HGH - Heartland Group Holdings

[Cyclical]

IIRC HGH has been in the mid 80c range in intraday trading already. Your price target may end up being correct Cyclical. So what is your strategy from this? Buy at 81c (to get one step ahead of the round number brigade bidding at 80c). Or if it gets to 85c, do you revise your bid down to 75c? I guess it all depends on how much of what you think is focussed on the moment. If you regard Heartland as having a future (and I accept there may be those out there who don't) I think you have to focus on what it will look like coming out the other side.

SNOOPY

Truth be known, I did try to buy some at 90 late the other day, but the ASB platform just couldn't get it done before close. I'd be happy to get on the board at that sort of figure, but would certainly be keen to average down into the 80s or less if it comes to it. Then again, there's always the FOMO risk... But with so many tasty pickings on the market at the moment, at least 1 or 2 are going to hit a lean target price at some point.

More recently I bought a third tranche of HGH shares at $1.10. I probably could have paid a bit less. But coming out of this, whether I bought in at $1.20 or $1 or even less is not going to be material IMO.

SNOOPY

You say that, and maybe you have a broad and expansive portfolio, so it's less material, but for me, at the end of the day, if you can get 20% more shares for the same amount of dollars, and they are up around $2 (divvy included maybe) in a few years time, then you are going to get ~40% more return on your original investment.

[Cyclical]

I doubt if selling or buying in the US over the next week will have any effect on the business of HGH in a years time. I am not saying that HGH will be trading in a years time as though nothing has happened. Remember the HGH share price has already reduced substantially. I am saying it is a time for careful accumulation. And largely unconnected hysteria in US markets could provide the opportunity for savvy NZ investors to do just that.

SNOOPY

Agreed. And what opportunities there are.

[Cyclical]

I agree Cyclical that a correction is well overdue. So lets take some time to try and figure out what Heartland might look like coming out the other side. I will start.

From a 'market perspective', I think any hope of HGH trading at a 'premium' to other finance sector shares is gone.

From an operational perspective, I expect the reverse mortgage business to grow because it is one of the few ways for older NZers and OZers to access capital. They may even do it to help bail out their son's and daughter's businesses as the only source of wider family finance!

I expect the new car market will be hit hard and that will affect Heartland's motor industry finance going forwards. I don't expect existing customers to stop paying their loans as their car may be their only escape (and way to get to a job interview) from lock down for the unemployed, OR the safest way to get to work for those still employed. No-one will be keen to repossess cars, because who are they going to sell them on to? Better to work out an arrangement with your existing customers, even if Heartland has to take their share of a hit while doing it. For customers on lease arrangements, that end of lease residual value of the vehicle could be an issue for Heartland.

Providing seasonal rural financing looks to remain a strong pillar of the business. The competitive advantage that competitors 'Allied Farmers' and 'PGG Wrightson' had is now gone with the physical sale yards being closed own. From being a weak third player, Heartland, without any restriction about buying and selling through the same agent like their competitors, looks to have moved to market position of relative advantage in 'paddock to paddock' livestock sales.

I agree with Beagle that some of those Harmony unsecured P to P loans might be in trouble. But what proportion of Heartland's loan book will this effect?

Some thoughts off the top of my head. Not all of them bad. Interested to hear where other Heartland shareholders think HGH is going.

SNOOPY

Nice summary, thanks Snoopy.

[winner69]

Business failures increased significantly post GFC ...many took a few years to fail.

I would contend that economic damage as a result of the virus will be greater than because of the GFC

Wonder what this chart (courtesy of Motu) will look like in five years time ....

........and how many were Heartland customers

[Snoopy]

Business failures increased significantly post GFC ...many took a few years to fail.

I would contend that economic damage as a result of the virus will be greater than because of the GFC

Wonder what this chart (courtesy of Motu) will look like in five years time ....

........and how many were Heartland customers

I can answer the last bit. Coming out of the GFC none were Heartland customers. Because Heartland did not exist before the GFC!

Interesting chart there Winner. Are those scales on the side of the graph the number of business failures per month? What I found of interest in that chart was that the personal bankruptcies (perhaps more aligned with small business failure?) had a tough couple of years following the GFC but then reverted top a more normal level after four years. However corporate failures (perhaps more aligned with medium and large businesses) had high initial failure, then a quieter period, more indicative of pre-GFC levels just two years later. Yet between 2011 and 2014 inclusive there was a second wave of corporate business failure. That means the disruption due to corporate failure went on for far longer than individual financial failure overall . I would count that graph as suggesting in the end that things might be relatively 'less bad' for Heartland and O4B going forwards as compared to the bigger banks supporting medium to large businesses.

Was there any explanation offered in the article on the variation in timeline gyrations between the individual and corporates? In particular a comment on what caused that 'second wave' of corporate failure?

SNOOPY

[winner69]

I can answer the last bit. Coming out of the GFC none were Heartland customers. Because Heartland did not exist before the GFC!

Interesting chart there Winner. Are those scales on the side of the graph the number of business failures per month? What I found of interest in that chart was that the personal bankruptcies (perhaps more aligned with small business failure?) had a tough couple of years following the GFC but then reverted top a more normal level after four years. However corporate failures (perhaps more aligned with medium and large businesses) had high initial failure, then a quieter period, more indicative of pre-GFC levels just two years later. Yet between 2011 and 2014 inclusive there was a second wave of corporate business failure. That means the disruption due to corporate failure went on for far longer than individual financial failure overall . I would count that graph as suggesting in the end that things might be relatively 'less bad' for Heartland and O4B going forwards as compared to the bigger banks supporting medium to large businesses.

Was there any explanation offered in the article on the variation in timeline gyrations between the individual and corporates? In particular a comment on what caused that 'second wave' of corporate failure?

SNOOPY

The full paper is here http://motu-www.motu.org.nz/wpapers/19_15.pdf

Being in lockdown gives you the time to study such things ...esp when it’s wet, windy and cold outside

[Biscuit]

The full paper is here http://motu-www.motu.org.nz/wpapers/19_15.pdf

Being in lockdown gives you the time to study such things ...esp when it’s wet, windy and cold outside

I like that, they have a summary haiku!

Summary haiku:
Businesses do fail.
Things get worse in recessions
as costs rise sharply.

[Beagle]

Business failures increased significantly post GFC ...many took a few years to fail.

I would contend that economic damage as a result of the virus will be greater than because of the GFC

Wonder what this chart (courtesy of Motu) will look like in five years time ....

........and how many were Heartland customers

Interesting image Winner. As we know Hoop reckons the average bear market is 11 months.
Many economists here and overseas now saying that they expect the effects of this virus will be worse than the GFC.
Some people think that we still haven't fixed the core systemic issues with poor quality loans from the last GFC, (mainly an issue for some European banks).
Govt doing a good job of propping things up for now as is the RBNZ providing an open tap liquidity to the N.Z. banking system, (from what I have heard and experienced the overnight interbank settlement system nearly failed recently after the near 3,000 point drop in the Dow)
HGH will do their best to support customers through this in much the same way as they did through the dairy crisis and hope things pan out okay in the end and maybe they will ?

Where they get a real belting, (in my opinion), is all the loose Harmoney type unsecured lending. I won't try and second guess the recovery point using fundamental analysis as there is no way to reliably predict the cost of this whole thing in terms of bad and doubtful debt provisioning. So much guesswork here its a waste of time speculating.

Technical analysis is your best friend at times like this. Really simple TA said people should have sold out when it broke down through the 100 day moving average which would have got people out at about $1.73. HGHchart.jpg

I think the effects play out over a number of years. Banks typically do it very tough in situations like this. I think I will do my best to wait for it to break back up through a new uptrend and its safer with this one to use the 100 day MA indicator.

My view is that the **** has only just started to hit the fan https://www.cnbc.com/2020/03/27/what...eek-ahead.html and there's plenty more to come.

[ratkin]

I think the effects play out over a number of years. Banks typically do it very tough in situations like this. I think I will do my best to wait for it to break back up through a new uptrend and its safer with this one to use the 100 day MA indicator.

My view is that the **** has only just started to hit the fan https://www.cnbc.com/2020/03/27/what...eek-ahead.html and there's plenty more to come.

Yeah, appears to be no rush, I have moved to weekly charts now, they will give a better true picture in the coming months, the dailies tend to have too many false signals. Fine if you are an active, nimble trader, but for an investor like yourself the weekly charts cut out the noise

[Baa_Baa]

Where they get a real belting, (in my opinion), is all the loose Harmoney type unsecured lending.

At only 5% of receivables $250m, Harmoney (including other consumer lending) is probably the lesser of their worries, with potential defaults in business and motor vehicle loans (representing a combined 47% $2133m receivables).

Heartland Receivables (Dec 2019)	$M	%
Reverse Mortgages	$ 1,424	31%
Motor Vehicle Finance	$ 1,124	25%
Harmoney & other consumer lending	$ 250	5%
Business Finance	$ 1,009	22%
Open for Business	$ 158	3%
Rural Finance	$ 621	14%
total	$ 4,586

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