HGH - Heartland Group Holdings

[Jantar]

........
Honestly to suggest this company can't grow dividends going forward is in my opinion a seriously flawed viewpoint........

In the 2 and bit years I have held HBL, the increase in dividend has been a fairly steady 1c per share per year, and looking forward at the increase in eps, I expect this to continue. On that basis I am expecting the interim divi to be 4 cps, and increase of 0.5 cps over last year's interim divi.

[Snoopy]

Roger here is referencing the 'Dividend Discount Model' for valuing shares which, according to investpedia, goes like this:

Value of Share = (Dividend per Share) / (Discount Rate - Dividend Growth Rate)

The choice of a discount rate will make a large difference to the end result. The preferred 'discount rate', in the referenced 'investopedia' model, seems to eqaute to the company's 'cost of equity capital'. Note that if the dividend growth rate is assumed to be zero (as I will be assuming), then the investopedia formula collapses to the same formula that I have been using before I looked up that reference.

Dividend per Share / Yield = Share Price (an algebraeic manipulation of: Dividend per Share / Share Price = Yield )

So another way of looking at this situation is to consider the 'cost of equity capital' to be measured by the yield an investor might accept.

If we assume 'zero dividend growth' over a 'business cycle', then the yield that I would accept, depends on the quality of the underlying business. For companies in the finance sector, I would split finance businesses into three categories. I present an example from each of my categories below:

Category	Example	Acceptable Yield
Tier 1 Finance Industry Company	ANZ Bank	6.5%
Tier 2 Finance Industry Company	Heartland Bank	7.5%
Tier 3 Finance Industry Company	Geneva Finance	8.5%

Now there are most sophisticated techniques, such as ther capital sset pricing model, that can be used to get the 'cost of capital' for a company. But personally I prefer this simpler steadier approach. I am saying here that Heartland is in the middle of the finance company spectrum. Not as 'safe' as one of the big banks. But a cut above what might be considered today 'fringe lenders'. After the great finance company clean out, I am considering any company that calls itself a finance company a 'fringe lender' these days!

SNOOPY

[Snoopy]

In the 2 and bit years I have held HBL, the increase in dividend has been a fairly steady 1c per share per year, and looking forward at the increase in eps, I expect this to continue. On that basis I am expecting the interim divi to be 4 cps, and increase of 0.5 cps over last year's interim divi.

Past performance , in an environment that has enabled Heartland to extricate itself from its difficult property sector "investments', is no guarantee of future performance.

SNOOPY

[h2so4]

LOL this hound feels like biting a chunk out of the other hound after reading that then the Tiger could give him a good clawing and send him back to his kennel in disgrace
Honestly to suggest this company can't grow dividends going forward is in my opinion a seriously flawed viewpoint. Far more likely that housing will continue to maintain close to its real current value and UDC will continue to do what its always done. Doomsday thinking way overdone Snooper.

Yes no logic but snoops has to get a discount rate. Important to get the right rate aye.Lol!

[h2so4]

......think its going to be a long one. At least I'm doing something useful ATM.
cleaning tge bathroom.

[Snoopy]

Dividend per Share / Yield = Share Price (an algebraeic manipulation of: Dividend per Share / Share Price = Yield )

So another way of looking at this situation is to consider the 'cost of equity capital' to be measured by the yield an investor might accept.

We assume 'zero dividend growth' over a 'business cycle'

Note that the financial year starts on 1st July of the previous calendar year and ends on 30th June.

Year	Dividends Paid 'per share'	Significant Event During Year'
FY2013	1.5cps(sp) + 2.0cps	17th December 2012: Heartland becomes a bank
FY2014	2.5cps + 2.5cps	1st April 2014: Seniors 'Reverse Mortgage' Business Acquired
FY2015	3.5cps + 3.0cps	10th September 2014: invests in Harmony P2P startup
		28th October 2014: Credit rating upgraded from BBB- to BBB (Fitch Ratings)
FY2016	4.5cps + 3.5cps
FY2017(f)	5.0cps + 3.5cps(f)
Average FY2015 to FY2017 inclusive	7.66cps

(f) indicates forecast result.

I have chosen to use the last three years of operation as indicative, as these years include the full contribution of the Reverse Mortgage Portfolio, a critical component of Heartland going forwards.

SNOOPY

[Snoopy]

So the model is nonsense then

No, but it doesn't work well for high growth shares. And it doesn't work at all if no dividend is paid.

Working backwards from a 155 share price and using my 13% growth rate the implied discount rate is 18.5%

Yep, 18.5% is probably a realistic assessment of the combined risk of the good upside (covered extensively in this thread) and the bad downside (only covered in one post, my 8616) of Heartland going forwards.

SNOOPY

[Snoopy]

Category	Example	Acceptable Yield
Tier 2 Finance Industry Company	Heartland Bank	7.5%

Note that the financial year starts on 1st July of the previous calendar year and ends on 30th June.

Year	Dividends Paid 'per share'	Significant Event During Year'
Average FY2015 to FY2017 inclusive	7.66cps

I have chosen to use the last three years of operation as indicative, as these years include the full contribution of the Reverse Mortgage Portfolio, a critical component of Heartland going forwards.

Plugging in a representative yield, one that represents the ups and downs of the banking cycle of Heartland in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation

(Representative Dividend per Share) / (Acceptable Yield) = Share Price (an algebraeic manipulation of: Dividend per Share / Share Price = Yield )

7.66c / 0.72 x 0.075 = $1.42

A reminder here that NTA was 91cps at balance date. This means my fair valuation is at a good premium to asset value, a credit to management from the rag tag of assets that they started with.

This $1.42 valuation is measured at the average point in the business cycle. One might argue that we are now riding high in the business cycle and that this $1.42 valuation is consequently too low given today's circumstances. I wouldn't argue with that. But, ever the bargain hound, neither would I look at buying any shares myself until that share price drifts down to that $1.42 level. Don't say that Snoopy didn't warn you!

SNOOPY

[Snow Leopard]

[Snow Leopard]

...(Representative Dividend per Share) / (Acceptable Yield) = Share Price (an algebraeic manipulation of: Dividend per Share / Share Price = Yield )

7.66c / 0.075 = $1.02...

You forgot to gross up the divvy



Best Wishes
Paper Tiger