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  1. #13701
    Possum in the headlights Beagle's Avatar
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    No butts, hold no mutts, (unless they're the furry variety).

  2. #13702
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    Final dividend was cut from last year's 6.5c to 2.5c
    My TD was recently rolled over from 3.2% to 1.2%

    Which income stream will recover more quickly?

  3. #13703
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    "It operating expenses rose 24.5 per cent to $106.8m largely due to increased staff expenses after it hired 23 new people during the June quarter."

    (Old Operating Expenses) x 1.245 = $106.8m => 'Old Operating Expenses" = $85.8m

    Incremental Increase in OE was: $106.8m - $85.8m = $21m. But those 23 new people were only hired during the fouth quarter, so the equivalent annualised increase was: 4 x$21m = $84m. So spread over the 23 new employees, the average amount spent on each new employee was:

    $84m / 23 = $3.65m per person

    WOW! I certainly chose the wrong profession. Even Jeff must be looking over his shoulder at the pay rates of those 23 new guys and gals. Even allowing for not all of that money going straight to salary, those new people are on a good wicket. Maybe Jeff just employed the whole 'black cap' squad without telling anybody?

    Is this really good journalism from the Herald?

    SNOOPY
    Last edited by Snoopy; Yesterday at 10:00 AM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  4. #13704
    Possum in the headlights Beagle's Avatar
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    Hey Snoopy, the only plausible explanation is the the N.Z. Herald shed 23 good quality journalists in the same period...which sadly, is probably not far from the truth...
    No butts, hold no mutts, (unless they're the furry variety).

  5. #13705
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    I wrote a few things about why this company's share price performs so badly but lost them when I didnt fire them through and my token got dropped. (I hope someone remembers to pick it up)

    Is it tainted by the NZ Finance Company failure era
    Is it the poor cash flow Snoopy despairs over
    Or is it all smoke and mirrors ?

    Lets face it the graph is poo
    HGH.JPG

    massive resistance at 1.50
    though if it could get through that it would be positive and then act as strong support.

    sorry I forgot to remove all my indicators , currently having a bit of a play with them....
    Last edited by peat; Yesterday at 11:05 AM. Reason: apologies for indicators
    For clarity, nothing I say is advice....

  6. #13706
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    Quote Originally Posted by peat View Post
    this justification of not paying full divi due to RB restrictions sounds like a bit of a crock to me. Hadnt they specifically stated they werent affected because they werent a bank they're a holding company that owns a bank. I get they may not want to pay out a divi - at least there is no cash raise huh! - but I didnt think they were restricted from paying one, and yet here it appears they are fobbing us off with that excuse
    I don't think it is a fob off Peat. The structure is that Heartland Group Holdings (HGH) are 100% owners of Heartland Bank (HBL). The NZ Govt has directed that banks registered in NZ are not allowed to pay dividends until further notice. So HBL cannot pay a dividend to HGH.

    HGH can still pay a dividend by either:

    1/ Paying the dividends from the profit of their Australian operations OR
    2/ Borrowing to pay a dividend.

    Given the non cashflow positive nature of the fast growing REL business, and the fact that they just two days ago HGH announced new beefed up loan facilities, I would guess they plan to do the latter. HBL looks nicely profitable for now. But they aren't allowed to pay out a dividend to HGH by law. And that means there is no way for Heartland shareholders to get cashflow access to HBL's profitability. I see no sop here.

    SNOOPY
    Last edited by Snoopy; Yesterday at 11:14 AM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  7. #13707
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    Quote Originally Posted by peat View Post
    I wrote a few things about why this company's share price performs so badly but lost them when I didnt fire them through and my token got dropped. (I hope someone remembers to pick it up)
    Your thoughts may still be there Peat. Did you know that Sharetrader periodically automatically saves posts as you are writing them? So if you get logged out, go back to the post you were replying to, hit 'Reply' and an option on the bottom corner of the page should come up. 'Restore Autosaved Content'. Has worked for me in the past.


    SNOOPY
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  8. #13708
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    Default Reverse Mortgage Business for FY2021

    Quote Originally Posted by Snoopy View Post

    In light of my realization that 0% growth in the Reverse Mortgage portfolio actually equates to some 6.7% receivables growth (because all of the interest is compounded, not collected) I am redoing the 'Reverse Mortgage' profit calculation that I fed into this Scenario.

    2/ Reverse Mortgage Adjustment

    I had assumed a 'steady' Reverse Mortgage market. But because the interest on Reverse Mortgages are compounded and not collected, even a steady Reverse Mortgage market means the receivable book will grow by about 6.7% per year. I am going to add to this an extra 2.5% increment (for a total of 9.2%) to model a modest real growth in the reverse mortgage portfolio going forwards,

    Reverse Mortgage Balance at EOFY2019: $1,318.8m

    Reverse Mortgage Balance at EOFY2021: $1,318.8m x 1.092 x 1.092 = $1,572.6m
    Incremental Receivable Gain EOFY2019 to EOFY2021: $1,572.6m - $1,318.8m = $253.8m

    Incremental Profit Gain from EOFY2019 to EOFY2021 (using average ROE multiple from AGM 2019 Presentation p16): 0.13 x $253.8m = $33.0m

    Reverse Mortgage Balance at EOFY2022: $1,318.8m x 1.092 x 1.092 x 1.092= $1,717.3m
    Incremental Receivable Gain EOFY2019 to EOFY2022: $1,717.3m - $1,318.8m = $398.5m

    Incremental Profit Gain from EOFY2019 to EOFY2022 (using average ROE multiple from AGM 2019 Presentation p16): 0.13 x $398.5m = $51.8m
    Above is my 'base case' Scenario 2b.

    I have come to the conclusion during my Scenario Analysis' modelling that it is going to be the reverse mortgage business that drives the profitability of Heartland over the next couple of years. But it does fly under the radar a bit. We shareholders really don't know how it is going until the full and half year announcements.

    As announced yesterday, at EOFY2020, the total NZ and Australian Reverse Mortgage Balance was: $560m +$958m = $1,518m. So we are almost at my modelled 'base case' reverse mortgage balance for EOFY2021 a year early.

    Below is my 'optimistic' scenario 3

    Quote Originally Posted by Snoopy View Post

    2/ Reverse Mortgage Adjustment

    I had assumed a 'steady' Reverse Mortgage market. But because the interest on Reverse Mortgages are compounded and not collected, even a steady Reverse Mortgage market means the receivable book will grow by about 6.7% per year. I am going to add to this an extra 8% increment (for a total of 14.7%) to model continuing growth in the reverse mortgage portfolio going forwards, This is a similar growth rate to what actually occurred over FY2019.

    Reverse Mortgage Balance at EOFY2019: $1,318.8m

    Reverse Mortgage Balance at EOFY2021: $1,318.8m x 1.147 x 1.147 = $1,735.0m
    Incremental Receivable Gain EOFY2019 to EOFY2021: $1,735.0m - $1,318.8m = $416.2m

    Incremental Profit Gain from EOFY2019 to EOFY2021 (using average ROE multiple from AGM 2019 Presentation p16): 0.13 x $416.2m = $54.1m

    Reverse Mortgage Balance at EOFY2022: $1,318.8m x 1.147 x 1.147 x 1.147 = $1,990.1m
    Incremental Receivable Gain EOFY2019 to EOFY2022: $1,990.1m - $1,318.8m = $671.3m

    Incremental Profit Gain from EOFY2019 to EOFY2022 (using average ROE multiple from AGM 2019 Presentation p16): 0.13 x $671.3m = $87.3m
    The above scenario is modelling a reverse mortgage portfolio growth rate of: $1,735m/$1,518m = 14.3% over FY2021. Even allowing for slowing portfolio percentage growth as the REL portfolio grows in absolute size, that looks believable when you consider the REL portfolio growth rate over FY2020

    $1,518m/ $1,319m = 15.1%

    and over FY2019

    $1,319m/$1,115m = 18.3%

    Switching from the 'base case' to the 'optimistic' scenario for Reverse Mortgages equates to a boost of NPAT profit of $21m for FY2021, and that is significant.

    SNOOPY
    Last edited by Snoopy; Yesterday at 12:43 PM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  9. #13709
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    Quote Originally Posted by Bjauck View Post
    Final dividend was cut from last year's 6.5c to 2.5c
    My TD was recently rolled over from 3.2% to 1.2%

    Which income stream will recover more quickly?
    Good question. I would bet on Heartland stock.
    In addition your capital stands a reasonable chance of appreciating as well.
    No chance with TD.
    Good luck.

  10. #13710
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    Quote Originally Posted by Snoopy View Post
    I don't think it is a fob off Peat. The structure is that Heartland Group Holdings (HGH) are 100% owners of Heartland Bank (HBL). The NZ Govt has directed that banks registered in NZ are not allowed to pay dividends until further notice. So HBL cannot pay a dividend to HGH.

    HGH can still pay a dividend by either:

    1/ Paying the dividends from the profit of their Australian operations OR
    2/ Borrowing to pay a dividend.

    Given the non cashflow positive nature of the fast growing REL business, and the fact that they just two days ago HGH announced new beefed up loan facilities, I would guess they plan to do the latter. HBL looks nicely profitable for now. But they aren't allowed to pay out a dividend to HGH by law. And that means there is no way for Heartland shareholders to get cashflow access to HBL's profitability. I see no sop here.

    SNOOPY
    Thanks for that Snoopy. I was wondering as well.

  11. #13711
    Legend peat's Avatar
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    yeh Snoops, I hear what you're saying but the bank could make a loan to its holding company at no interest etc....
    I am not a highly paid merchant banker but would've thought this regulatory cash flow issue from bank subsidiary to holding co could easily be circumvented.

    Its funny tho I dont actually want dividends that much, but I dont like to be misled either. Despite being a holder I do have a grudge against this company which might be ameliorated if the share price got back up to $2. haha

    And thanks for the tech advice on retrieving lost posts, I will try it next time because there WILL be a next time.
    For clarity, nothing I say is advice....

  12. #13712
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  13. #13713
    Legend peat's Avatar
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    Quote Originally Posted by Greekwatchdog View Post
    doesnt it warm the cockles of yer heart.
    For clarity, nothing I say is advice....

  14. #13714
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    Indeed and compliments the Glenfiddich 18 year old that will certainly do it..Its been a good week.

  15. #13715
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    Default Motor Vehicle Finance for FY2021

    Quote Originally Posted by Snoopy View Post
    Prestige brands generally slow in sales during a recession though. So I am picking JLR sales might halve this calendar year.

    So what will all this do to Heartland's financing of new vehicles? Well, Heartland's financial year ends on 30th June. Only three months of the year will be 'post lockdown', so things might not be as ugly as some think. Particularly as dealers look to quit excess stock with sweet finance deals. Bad for motor dealers but ironically good for Heartland,

    The market is always forward looking though. So the real interest is, what will motor vehicle finance look like in FY2021? If you are Heartland, don't look in the mirror. You will see 'ugly'. If the base case for funding new vehicles is split for FY2020 45:45:10 between Holden:Kia:JLR (an educated guess) then FY2021 is likely to look like 0:50:5 on the same scale. That means new car financing down 45%.

    So what does this picture suggest for profitability in FY2021?

    As at December 2019 the motor vehicle finance book at Heartland was $1,124m. Let's guess new vehicle sales were $500m of that. So a 45% reduction would see a loss of:

    0.45 x $500m = $225m worth of finance business in turnover.

    Motor vehicle finance has traditionally had some of the best margins at Heartland. Heartland's AGM presentation had an ROE north of 15%. In recessionary times I am going to stick to the 15% figure. This means the earnings that Heartland will miss out on due to plunging new car finance deals will be around:

    0.15 x $225m = $34m

    Of course the annual hit won't be this much, as finance typically has a three year cycle. So the FY2021 hit will be about 1/3 of that, $11.4m

    I am guessing the FY2022 impact will be only half that in FY2021, $5.7m, but unfortunately the financing effect from FY2021 is cumulative into FY2022

    Underlying profit was around $74m in FY2019 (a bit less in FY2020?). So it looks like new car financing alone will knock Heartland's profit down to just shy of $63m, or a 15% drop.
    Quote Originally Posted by Snoopy View Post

    Motor Vehicle Finance

    My new vehicle funding scenario remains unchanged, I am going to add in a used vehicle funding decline of 10% (previously 0%). I estimate Heartland funded $1,248m - $500m = $748m of used vehicle sales in FY2019. A 10% reduction in sales equates to $75m. Again using a reference ROE of 15% from the FY2019 AGM presentation.

    FY2021/2022: -$75m x 0.15 = -$11m

    Because I am modelling finance deals with a three year life, this annual loss compounds.
    Motor vehicle finance was $1,089m in FY2019, and rose to in $1.126m in FY2020. I was predicting no Holden sales for FY2021, yet there are still some Holden badged American products (and rebadged Asian utes sold as Colorado) hanging around the dealerships. Holden have told us sales will cease by 2021. So the real new vehicle downturn is certainly coming.

    I am reworking my estimated Holden:Kia:JLR sales split from FY2019 of 45:45:10, to 20:50:5 for FY2021. That represents a forecast sales decline of 25%. A 25% decline from the FY2020 sales figures, assuming new vehicles represented $500m of a total of $1,126m sales, represents a sales decline of:

    $500m x 0.25 = $125m

    Motor vehicle finance has traditionally had some of the best margins at Heartland. Heartland's AGM FY2019 presentation had an ROE north of 15%. In recessionary times I am going to stick to the 15% figure. This means the earnings that Heartland will miss out on due to plunging new car finance deals will be around:

    0.15 x $125m = $19m

    Of course the annual hit won't be this much, as finance typically has a three year cycle. So the FY2021 hit will be about 1/3 of that, $6m.

    I am guessing the FY2022 impact will be more or less the same at $6m, but unfortunately the financing effect from FY2021 is cumulative into FY2022 for a total effect of $12m
    Last edited by Snoopy; Yesterday at 08:39 PM. Reason: Worjk In Progress
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  16. #13716
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    Heartland review aimed at boosting value

    Jenny Ruth
    Fri, 18 Sep 2020

    Heartland Group Holdings chief executive Jeff Greenslade wouldn't be drawn on whether management's review of the company is likely to lead to a break-up of the group.
    "It's incumbent upon businesses every now and again when you see where our share price has been to ask is there something that needs to be done to get a better recognition of value," Greenslade told BusinessDesk.
    He acknowledged the announcement of such a review is often an euphemism for selling assets.
    "I understand what you're saying. We need to decide to what extent it's a problem and then look at the solutions."
    It may simply be a messaging issue, he said. "It's something we've got to look at a range of options and that could be it." Or it may require a restructuring, he said.
    In Heartland's annual results announcement, the company said its current share price "may not appropriately reflect the underlying nature of its business," so the board has asked management how to optimise value.
    The shares rose as much as 9 cents, or 7.6 percent, to $1.28 after the announcement before ending the day at $1.26.
    It's true Heartland's share price has suffered through the coronavirus crisis, troughing at 89 cents in March and still down 27 percent from a year ago.
    Better than others
    But that's still better than three of the big four Australian-owned banks have fared the worst affected is Westpac, down nearly 44 percent from a year ago, while Commonwealth Bank of Australia, which owns ASB Bank, is the only one to have performed better but is still down 20 percent from a year ago.
    Greenslade said that was a fair point "but within our business make-up, we have a lot of activities that they don't have."
    Heartland specialises in niche areas where it faces little to no competition, such as reverse mortgages, motor finance and increasingly in digital lending products.
    Heartland has also been backing away from relationship-based banking, where a business or farmer has a direct relationship with a bank officer looking after the gamut of their banking needs, because the major banks have been encroaching on that area and driving down margins.
    Heartland has much fatter margins than the mainstream banks and they have held steady at 4.33 percent at a time when the four major Australian-owned banks and Kiwibank have reported steep margin declines.
    Kiwibank's net interest margin shrank 19 basis points to 1.94 percent in the year ended June, while ASB Bank's contracted 12 points to 2.11 percent. The other three majors have Sept. 30 balance dates.
    Greenslade argued Heartland's specialist positioning should "justify different and potentially better valuations."
    No scandals
    Heartland hasn't suffered the reputational and regulatory issues that have been dogging the Australian banks for several years now in the wake of Australia's royal commission into financial services.
    Those scandals included money laundering, mis-selling products, charging fees for services that weren't delivered and, in Westpac's case, facilitating child exploitation in the Philippines.
    Heartland's results were certainly strong and it is forecasting a profit increase of as much as 18 percent for the current year.
    Net profit fell 2.2 percent to $72 million for the year ended June because of a $9.6 million charge against profit to cover potential covid-19-related credit losses.
    And the company is forecasting net profit for its 2021 financial year will rise to between $83 million and $85 million.
    The results also highlighted the very juicy yield available from Heartland's shares - at Wednesday's closing price of $1.19, the dividend yield was 8.2 percent.
    The best return Heartland is offering on its own term deposits is 1.85 percent for three years and, by way of comparison, ANZ Bank is offering 1.3 percent for three years.
    And the high yield comes at a time when the Reserve Bank has forbidden NZ banks from paying dividends. Heartland is able to get around this because its Australian reverse mortgage business sits outside the NZ banking group where all the rest of its operations reside.
    That allowed Heartland to pay a fully imputed 2.5 cents per share final dividend, taking the annual payout to 7 cents, although the RBNZ's restrictions meant that was down from 10 cents the previous year.

  17. #13717
    Advanced Member King1212's Avatar
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    the company said its current share price "may not appropriately reflect the underlying nature of its business," so the board has asked management how to optimise value.

    Love it!

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