you're probably need to take on more risk, you know my favourite

Yep I appreciate it s just a BANK

But that Bank has recently grown its loan book by 30%. This along with ongoing organic growth and becoming more efficient makes a forecast $6m increase in profitability a bit nonsensical ((obviously my view only)

[noodles]

The bad debt position of Heartland's problem property assets has evolved. I have preapred a graphic to show what has happened over the years, and how that relates to capital risk

Attachment 6212

SNOOPY

Wow! If that chart is accurate, it paints fantastic progress. No wonder they got a ratings upgrade.