HGH - Heartland Group Holdings

[Grimy]

Not many left at $1.14 on the sell side. Better be quick mate.

I topped up with a few more at 1.14 today. I haven't got that many, but average is still .90c so quite happy.

[noodles]

1) I read somewhere that a criticism of HNZ was that it wasn't scalable enough. Many on this thread think it has great growth opportunities ahead. Where specifically do you see this growth?

2) What don't you like about this stock? Is anybody not a fan? Why not?

Cheers,
NBT

I own Heartland. I think it is a hold at the moment. I am surprised it is trading so high given that analysts have target values of around $1. Yield hunters don't care about about earnings I suppose. The jury is still out on the success of the HER business.

Triggers for rerate or me to buy more:
1. earnings accretive acquisitions
2. ROE > 10%
3. Growth in HER
4. Other Capital Management initiatives (buy back/ special dividend)

Risks:
- (long term) Peer to peer lending (they do have an interest in Harmony, but I'm not sure that mitigates the risk)
- (short term) DPC have already flagged that the Auckland car lending market is getting very aggressive (reduced margins). Their Marac business may be suffering

Percy has been very right about the excellent characteristics of management and I suggest you read his posts to get a positive view on the company.

I do not believe that Roger and Winner69 will be correct in their profit assumptions. I'm quite happy to be wrong and will likely be buying if we get any forecast upgrades of the magnitude that they predict.

[winner69]

Good post noodles, even though you doubt my and Rogers forecast.

Those forecasts are all based on Heartland continuing to achieve what they said they will do. Percy is right, they always do.

Take for instance achieving 10% ROE. Equity will be about $470m so to do what they said is $47m NPAT. Anything less is EPIC FAIL. Not achieving what they said they will do.

Off course they could do some clever stuff like a capital return and achieve 10% ROE on a say $44m NPAT. To me still an EPIC FAIL. Financial engineering to achieve a result would be disappointing and to me a broken promise.

Sticking with close to $50m NPAT .....after all that is what achieving what they said they would do comes up with. Otherwise all those speeches and pretty presentations have just been rhetoric to give themselves and some punters the warm fuzzies.

[percy]

With my open mind view of diversity, I am not prejudice as to how Heartland achieve the 10% ROE.
Any form of financial engineering gladly accepted.A nice share buy back will give me a larger slice of the cake.!
Bring it on.!!! lol.

[noodles]

With my open mind view of diversity, I am not prejudice as to how Heartland achieve the 10% ROE.
Any form of financial engineering gladly accepted.A nice share buy back will give me a larger slice of the cake.!
Bring it on.!!! lol.

Peter Lynch would say go for the buyback. He calls acquisitions "deworsification".

[winner69]

With my open mind view of diversity, I am not prejudice as to how Heartland achieve the 10% ROE.
Any form of financial engineering gladly accepted.A nice share buy back will give me a larger slice of the cake.!
Bring it on.!!! lol.

Ha ha

But does it always work out better for shareholders who think they have a bigger slice of the cake?

[percy]

Ha ha

But does it always work out better for shareholders who think they have a bigger slice of the cake?

Whom am I to argue with Peter Lynch????!!!!!!!!!!!!! lol.

[Beagle]

Noodles - Thanks for expressing your view.
My view is based on
1. Interest margins at HNZ are nearly double the sector average.
2. HNZ are known to be looking at parts of the GE book
3. HNZ are in acquisition mode
4. Very low interest rates are here for the foreseeable future which is assistive to some continued margin expansion
5. Lower fuel prices are assistive to consumers in terms of lowering delinquency rates AND boosting credit demand, (people feel better about their financial situation...want a better car e.t.c.)
6. $11m Q1 result when spending a lot on advertising for the HER re-boot
7. Average analyst forecast is 9.95 cents EPS - 11.3 2015 PE is very cheap for a bank, especially one growing EPS
8. Low interest rates have allowed considerable market PE expansion so 11.3 is both very cheap relative to its peers, (Australian regional banks), most of whom are trading on about 15 and relative to the market average
9. Gross dividend yield estimated at 8.6% , based on my estimate of dividends of 7 cps this year fully imputed (7 / .72) 9.72 cents gross
10. PE's are really stretched in N.Z. with the vast majority of stocks looking either over-priced or fully priced. HNZ isn't one of them.

Risks
1, Some exposure to the dairy sector
2. Escrow period for vendor of HER business ends in April and they are known to want to sell their stake.


I think these two factors are presently holding the stock back a bit.

[nextbigthing]

I see from the Annual Meeting, 31 October 2014 notes, on page 22 they state NPAT forecast 2015 is $42-45M and on p23 this forecast is based on 'business as usual' and does not include new initiatives and acquisitions. ANZ tells me the total issue is 467M shares.

$45M / 467M shares = 9.64CPS (using $45M as the Q1 report suggests things are looking ok so use higher guidance).

9.64CPS / 113 shareprice = 8.5% return if business is as usual. Not too bad given this is only 'usual' and there's potential upside through acquisitions and new initiatives.

Taking Motor vehicle finance as an acquisition example, from http://www.mtf.co.nz/pdf/investors/2...ual_report.pdf their profit is roughly $6M from equity of approx $80M giving a 7.5% return. How would they work this takeover? In terms price paid, funding it and making sure it added to the ROE (return on equity). Any ideas?

Also, has anyone heard of any 'new initiatives?' Have they given anything away at AGM's etc? Any ideas?

NBT

[percy]

nextbigthing.
MTF equity.I think you are including $40mil of perpetual bonds as equity?
There are 23,073,229 MTF shares on issue.They have been trading on sharemart for approx. 95cents.
They can only be owned by "originators" ie MTF franchise holders or car dealers who discount their finance deals via MTF.