HGH - Heartland Group Holdings

[Xerof]

I like the model Snoopdog, but using a gross Div of 9.8 and my own acceptable yield of 6.25, I get a share price of $1.56

I think currently the market agrees with me

[JeremyALD]

HBL is as solid as they come. Things are looking good at least in the short term.

Does anyone know how much HBL borrows offshore compared to onshore? Rising interest rates overseas may sqeeuze their margins a bit.

[percy]

HBL is as solid as they come. Things are looking good at least in the short term.

Does anyone know how much HBL borrows offshore compared to onshore? Rising interest rates overseas may sqeeuze their margins a bit.

They have bank funding in Australia [from I think CBA] for their Australian Reverse Mortgages.
NZ lending is funded in NZ .
So you could say they have no offshore borrowings,

[JeremyALD]

They have bank funding in Australia [from I think CBA] for their Australian Reverse Mortgages.
NZ lending is funded in NZ .
So you could say they have no offshore borrowings,

Even better, thanks Percy.

[Snoopy]

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.

It is always good to be able to cross check these valuations with another method.

The price paid for UDC was a 60% premium to net asset backing. The HLB asset backing was 91c

1.6 x $0.91 = $1.46

Of course this would include a premium for control. If that premium was between 10% and 20%, this would imply a daily trading valuation for HLB of $1.22 to $1.33.

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!

I should add to the above that Snoopy always likes to buy below fair value. For a bond like asset I look for a discount of 20%. So I would be looking to pick up HBL shares in the early $1.20s.

SNOOPY

discl: do not hold HBL

[percy]

You have had five and half years to buy into HBL.From 45 cents upwards.
You have believed your own poorly thought out posts , and missed the boat.
Your investment model has let you down,time and time again,while HBL shareholders have enjoyed the benefits from sound research, which works.
May be time for you to read "The Zulu Principle" by Jim Slater.Google it, and be prepared to learn how to invest profitably .You would have avoided from losing your capital with ARI,and made a healthy with HBL.
"Better to pay a fair price for a good company,than a good price for a fair company."

[Snoopy]

Snoopy I am sure it will not surprise you that I think they can grow dividends in line with EPS growth.

Roger, for my modelling I have used historical EPS figures. I said I was using a 'no growth' outlook. But I did not consider the increasing number of shares on issue every year. So even though I am assuming no EPS growth, I am not assuming no growth.

Financial Year	No. Shares on issue EOFY	Increase on Previous Year
2013	388.704m	0%
2014	463.266m	+13%
2015	469.980m	+6.7%
2016	476.469m	+1.4%
2017	500m (f)	+4.9%

(f) Forecast based on $20m shares issued at $1.46 (already placed) and $10m shares issued at $1.46 (signalled share purcahse plan) plus some DRP shares.

Over the five year period under consideration, the average number of shares on issue is:

388.704m x (1+g)^5 = 500m => g = 5.15%

This means that I was assuming in my model, earnings growth in dollar terms of 5.15% per year, through good times and bad. I think that is a more than fair assumption for earnings growth going forwards too.

Previously I was trying to figure out how I would tweak my 'no growth' assumption to incorporate some modest growth. Now that I have figured out that I have effectively alkready done just that, no more tweaking of my model will be required. I think my $1.42 valuation base for HBL is very fair.

Heartland closed at $1.56 on Friday. If we strip out from that a 3.5c upcoming dividend (the same as last year), then the underlying share price is $1.525. That is 7.4% overvalued by my calculations. Sounds about right given the rest of the market, on average., is probably overvalued too!

SNOOPY

[Snoopy]

I like the model Snoopdog, but using a gross Div of 9.8 and my own acceptable yield of 6.25, I get a share price of $1.56

I think currently the market agrees with me

9.8c / $1.56 = 6.25% ?

I have never been a big fan of bonds. But years ago when Westfield was listed in NZ, I remember taking out a medium term ( 2 year IIRC ) bond and getting something like 8.5% and feeling very pleased with myself. I was pleased because 'big bank' deposit rates had declined to something between 6% and 7% at the time. This was all before the GFC of course, and the collapse of all those higher interest options like MARAC that was subsequently rescued and recycled into Heartland Bank. Back in the day if someone had offered me a MARAC bond at 6.25% I would have said (or did say) 'not a chance'.

Fast forward to today and ask me if I would like a descendent of that bond that pays 6.25%, let's just say I would be nervous about the 'risk reward' ratio. Granted interest rates are generally lower now, and maybe your 6.25% expectation that aligns with Mr Market is realistic Xerof? But buying a second tier finance 'bond' with such a low coupon rate does not sit well with this puppy.

Still this is not to say that you are wrong. Everyone is entitled to their own view of risk verses reward Xerof.

SNOOPY

[Snoopy]

You have had five and half years to buy into HBL.From 45 cents upwards.
You have believed your own poorly thought out posts , and missed the boat.
Your investment model has let you down,time and time again,while HBL shareholders have enjoyed the benefits from sound research, which works.
May be time for you to read "The Zulu Principle" by Jim Slater.Google it, and be prepared to learn how to invest profitably.
"Better to pay a fair price for a good company,than a good price for a fair company."

That last line reminds me of a Buffettism.

"Better to buy a wonderful company at a fair price, than a fair company at a wonderful price."

The question is what makes a wonderful company, or even a good company? I would argue 'a good company' is not a rag tag of assets with MARAC being stuck together with the Canterbury Building Society to bail it out, with George Kerr organizing a capital raising to make it viable. If anything 45c sounds like a wonderful price for a fair company at best.

You argue the Jim Slater approach. But this is all about building up industry specialisation knowledge with particular focus on small cap companies that fly under the radar. Granted Heartland ticked the small cap box in FY2013. But how did it stack up against other finance company investments? Most alternatives had gone bust during the GFC, but that does automatically make the survivors a good investment. I couldn't answer any comparative question at that time, because my knowledge of the banking and finance industry was insufficient. So your solution was that I should have dived into Heartland shares at the deep end? Since that time I have spent many hours building this specialist banking knowledge up. I think Jim Slater would be proud of me!

And how does Heartland stack up today? I would argue not particularly well with my own principal banking investment ANZ. This is what investing according to the Zulu principle is all about. Building up specialist knowkedge, independent of management spin, and applying it in a comparative sense.

SNOOPY

[percy]

Wrong as always on this thread.
According to our friends at Yahoo finance.Share prices
..................1 year....................2 year...................5 year.
ANZ...........29.85%.............minus 15.96%............36.84%
HBL............39.29%...................12.23%.... ...........231.91.
You keep your under performer,and I will keep my high achiever..
So $10,000 miss placed in ANZ 5 years ago would be worth $13,684.00
Same amount invested in HBL would be worth $23,191.00.