HGH - Heartland Group Holdings

[Bjauck]

Interesting how some posters have very good foresight.
Was posted nearly 5 years ago,on18-02-2012

Under Surveillance should take a bow - assuming they can still clatter their clogs down the cobbles! I wonder if they are still a holder and enjoyed the (not to be repeated?) revaluation of HNZ/HBL.
Disc: A holder since 2012

[Snoopy]

I am rather overdue for our once a year peak into customer ‘asset distribution’ and ‘asset quality’. Our concentration test is that:

Highest single new customer group exposure (as a percentage of shareholder funds) <10%

Regional Risk

From AR2015 note 18b, the greatest regional area of credit risk in dollar terms is Auckland, with $830.027m worth of assets. This represents:

$830.027m/ $3,250.468m = 26% of all loans

this is slightly up on FY2014. But i don’t rate that concentration of loans in Auckland as being an issue. Particularly so when ‘Auckland’ is such a varied catch all group.

Industry Group Risk

From AR2015 note 18c, the greatest 'business group' risk in dollar terms is agriculture, with $537.286m worth of assets. This represents:

$537.286m/ $3,250.468m = 17% of all loans

this is slightly up on FY2014, when agriculture was

$469.020m/ $2,906.596 = 16% of all loans

Both these figures are quite high and trending in the wrong direction for FY2015. Given that Heartland is nominally a specialist agricultural lender I wouldn't be too concerned. But if agricultural loans go above 20% of the total (or dairy representing about half the agricultural loans above 10%), then I would sound an alarm bell. This situation will need careful watching when the FY2016 result details are released imo.

Industry Group Risk

From AR2016 note 18c, the greatest 'business group' risk in dollar terms is agriculture, with $628.202m worth of assets. This represents an increase of $90.916m over the previous year.

$628.202m/ $3,461.292m = 18% of all loans


Regional Risk

From AR2016 note 18b, the greatest regional area of credit risk in dollar terms is 'Rest of the North Island' , with $888.080m worth of assets. This represents:

$880.080m/ $3,461.392m = 25% of all loans

The 'Rest of North Island' loans (which excludes Auckland and Wellington) have risen 12.5% in numerical terms over the year, outstripping the growth of the previous largest region Auckland which only grew by 2% in gross loan amounts (Auckland still covers 24.5% of all loans) . This is a significant change for all other years where Auckland has been the largest market. Given 'Agriculture' loans have grown by 17% over the year, this 'growth' could reflect the compounding of agricultural interest charges into existing loans. According to AR2016 p7, dairy represent 7% of Heartland's total loan book.

0.07 x $3,461.392m = $242m

At an interest rate of 8%, assuming no interest was actually paid, this would increase the value of the Heartland loan book by:

$242m x 0.08 = $19.3m

Since the actual agricultural loan balance increased by $90.9m, we can assume that more net new agricultural loans were taken out, rather than just rolling over the dairy loan book. This is very much a contrast to traditional market leader ANZ.NZ who kept their total rural loan book static over the similar period. Looked at just in agricultural terms, you could say that Heartland are compounding their own problems for the future. But because the loan book in total has grown, reducing Heartland's relative reliance on Auckland is probably a positive.

The multi-year picture is shown below:

	2012	2013	2014	2015	2016
Largest Regional Market	Auckland (30%)	Auckland (30%)	Auckland (25%)	Auckland (26%)	Rest of North Island (25%)
Largest Industry Group Market	Agriculture (24%)	Agriculture (21%)	Agriculture (16%)	Agriculture (17%)	Agriculture (18%)

SNOOPY

[winner69]

Latest Global Dairy Trade results are non-event

Bit like the HBL share price

As such the correlation remains

[percy]

Capital only and Capital + Dividend^(*) returns for HBL (formerly HNZ) for the yearly periods to 11-Jan.



Best Wishes
Paper Tiger

^(*) Cap&Div prices are dividend adjusted prices using the definitive Tiger Method.

Capital plus dividends for 5 years = 317.13%
Works out at an incredible 5.2855% a month,and yet W69 is still thinks HBL's sp is a non-event?

[winner69]

Capital plus dividends for 5 years = 317.13%
Works out at an incredible 5.2855% a month,and yet W69 is still thinks HBL's sp is a non-event?

HBL was $1.41 early February 2015 - nearly 2 years ago

Today $1.51 so 10 cents gain ... and 16 cents divie since

Hardly 5.2855% a month -

Your 5.2855% is actually 2.4089% per month compounding

[percy]

HBL was $1.41 early February 2015 - nearly 2 years ago

Today $1.51 so 10 cents gain ... and 16 cents divie since

Hardly 5.2855% a month -

Your 5.2855% is actually 2.4089% per month compounding

Thank you W69.
2.4089% compound monthly means I am growing wealthier by the month.!!!
Looks as though I am "well positioned" to enjoy yet another year of compounding growth.

[winner69]

Thank you W69.
2.4089% compound monthly means I am growing wealthier by the month.!!!
And am enjoying it too.!!

Have grown ..... past returns are no guarantee of future returns

I would guess that past 5 year Heartland returns will never never be repeated

But $1.60 beckons so no worries

[percy]

Have grown ..... past returns are no guarantee of future returns

I would guess that past 5 year Heartland returns will never never be repeated

But $1.60 beckons so no worries

Yes I have certainly enjoyed past returns.
Yet my beautiful HBL dividends are now based on the current sp.
What a wonderful bank.
And I guess we will pass through $1.60 on our way to $2.
Something other than increasing dividends to look forward to.
Us shareholders remain "well positioned".

[Under Surveillance]

Under Surveillance should take a bow - assuming they can still clatter their clogs down the cobbles! I wonder if they are still a holder and enjoyed the (not to be repeated?) revaluation of HNZ/HBL.
Disc: A holder since 2012

Thanks to you, and to Percy, for the compliments. Yes, I'm still above ground, and still holding.

[Snoopy]

Updating for the full year result FY2015:

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) = $260.488m - $68.403m= $192.085m

Interest expense is listed as $126.041m.

So (EBIT)/(Interest Expense)= ($192.085)/($126.041)= 1.52 > 1.20

Result: PASS TEST

More progress here. A steady improvement from the FY2014 figure of 1.44

Updating for the full year result FY2016:

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) = $265.475m - $68.872m= $196.603m

Interest expense is listed as $118.815m.

So (EBIT)/(Interest Expense)= ($196.603m)/($118.815)= 1.65 > 1.20

Result: PASS TEST

The historical picture of this ratio is tabulated below. Despite the shakey start, the trend is very pleasing.

	FY2012	FY2013	FY2014	FY2015	FY2016	Target
EBIT/ Interest Expense	1.15	1.22	1.44	1.52	1.65	>1.2

SNOOPY