HGH - Heartland Group Holdings

[JeremyALD]

200K share sale tomorrow. Could put some pressure on the upward SP? Hopefully not a director!

[Beagle]

Welcome to the Heartland Bank B***s*** Bubble.

I am probably going to reverse my decision to take the DRP


Best Wishes
Paper Tiger

I see you didn't have HBL as one of your picks in the 2017 share trader competition either. How are your alternative picks going for you in this year's competition PT ?

[iceman]

Why its worth more.
1. We cannot ignore the fact that HBL has grown its EPS faster in recent years than the Aussie banks.
2. This trend is set to continue, see below therefore a PE premium is warranted compared to its peer group.
3. The following are the forecast PE's for its peer group for FY17, FY18 and FY19 followed by average analyst expected EPS growth in percentage terms bolded from FY17 to FY19 All data off average analysis forecast off 4 traders
Bendigo BEN 13.2, 13.1, 13.3, EPS growth expected -1%
NAB 13.6, 13.4, 13 4%
WBC 14.5, 14, 13.6 6%
ANZ 13.4, 13.2 12.5 7%
Bank of Queensland BOQ 12.9, 12.6 12.3 4.5%
HBL 13.8 12.6 11.9 14%

The average FY19 PE which takes into account average forecasted growth to FY19 is 12.77

4. Even if you make the case, (which I don't) that HBL will only enjoy two more years of abnormal growth before reverting to the very modest rates the Australian banks are "enjoying" for HBL to be trading at the average of its peer group the SP is likely to outperform its peer group by 12.77 / 11.9 = 7.3% over the next two years.

5. Even now based on average estimated 2017 earnings the peer group is trading at an average PE of 13.56 and HBL at 13.8 represents only a tiny premium which taking into account its historical growth outperformance and projected stronger growth and I think the current market PE premium is not properly recognizing this superior growth.

6. I think given the distinct possibility that HBL's growth will continue to outperform its peers post FY19 I think that a minimum further 7.3% rerating will happen over the foreseeable future, probably this year.

7. Relative to its peer group I therefore value HBL at 1.64 + 7.3% = $1.76.

8. I think you can easily make the case that relative to its peer group given its considerably stronger historical and projected growth a PE premium of 1 on FY17 projected earnings is warranted.
Average FY 17 PE for Aussie banks excl HBL is 13.52.
HBL's current PE 13.8 HBL should be trading on a FY17 PE premium of at least 1 = 14.52 14.52 / 13.8 = 5.2% increase from here = $1.73

9. Investment case summary: I therefore think fair value for HBL is between $1.73 and $1.76 on an ex dividend basis and note it currently trades on a theoretical ex dividend price of $1.60.5 ($1.64- 0.035) so we have another ~ 10% rerating to go and then from there the price should continue to drift up in line with the 14% earnings growth to FY 19. My 2 year target price is therefore 1.76 x 1.14 = $2.01 and in the meantime based on 8.5 cps in annual fully imputed dividends we will be enjoying a gross dividend yield of 7.36% (8.5 / 160.5) / 0.72.
Disc: Hold and fully subscribed to dividend reinvestment plan.

Phew. Makes me confident to continue holding, accumulating and taking DRP like I have been since it was called Building Society Holdings :-)
Where I think the SP will be in a few months has little bearing on my investment in HBL, just like it hasn't for all these years. We've had long period of flatlines, some drops but overall a steady significant uptrend longer term. Right now I can not see any signs of that slowing for the foreseeable future. My view is that HBL is a good steady long term hold. Not interested in trading it.

But this is good work Roger. Thanks.

[Beagle]

Phew. Makes me confident to continue holding, accumulating and taking DRP like I have been since it was called Building Society Holdings :-)
Where I think the SP will be in a few months has little bearing on my investment in HBL, just like it hasn't for all these years. We've had long period of flatlines, some drops but overall a steady significant uptrend longer term. Right now I can not see any signs of that slowing for the foreseeable future. My view is that HBL is a good steady long term hold. Not interested in trading it.

But this is good work Roger. Thanks.

You're most welcome mate. My ancient steam powered abacus nearly overheated working that out and to be honest I was also quite relived with my own findings and am now very content to hold for the foreseeable future. I realized we were long overdue for a good thorough comparative PE analysis and the old saying that readily sprang to mind was "if you want a job done, do it yourself"
Goes without saying others will have their own theories of what its theoretically worth and without in any way knocking others valuation methodologies I prefer to back my own with a good hard comparative peer group analysis. I really think HBL is probably worth slightly more than a PE premium of 1 compared to its peer group, (its historical and projected growth is quite significantly higher), but I prefer to take a fairly conservative view at this stage because its a relatively young company. Lets get some more runs on the board over the next few years and we might see even further outperformance in the years ahead !

[winner69]

Good analysis Roger but comparing multiples v Australian banks needs to take into account the 'The Trans Tasman Discount' for want of a better description

Like AIR on a PE of 6.8 v QAN (a much inferior proposition) on a PE of 8.4
Like FBU on a PE of 13.6 and Boral BLD on a PE of 17.9

I would say that the 'Trans Tasman Discount' needs to be say 2 multiples. .....but as they are such a superior bank with world class management lets give them a bonus of 1 and say HBL PE should be 1 less than its 'peer group' as you call it and not at a premium

What does that do to your target - I'd work it out but but you didn't show an eps figure anywhere.






Hope this doesn't get me banished from this thread ha ha

[Beagle]

Good analysis Roger but comparing multiples v Australian banks needs to take into account the 'The Trans Tasman Discount' for want of a better description

Like AIR on a PE of 6.8 v QAN (a much inferior proposition) on a PE of 8.4
Like FBU on a PE of 13.6 and Boral BLD on a PE of 17.9

I would say that the 'Trans Tasman Discount' needs to be say 2 multiples. .....but as they are such a superior bank with world class management lets give them a bonus of 1 and say HBL PE should be 1 less than its 'peer group' as you call it and not at a premium

What does that do to your target - I'd work it out but but you didn't show an eps figure anywhere.

Hope this doesn't get me banished from this thread ha ha

I'm not "buying" the Trans Tasman multiple discount theory mate and I think N.Z. analysts coverage of AIR is at best very average so I prefer to do my own and listen to Mod.
I think FBU's discount is warranted because its simply a company that somehow always should have done better but never does, a perennial disappointer.
AIR still good sound value and continue to hold, better value that QAN which is only fair value.

[winner69]

I'm not "buying" the Trans Tasman multiple discount theory mate and I think N.Z. analysts coverage of AIR is at best very average so I prefer to do my own and listen to Mod.
I think FBU's discount is warranted because its simply a company that somehow always should have done better but never does, a perennial disappointer.
AIR still good sound value and continue to hold, better value that QAN which is only fair value.

Fair enough, just different opinios ..... but over many years NZX multiples generally have tended to be lower thn NZX ones ....but luckily these days the old this time it's different is working out.

So the old Efficient Market Hypothesis you mentioned earlier doesn't apply to AIR then?

[Baa_Baa]

Very interesting reading, it's like Nov-Dec 2014 all over again when the rampers fired into overdrive and the lemmings piled into HBL, but the lemmings didn't hear about rampers' sell-downs until a few months after they exited.

What followed was an extended period of down-ramping, justified by all sorts of reasoning which is now pronounced as defunct, but could only have left the lemmings who held wondering about their circumstances, many of whom will have sold.

I know the behoved don't intend to ramp the SP per se, but we have seen before that the buying announcements and their excitement is forecast inline with, or in front of, the SP rises. Because the lemmings lap it up.

Yet as soon as the SP weakness emerges, which it inevitably does, the same rampers are gone-burger, in a heartbeat, but their exit is not announced until the ramper is well gone and the hapless lemmings are left holding wondering WTF happened and when will it recover.

So far that hasn't mattered too much as the lemmings who held have made their money back, but the rampers and subsequent down-rampers have made a lot more.

Those with the insights and the expertise to assess and trade the market are to be admired and considered, but taking their advice based on what and more importantly when they post, is folly.

DYOR.
BAA

[Beagle]

Fair enough, just different opinios ..... but over many years NZX multiples generally have tended to be lower thn NZX ones ....but luckily these days the old this time it's different is working out.

So the old Efficient Market Hypothesis you mentioned earlier doesn't apply to AIR then?

LOL probably a better place to discuss is the AIR thread mate but in summary QAN currently doing very well indeed in this sustained low oil price environment with its current business model, less capital intensive older fleet, higher gearing and union wage freeze for a number of years due to union agreements regarding restructuring after their $2.8billion loss. Going forward their business model becomes less robust if oil heads back to $70-80 barrel and once their wage freezes come off but seeing as we seem to be in a sustained period of benign oil prices Australian analysts appear to be enjoying a plentiful supply of happy pills whereas all N.Z. analysts seem to focus on is the new competition that's arrived for AIR. Over time I think we'll see AIR's more modern fuel efficient fleet and lower gearing pay off in terms of resilience if there's any further headwinds for the industry. I expect over time their PE's will align more closely....but I have been thinking that for a while now and it hasn't happened yet so predictions about the future are fraught with risk that's for sure mate

Returning to HBL its interesting to note that their peer group are on average expecting 2% per annum EPS growth for the next two years whereas HBL is expecting 7% per annum.
Taking into account there projections are also backed by years of similar historical growth differences normally I would ascribe a PE premium of 5 to a stock growing consistently 5% faster than a direct competitor. Ben graham would go even further !
Benjamin Graham's model of 8.5 PE for a no growth company + 2g suggests where g = 2 for the Aussie banks gives a fair PE of 12.5 for HBL's peer group.
On the other hand his model of 8.5 + 2g where g = 7 suggests HBL's fair PE should be 22.5 . But what would Benjamin Grahame know...
22.5 x historical EPS of 11 cps = $2.47 so HBL could be said to be worth as much as nearly $2.50 fully accounting for its substantially superior historical and projected growth rates compared to its peers ! $2.50 theoretical value is almost sure to ruffle some feathers, get some fur flying and maybe rub some wool up the wrong way judging by the post directly above
Disc: Just good banter, not intended to be investment advice for anyone else.

[tim23]

I just happen to like my shares in 5000 multiples I don't use the DRP QUOTE=Paper Tiger;659289]I know of only one valuation that is higher than the current share price but the average is less.
My attempt is also less than the current SP and that is the most important one for me.

So, why bother to round up the number of shares you own?

Best Wishes
Paper Tiger[/QUOTE]