HGH - Heartland Group Holdings

[BlackPeter]

Horrific fires indeed .
Your post made me think about the financial consequences.
It may seem untimely to think about the financial implications of such huge destruction and economic damage but has HGH any exposure?

Actually - I asked at the last AGM the question how they see the risk of their securities in Australia being exposed to climate change (fire, drought, flooding, sea level rise). Not sure I (or they) expected the issue to come up that fast ... but from memory they said at the time that most of their customers live in suburban areas and that they have insurance ...

If / When the outskirts of Sydney, Melbourne and Adelaide go up in flames and the house insurers start showing stress signals then it might be a good time to review our holding in HGH shares ...

[Beagle]

BEN 13.0
ANZ 11.5
WBC 13.5
NAB 12.0
CBA 14.2
BOQ 13.3
HGH 13.6

I am sure we're all well aware of the issues the Australians banks have with under capitalisation and other serious issues as a result of the Australian banking enquiry.

HGH looks well priced to me compared to its peers, most of which have serious issues.

[Snoopy]

BEN 13.0
ANZ 11.5
WBC 13.5
NAB 12.0
CBA 14.2
BOQ 13.3
HGH 13.6

I am sure we're all well aware of the issues the Australians banks have with under capitalisation and other serious issues as a result of the Australian banking enquiry.

I don't HGH is priced for perfection in any way whatsoever.

Perhaps 'priced to perfection' was the wrong phrase to use. Perhaps I should have said 'priced assuming everything goes to plan'. I am well aware of the problems that need to be faced by the Australian banks and am not suggesting that putting your capital there is necessarily the right thing to do either. But as your own figures show Beagle, the calculated PE ratios for FY2020 shows that HGH has one of the highest. That would indicate that investors see Heartland as less problematical than everything but CBA (which ironically is still the largest wholesale funder of Heartland's reverse mortgage business in Australia). But 'less problematical' does not equate to 'problem free'.

Heartland still has the balance of their dairy farm loan portfolio to work through. The 'funding match issue' in Australia must work itself through. Transferring their own account holding customers to become Westpac customers in all but name is a strategy that might yet backfire. These are all serious issues which could have negative consequences if the eye is taken off the ball. I am not saying that these are certain problems that will hit the company hard. I am saying they have the potential to become problems, and, as such, an appropriate potential risk discount should be factored in when purchasing HGH shares. I don't think 'assuming everything goes to plan' does this.

SNOOPY

[Marilyn Munroe]

Transferring their own account holding customers to become Westpac customers in all but name is a strategy that might yet backfire.

SNOOPY

Snoopy, I have elderly relatives with a heartland account.

Can you please expand on this comment or provide a link.

Boop boop de do
Marilyn

[Beagle]

There's always a degree of issues with banks Snoopy, that's why they trade at such a big discount to the market median forward multiple of about 19 and always have.
Last time I looked at this, which wasn't long ago, HGH has forecast eps growth considerably more than its peers which I concluded warranted a PE premium of about 2 to its peer group. The lack of issues compared to its peers also warrants a PE premium of at least 1, possibly 2.

Further, any consideration of an appropriate forward PE is best referenced off its own PE range I mentioned the other day, 11 - 17.5. Its not expensive especially when viewed in the context of 10 year Govt stock at ~ 1.6% which itself warrants a PE premium of 2 compared to more normal times when the risk free rate is closer to 4%.

I think eps growth in FY21 is going to be very strong and I actually think the shares are a bit cheap and let's be honest at 7.5% gross yield we're being paid pretty handsomely to enjoy the fruits of future growth.

Close to record dairy payout forecast this year means there's little to concern yourself with there.

You worry too much mate. Looking at the glass as half full is usually far more rewarding than looking at it as half empty and looking for problems.

[Snoopy]

Snoopy, I have elderly relatives with a heartland account.

Can you please expand on this comment or provide a link.

Boop boop de do
Marilyn

Jeff made the comment at the AGM IIRC on a question a shareholder posed on customer service which was something to do with the Heartland no longer offering over the counter services at their branches (for example taking out cash) that might be expected from a bank. Heartland have outsourced their customer banking functions to Westpac as they feel they can better deploy their own capital resources elsewhere.

Have a look at this Wikipedia article on NZ bank account codes

https://en.wikipedia.org/wiki/New_Ze...account_number

Note that Heartland shares the bank account prefix number with Westpac and it is 03 for both. This is because Heartland bank accounts are now Westpac bank accounts but under another label. Now take a look at your elderly relative's bank account number. I bet it begins with '03'!

SNOOPY

[justakiwi]

Interesting. I didn’t realise that, but yep ... mine are 03.

This is because Heartland bank accounts are now Westpac bank accounts but under another label. Now take a look at your elderly relative's bank account number. I bet it begins with '03'!

SNOOPY

[percy]

Jeff made the comment at the AGM IIRC on a question a shareholder posed on customer service which was something to do with the Heartland no longer offering over the counter services at their branches (for example taking out cash) that might be expected from a bank. Heartland have outsourced their customer banking functions to Westpac as they feel they can better deploy their own capital resources elsewhere.

Have a look at this Wikipedia article on NZ bank account codes

https://en.wikipedia.org/wiki/New_Ze...account_number

Note that Heartland shares the bank account prefix number with Westpac and it is 03 for both. This is because Heartland bank accounts are now Westpac bank accounts but under another label. Now take a look at your elderly relative's bank account number. I bet it begins with '03'!

SNOOPY

Has been the case since Heartland Bank Ltd was formed.
HBL's banking "back office" out sourced.
Works well for shareholders who have a Westpac bank a/c as you get your divies straight away.
HBL have also avoided costly branch networks.
Clever people doing clever profitable things.
It is a bit like the book trade where publishers out source their distribution.Works well too,as they can concentrate on publishing and sales,or David Jones out sourcing their web site to Estar,as does Briscoes and others.
In HBL's case they can concentrate on products and digital channels [sales] .
One of the reasons why HBL have been able to bring down their cost of doing business,retaining their net interest margin [NIM] which is twice other banks'.

[Snoopy]

Has been the case since Heartland Bank Ltd was formed.
HBL's banking "back office" out sourced.
Works well for shareholders who have a Westpac bank a/c as you get your divies straight away.
HBL have also avoided costly branch networks.
Clever people doing clever profitable things.

That is one way of looking at it. The downside is that by forcing your customers into the arms of a competitor on a regular (or even an irregular) basis, you risk some future business being poached. You can risk alienating potential future customers, like me, who have had a less than satisfactory experience dealing with Westpac branches over the years. At the point where my local home branch Westpac was closed down I became a number. All very different to the Trustebank Canterbury I first joined all those years ago. But I digress, and I accept that others experience with Westpac, over the years, may have been very different. I should add that when I have been into my local Heartland branch, even prior to becoming a shareholder I have found Heartland's in house service exemplary.

I will invest in a company that is chasing a different demographic to me if it fulfills the needs of that demographic well. So for now i am prepared to hold my Heartland shares, even though I have no intention of putting money into the retail front end of Heartland . I am seriously thinking about pulling out of the DRP though. The last shares I got through the plan came through at $1.54. But potentially acquiring shares at more than $1.80 is not such an attractive prospect.

SNOOPY

[percy]

That is one way of looking at it. The downside is that by forcing your customers into the arms of a competitor on a regular (or even an irregular) basis, you risk some future business being poached. Then you risk alienating potential future customers, like me, who have had a less than satisfactory experience dealing with Westpac branches over the years. At the point where my local home branch Westpac was closed down I became a number. All very different to the Trustebank Canterbury I first joined all those years ago. But I digress, and I accept that others experience with Westpac, over the years, may have been very different. I should add that when I have been into my local Heartland branch, even prior to becoming a shareholder I have found Heartland's in house service exemplary.

I will invest in a company that is chasing a different demographic to me if it fulfills the needs of that demographic well. So for now i am prepared to hold my Heartland shares, even though I have no intention of putting money into the retail front end of Heartland . I am seriously thjinking about pulling out of the DRP though. The last shares I got through the plan came through at $1.54. But potentially acquiring shares at more than $1.80 is not such an attractive prospect.

SNOOPY

Downsides are mainly in your mind.?.
Outsourcing is sensible and works well.Saves HBL huge ongoing capital expenditure, while an "earner for Westpac.
Breech of contract would see Westpac sued.
DRP is an individual's decision,so my only comment would be that I always took DRP option in any company that offered it, while I was building up my investment portfolio.
Today being over 70 I now take cash.