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  1. #13321
    ShareTrader Legend Beagle's Avatar
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    I maintain that $250m is a big worry and the reason is this is all totally unsecured lending. Increasing numbers of people who have taken out loans for spurious consumer spending like holidays and retail splurges will be looking to do a full reset under the no asset procedure (short form bankruptcy) while they're unemployed. The recovery in this type of situation will be zero.

    Also a lot of consumer vehicle lending has been with minimum guaranteed buy-back provisions and with the vehicle market about to take a big dive I would think a lot of customers who are making payments will be walking away at the end of the term as the residual guaranteed values on Holden's for example exceed their realistic market value.

    HGH are wide open to some big bad and doubtful debt provisioning with the type of lending they have been doing. They are however well capitalised as has been recently acknowledged by Fitch but a capital raise at some stage this year would not surprise me in the slightest.
    Last edited by Beagle; 22-05-2020 at 03:13 PM.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
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  2. #13322
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    Quote Originally Posted by Beagle View Post
    I maintain that $250m is a big worry and the reason is this is all totally unsecured lending. Increasing numbers of people who have taken out loans for spurious consumer spending like holidays and retail splurges will be looking to do a full reset under the no asset procedure (short form bankruptcy) while they're unemployed. The recovery in this type of situation will be zero.
    Maybe a fair chunk of it went to Air New Zealand ....do Harmoney take Air NZ credits as payments.
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  3. #13323
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    Quote Originally Posted by winner69 View Post
    Maybe a fair chunk of it went to Air New Zealand ....do Harmoney take Air NZ credits as payments.
    Hahaha.Fly byes

  4. #13324
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    Quote Originally Posted by Beagle View Post
    I maintain that $250m is a big worry and the reason is this is all totally unsecured lending.
    How much is HGH lending though, versus punters and other larger lenders using the platform? Can a case be made as to what % of the $250m receivables are at risk?

    I'm sure they're more concerned about the $2b receivables for MV and business finance.

  5. #13325
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    With reducing interest rates and now an easing of building consent legislation i can see alot of small to medium size loans been applied for.
    Time to get that sleepout and carport done
    Last edited by nevchev; 24-05-2020 at 05:29 PM.

  6. #13326
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    Default Heartland's Motor Vehicle Loans Outlook FY2020/FY2021

    Quote Originally Posted by Snoopy View Post
    Motor vehicle loans is likely to be more of a slow moving problem. There will be no appetite to repossess a whole lot of vehicles en masse. In this environment there would be no-one to sell them to. Better to let things slow burn, and even put aside some car payments, deferring them to the end of the lease when a lump sum of capital becomes available. It is very hard to form a meaningful view of what happens to a motor loan that expires in 2-3 years. Kicking the loan down the road looks like the only short term solution.
    I have been looking at some motor vehicle year to date sales figures.

    https://www.mia.org.nz/Portals/0/MIA...es%20Table.xls

    Kia right on top in the lockdown month of April, even outselling perennial market leaders Toyota. And Heartland are the ones that finance Kia sales - wow! YTD Kia is in 5th place just behind Holden (also financed by Heartland). Kia being a 'budget' brand might grow. They seem to be having great success with the new Seltos small SUV. Let's say sales grow 10% in FY2021. Yet Holden is a zombie company now, so that part of the Heartland business will probably disappear altogether in three years as present day Holden loans unwind. Jaguar/Land Rover are the other brand financed by Heartland, as are Hino trucks. But they are both niche players and don't appear on the top 15 sales statistics.

    Jaguar Land Rover are having some sales issues globally but seem to be running hot in New Zealand.

    https://www.driven.co.nz/news/did-th...-back-in-1948/

    “For Jaguar, sales have experienced an increase of over 100 per cent since the launch of the F-Pace in 2017 and subsequent launches of the E-Pace and the EV I-Pace. Land Rover, too, has experienced double-digit percentage growth year on year thanks to the growth of the category but also having models with high-performance attributes."

    Prestige brands generally slow in sales during a recession though. So I am picking JLR sales might halve this calendar year.

    So what will all this do to Heartland's financing of new vehicles? Well, Heartland's financial year ends on 30th June. Only three months of the year will be 'post lockdown', so things might not be as ugly as some think. Particularly as dealers look to quit excess stock with sweet finance deals. Bad for motor dealers but ironically good for Heartland,

    The market is always forward looking though. So the real interest is, what will motor vehicle finance look like in FY2021? If you are Heartland, don't look in the mirror. You will see 'ugly'. If the base case for funding new vehicles is split for FY2020 45:45:10 between Holden:Kia:JLR (an educated guess) then FY2021 is likely to look like 0:50:5 on the same scale. That means new car financing down 45%.

    So what does this picture suggest for profitability in FY2021?

    As at December 2019 the motor vehicle finance book at Heartland was $1,124m. Let's guess new vehicle sales were $500m of that. So a 45% reduction would see a loss of:

    0.45 x $500m = $225m worth of finance business in turnover.

    Motor vehicle finance has traditionally had some of the best margins at Heartland. Heartland's AGM presentation had an ROE north of 15%. In recessionary times I am going to stick to the 15% figure. This means the earnings that Heartland will miss out on due to plunging new car finance deals will be around:

    0.15 x $225m = $34m

    Of course the annual hit won't be this much, as finance typically has a three year cycle. So the FY2021 hit will be about 1/3 of that, $11.4m

    I am guessing the FY2022 impact will be only half that in FY2021, $5.7m, but unfortunately the financing effect from FY2021 is cumulative into FY2022

    Underlying profit was around $74m in FY2019 (a bit less in FY2020?). So it looks like new car financing alone will knock Heartland's profit down to just shy of $63m, or a 15% drop.

    Lot's of figures pulled out of the air here.

    Anyone like to comment if I am on the right track?

    SNOOPY
    Last edited by Snoopy; 29-05-2020 at 02:48 PM.
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  7. #13327
    ShareTrader Legend Beagle's Avatar
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    Guaranteed future minimum values are a product HGH has been offering on loans. Holden resale value is under intense pressure at present with GM's decision to cease manufacture in RHD.
    Luxury car values could also come under serious pressure so the GFMV could see a fair percentage of Holden and JLR owners walking away from their vehicles at the end of the term and taking advantage of the guaranteed future minimum value which could exceed the resale value. Kia's should be okay.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

  8. #13328
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    I think it will take some time for "issues" arising from the Corona Virus to work their way through.
    Perhaps HGH's interim due February next year will give a full [fuller] picture.?
    In the meantime TRA's interim report, due in late November this year ,may give us a better idea of how motor vehicle financing is tracking.
    Last edited by percy; 24-05-2020 at 08:44 PM.

  9. #13329
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    Quote Originally Posted by Beagle View Post
    Guaranteed future minimum values are a product HGH has been offering on loans. Holden resale value is under intense pressure at present with GM's decision to cease manufacture in RHD.
    Luxury car values could also come under serious pressure so the GFMV could see a fair percentage of Holden and JLR owners walking away from their vehicles at the end of the term and taking advantage of the guaranteed future minimum value which could exceed the resale value. Kia's should be okay.
    I seem to recall on another thread you saying that you owned a 'newish Holden' Beagle, so I guess you have some personal interest in Holden residual values? Given what you have seen in the market, what value do you expect to see on your car when it is three years old? And how much lower will that be as a result of Holden becoming a 'zombie' brand?

    I don't suppose you bought it on finance through Heartland? Although if you had been offered a guaranteed buyback price by doing so, perhaps you now feel you should have taken a Heartland finance deal!

    SNOOPY
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  10. #13330
    ShareTrader Legend Beagle's Avatar
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    Quote Originally Posted by Snoopy View Post
    I seem to recall on another thread you saying that you owned a 'newish Holden' Beagle, so I guess you have some personal interest in Holden residual values? Given what you have seen in the market, what value do you expect to see on your car when it is three years old? And how much lower will that be as a result of Holden becoming a 'zombie' brand?

    I don't suppose you bought it on finance through Heartland? Although if you had been offered a guaranteed buyback price by doing so, perhaps you now feel you should have taken a Heartland finance deal!

    SNOOPY
    Yeap, I bought a Holden Calais V last year brand new.
    3 year residuals are typically expressed as a percentage of the original retail prices I am sure you know. Some cars fare really well such as a Honda Civic which have their one fair price for all and don't do any discounting even for rental car firms and 3 year residuals can be as high as in the mid 60% range.

    Residual value on Holdens are typically around 50% of original retail, (but nobody pays full retail for them), but will probably be less in the circumstances.
    Last edited by Beagle; 24-05-2020 at 09:42 PM.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

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