HMY - Harmoney Corp Limited

[jimdog31]

Well HGH did buy more last year but us cynics will have a view on the underlying reason for that. But I'd say two areas

Modestly rising interest rates are net net a positive for financial institutions. Rapidly rising inflation and rapidly rising interest rates (that still aren't keeping up with inflation) aren't. If discretionary spending turns off people won't need as many loans or harmoney's service. More relevant are inflations impact on peoples ability to service their debts and later on if interest rates create higher levels of unemployment - both those influence incurred credit losses, which impacts the bottom line. The wholesale funding HMY and other instos rely on also have certain credit quality covenants, which if breached could see undrawn funding lines withdrawn. Stagflation is getting mentioned more and more, so not surprising to see sentiment wane.

The other item is Heartland is a capital constrained business. It has prudential capital adequacy rules it must follow. It pays out high levels of profit in the form of dividend. And they recently acquired an australian business and probably debt funded it which may reduce their last reported capital adequacy stats. The capital adequacy requirements are lifting and its possible in a few years heartland may have to either reduce their dividend payout ratio or raise capital (or some combination of both) in order to meet them. So probably not the best use of its scarce resources to further invest into an early stage, high risk fintech that won't be paying dividends for the new several years.

See post 506 for more on heartland - one that I have a personally meaningful position in and doing a lot of work on in a personal capacity.

EDIT - apols on re-reading I know that all read negatively, not my intention on a day where the q3 release had excellent credit stats and record growth etc and not saying stagflation is going to happen, just how the market may perceive it and how it could impact the business. and i think its good to have eyes wide open at the moment

hey moose, in your workings, have you looked into what potential credit losses flow from the 90 day arrears?

how do they calculate the 0.46% of arrears ? is it based on total book value? I guess while the loan book value is increasing qoq its easy for this figure to come down as the base thats being calculated against is increasing?

Whats your best guess at incurred credit losses for 2022 and 2023? (all things being equal, not necessarily weighting 2023 higher based on the current state of the world)