HGH - Heartland Group Holdings

[Jantar]

Jantar - maybe, just maybe, they have thought that after a serious review of their dairy loans it would be prudent to shore up their capital base

Quite possibly. In any event I am still holding and intend increasing later this year.

[Joshuatree]

Yove got investors and traders on here. I know which ones i would believe.

[winner69]

I found Roger's post very helpful in general terms, and I think I understand his position as:
There are self interested reasons for HBL managers and assessors to take a rosy view of the current situation.
Many of the properties securing the loans are worth less than they were when the loan was taken out and will be worth an awful lot less when/if the dairy industry gets less profitable. HBL's LVRs are inaccurate and optimistic.
This situation poses real risks to HBL profitability in the medium term and even more immediate risk to the SP as HBL is forced to take a more pessimistic provision for impairment and investors take fright.
Other people have different ideas - but how much difference will it make to the likely future profitability of HBL? Help please!

I have started to think about it but haven't got very far. Just for a first stab - there is $240M out. Some one will know how much HBL have put aside for impairment. Multiply by some number to account for biased assessment, bad LVRs, and the grief caused by a further deterioration in dairy, and then do DFCs or whatever you knowledgeable people do to calculate a shareprice.
What do you get? How can the calculation be improved?

No need to panic davflaws - dairy won't Heartland go broke.

If things do get really bad the impact will only be a drag on profits over several years - like reducing earnings growth from a healthy number to a much less modest one. That also becomes a bit of drag on the share price over time.

Will see little if any impact this financial year (read between the lines of Rogers post)

[Snoopy]

An update from the previous reporting period, FY2014.

The underlying debt of the company according to the HY2015 statement of financial position is:

$38.666m + $4.109m = $42.775m

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:

$3,162.169m - ($2,722.443m +$25.831m + $209.544m) = $204.351m

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

$204.351m - $49.933m = $154.418m

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

$42.775m/$154.418m= 27.7% < 90%

This compares unfavourably with the comparatuve half year period figure of 13.2%, but favourably with the 40.5% figure from FY2014 date (30th June 2014)

Result: PASS TEST

An update from last years equivalent reporting period, HY2015.

The underlying debt of the company according to the HY2016 statement of financial position is:

$43.377m + $1.095m = $44.472m

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:

$3,344.498m - ($2,928.621m +$12.439m + $269.769m) = $133.669m

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

$133.669m - $54.314m = $79.355m

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

$44.472m/$79.355m= 56.0% < 90%

This compares unfavourably with the comparatuve half year period figure of 27.7%, but favourably with the more recent 58.4% figure from FY2015 date (30th June 2015)

Result: PASS TEST

[Snoopy]

Updating for the half year result HY2015. 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) = $128.252m-$33.523m= $94.729m

Interest expense is listed as $62.577m.

So (EBIT)/(Interest Expense)= ($94.729m)/($62.577m)= 1.51 > 1.20

Result: PASS TEST, an improvement from the HY2014 (1.42) position. And also an improvement on the position 6 months ago FY2014 (1.44)

Updating for the half year result HY2016. 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) = $134.340m-$37.039m= $97.301m

Interest expense is listed as $62.868m.

So (EBIT)/(Interest Expense)= ($97.301m)/($62.869m)= 1.55 > 1.20

Result: PASS TEST, an improvement from the HY2015 (1.51) position. And also an improvement on the full year position as of 6 months ago FY2015 (1.52)

SNOOPY

[Snoopy]

Updating this number for the half year HY2015

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

Using numbers from the Heartland HYR2015

= $462.310m/$3162.169m = 14.6%

This is a decrease on the HY2014 position (15.3%). It is also a decrease on the FY2014 position of 6 months ago (15.0%)

Updating this number for the half year HY2016

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

Using numbers from the Heartland HYR2016

= $485.688m/$3,344.498m = 14.5%

This is a decrease on the HY2015 position (14.6%). But it is also an increase on the FY2015 position of 6 months ago (14.3%). An indication perhaps of a slightly more conservative funding bias, considering company equity supporting company loans?

SNOOPY

[Snoopy]

Once again there is no mention of Tier 1 or Tier 2 in the Heartland HY2015 report.

The 'best case' scenario is that all capital is Tier 1, which is almost certainly correct. $2,657.084m of loans are outstanding. 20% of that figure is:

0.2 x $2,657.084m = $531.4m

Heartland has total equity of $462.310m which is still below the 20% of loan target no matter what the tier classification of the loans.

Result: FAIL TEST

PS I do note that while other posters have protested at my 20% of equity to back up the loan measuring stick in the past, it 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.

Tier 1 or Tier 2 capital adequacy is noted under section 19A (Capital Ratios) in the Heartland HY2016 report.

$2,928.621m of loans are outstanding. 20% of that figure is:

0.2 x $2,928.621m = $585.7m

Heartland has total equity of $485.688m. But from note 19A, only $427.084m is Tier 1 capital. The difference is because intangible assets, deferred tax assets, hedging reserve effects and defined benefit superannuation fund assets on the books must be adjusted for.

On top of the Tier 1 assets, there is a subordinated bond of $1.455m

Nevertheless, however the total tier capital is added together, it is still below the "20% of loan" target no matter what the tier classification of capital buffering any potential problems with the loans.

Result: FAIL TEST

PS I do note that while other posters have protested at my 20% of equity to back up the loan measuring stick in the past, it 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.

Using current period Tier 1 capital and loan book figures:

$427.084m/$2,928.621m = 14.6%

So it seems Heartland's position has deteriorated significantly, compared to when it qualified as a bank.

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

[Snow Leopard]

...PS I do note that while other posters have protested at my 20% of equity to back up the loan measuring stick in the past, it 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. ...

Indulge me and explain the above please, I believe that I have no knowledge of this; though I do have jet-lag.

Best Wishes
Paper Tiger

[Snoopy]

In the table on page 4 the 'impaired asset expense' has increased to $5.1m (HY2015, ended 31st December 2014) up from from $3.3m in the corresponding prior period (HY2014) and $5.9m in the full year to 30th June 2014. By simple subtraction the bad debt expense for the period 1st January 2014 to 30th June 2014 ( 2HY2014 ) was $5.9m - $5.1m = $0.8m.

Under Note 4 of HY2016 the 'impaired asset expense' has increased to $5.610m (HY2016, ended 31st December 2015) up from from $5.102m in the corresponding prior period (HY2015). Bad debts for the full year to 30th June 2015 (FY2015) added to $12.105m. By simple subtraction the bad debt expense for the period 1st January 2015 to 30th June 2015 ( 2HY2015 ) was $12.105m - $5.102m = $7.003m.

This means that what we are seeing is 20% fall in bad debts declared over the six months to December 2015, compared to the immediately preceeding 6 month period.

SNOOPY

[trader_jackson]

http://www.stuff.co.nz/business/7992...r-the-industry

Here we go...