HGH - Heartland Group Holdings

[RupertBear]

Ok I had to google Qomolangma....Mount Everest...WOW...interesting

[kiora]

The petition is gaining momentum,or not?
https://www.change.org/p/ministry-fo...e-south-island
https://www.stuff.co.nz/timaru-heral...h-island-crazy

[winner69]

The sanctuary will be sponsored / supported by Heartland and will be known as Hukarere Repara Marae or something like that

Good use of their funds

[Snoopy]

Industry Group Risk

From AR2016 note 18c, the greatest 'business group' risk in dollar terms is agriculture, with $628.202m worth of assets. This represents an increase of $90.916m over the previous year.

$628.202m/ $3,461.292m = 18% of all loans


Regional Risk

From AR2016 note 18b, the greatest regional area of credit risk in dollar terms is 'Rest of the North Island' , with $888.080m worth of assets. This represents:

$880.080m/ $3,461.392m = 25% of all loans

The 'Rest of North Island' loans (which excludes Auckland and Wellington) have risen 12.5% in numerical terms over the year, outstripping the growth of the previous largest region Auckland which only grew by 2% in gross loan amounts (Auckland still covers 24.5% of all loans) . This is a significant change for all other years where Auckland has been the largest market. Given 'Agriculture' loans have grown by 17% over the year, this 'growth' could reflect the compounding of agricultural interest charges into existing loans. According to AR2016 p7, dairy represent 7% of Heartland's total loan book.

0.07 x $3,461.392m = $242m

At an interest rate of 8%, assuming no interest was actually paid, this would increase the value of the Heartland loan book by:

$242m x 0.08 = $19.3m

Since the actual agricultural loan balance increased by $90.9m, we can assume that more net new agricultural loans were taken out, rather than just rolling over the dairy loan book. This is very much a contrast to traditional market leader ANZ.NZ who kept their total rural loan book static over the similar period. Looked at just in agricultural terms, you could say that Heartland are compounding their own problems for the future. But because the loan book in total has grown, reducing Heartland's relative reliance on Auckland is probably a positive.

The multi-year picture is shown below:

	2012	2013	2014	2015	2016
Largest Regional Market	Auckland (30%)	Auckland (30%)	Auckland (25%)	Auckland (26%)	Rest of North Island (25%)
Largest Industry Group Market	Agriculture (24%)	Agriculture (21%)	Agriculture (16%)	Agriculture (17%)	Agriculture (18%)

Industry Group Risk

From AR2017 note 18c, the greatest 'business group' risk in dollar terms is agriculture, with $757.004m worth of assets. This represents an increase of $129.334m over the previous year.

$757.004m/ $3,931.239m = 19% of all loans


Regional Risk

From AR2017 note 18b, the greatest regional area of credit risk in dollar terms is 'Rest of the North Island' , with $888.080m worth of assets. This represents:

$1.037.873m/ $3,931.239m = 26% of all loans

The 'Rest of North Island' loans (which excludes Auckland and Wellington) have risen 18% in numerical terms over the year, outstripping the growth of the previous largest region Auckland which only grew by 11% in gross loan amounts (Auckland still covers 24.0% of all loans) .

Given 'Agriculture' loans have grown by 18% over the year, this 'growth' could reflect yet more compounding of agricultural interest charges into existing loans. According to the FY2017 Annual Results presentation (page 15), dairy represented 8% of Heartland's total loan book.

0.08 x $3,931.239m = $314m

At an interest rate of 8%, assuming no interest was actually paid, this would increase the value of the Heartland dairy industry loan book by:

$314m x 0.08 = $25.2m

Since the actual agricultural loan balance increased by $129.334m, we can assume that more net new agricultural loans were taken out, rather than just rolling over the dairy loan book. This is logical when by 30th June 2017, it was becoming clear the dairy crisis was past its worst.

This is very much a contrast to traditional market leader ANZ.NZ who kept their total rural loan book static over the similar period (for the second year in a row) ($NZ19.205m @ 30th September 2017 vs $NZ19.226m @ 30th September 2016). I think agricultural loans will remain the key sector to watch when trying to forecast potential Heartland loan problems for the future.

Looked at just in agricultural terms, you could say that Heartland are potentially compounding their own problems for the future. Or is it just a case a putting more emphasis on their rural roots? Yet because the loan book in total has grown, reducing Heartland's relative reliance on Auckland is probably a positive.

The multi-year picture is shown below:

	2012	2013	2014	2015	2016	2017
Largest Regional Market	Auckland (30%)	Auckland (30%)	Auckland (25%)	Auckland (26%)	Rest of North Island (25%)	Rest of North Island (26%)
Largest Industry Group Market	Agriculture (24%)	Agriculture (21%)	Agriculture (16%)	Agriculture (17%)	Agriculture (18%)	Agriculture (19%)

SNOOPY

[kiora]

Thanks Snoopy Interesting observations around yet more compounding of agricultural interest charges into existing loans

[percy]

Industry Group Risk

From AR2017 note 18c, the greatest 'business group' risk in dollar terms is agriculture, with $757.004m worth of assets. This represents an increase of $128.802m over the previous year.

$757.004m/ $3,931.239m = 19% of all loans


Regional Risk

From AR2017 note 18b, the greatest regional area of credit risk in dollar terms is 'Rest of the North Island' , with $888.080m worth of assets. This represents:

$1.037.873m/ $3,931.239m = 26% of all loans

The 'Rest of North Island' loans (which excludes Auckland and Wellington) have risen 18% in numerical terms over the year, outstripping the growth of the previous largest region Auckland which only grew by 11% in gross loan amounts (Auckland still covers 24.0% of all loans) . Given 'Agriculture' loans have grown by 18% over the year, this 'growth' could reflect yet more compounding of agricultural interest charges into existing loans. According to the FY2017 Annual Results presentation (page 15), dairy represented 8% of Heartland's total loan book.

0.08 x $3,931.239m = $314m

At an interest rate of 8%, assuming no interest was actually paid, this would increase the value of the Heartland dairy industry loan book by:

$314m x 0.08 = $25.2m

Since the actual agricultural loan balance increased by $128.8m, we can assume that more net new agricultural loans were taken out, rather than just rolling over the dairy loan book. This is very much a contrast to traditional market leader ANZ.NZ who kept their total rural loan book static over the similar period (for the second year in a row). I think agricultural loans will remain the key sector to watch when trying to forecast potential Heartland loan problems for the future.

The multi-year picture is shown below:

	2012	2013	2014	2015	2016	2017
Largest Regional Market	Auckland (30%)	Auckland (30%)	Auckland (25%)	Auckland (26%)	Rest of North Island (25%)	Rest of North Island (26%)
Largest Industry Group Market	Agriculture (24%)	Agriculture (21%)	Agriculture (16%)	Agriculture (17%)	Agriculture (18%)	Agriculture (19%)

SNOOPY

Care needs to be taken when looking at HBL's rural loan book.
A great number of livestock and seasonal loans are short term.
Also we must remember HBL's strategy of fewer large loans,replacing them with more smaller loans.

[Snoopy]

Thanks Snoopy Interesting observations around yet more compounding of agricultural interest charges into existing loans

There isn't any 'proof' in the industry sector figures that Heartland are further compounding their rural loans. They could be strictly enforcing repayment of existing loans, while writing even more new rural business loans than we think. I put in the comparison with ANZ.NZ, because ANZ in New Zealand are the largest rural loan provider in dollar terms. Yet in percentage terms ANZ.NZ's exposure to rural is only just over half that of Heartland. That makes Heartland the greatest rural finance exposure you can buy on the market 'by far' from an NZ investor perspective, helped by the fact that you cannot buy shares in ANZ.NZ directly - you can only buy into the whole ANZ group. Yet, as 'market leader', I do think that the fact that ANZ.NZ has decided not to increase the size of their rural loan book at all as telling. Given Heartland's dairy loan exposure is going up in percentage terms and the rural loan book is growing faster than the loan book average, I do believe it is likely that dairy loans are still being compounded at Heartland though. And Heartland may be 'winning friends' taking a less hard nosed policy than ANZ.NZ!

Care needs to be taken when looking at HBL's rural loan book.
A great number of livestock and seasonal loans are short term.
Also we must remember HBL's strategy of fewer large loans, replacing them with more smaller loans.

I know Heartland are targetting the SME end of the market. I hadn't heard about that extending to the dairy portfolio, but Percy may be right. Of course more small loans making up the rural loan book would not show up in the bare gross loan figures for agriculture.

SNOOPY

[percy]

ANZ lend heavily on rural farm mortgages.They are very long term,for very large sums.
HBL tries to avoid these loans,although they have lent on dairy conversions,which can mount up.
As far as I know ANZ do not lend on livestock or do seasonal loans.A farmer is therefore likely to have a mortgage with ANZ, and use HBL for short term borrowing.

[Snoopy]

We find some valuable information here. Thank you. We have to study why some financial institutions had to bail out or went into receiverships in the past? I myself had some bad experience in the sector. Some financial institutions went into receivership mainly as a result of overexposure to the property sector. By going by their business model, HBL doesn't look like a failed institution.

As those observers who choose to operate the less selective part of their memory will attest, back in 2012 Heartland had massive issues with bad property loans: first selling them off to George Kerr, then buying them back and isolating them in a separate 'investment' category so the rest of the loan book wasn't tainted. The Queenstown property market turned for the better and Jeff and Geoff at Heartland 'got lucky' (from my outside of the tent perspective) or 'used their great skill to turn the company around' (from a Heartland believers perspective). I didn't lose money in the finance sector collapse, so didn't feel the need to recover the money I didn't lose by investing in Heartland early. I have no regrets at all about not being a Heartland shareholder so far. But as Heartland have strengthened their balance sheet and have more of a successful operational record, I would be foolish not to consider investing in a much derisked Heartland from here on in.

I don't see a particular problem with Heartland financing property developments, provided it is kept in proportion in the overall loan book and not considered a 'property can never go down in value' golden goose.

SNOOPY

[Snoopy]

ANZ lend heavily on rural farm mortgages.They are very long term,for very large sums.
HBL tries to avoid these loans,although they have lent on dairy conversions,which can mount up.
As far as I know ANZ do not lend on livestock or do seasonal loans. A farmer is therefore likely to have a mortgage with ANZ, and use HBL for short term borrowing.

I think it would depend on how much equity and hence borrowing headroom a farmer has in her farm Percy. If you have enough credit worthiness, a farmer could draw down a loan against their property and use that money 'however they like' (and that includes buying cows). If the bank was less willing to extend 'property credit' then Heartland could 'come into play'. But so could PGG Wrightson who are prepared to loan 'finishing money' on any livestock that goes through their yards (even though they don't call it a loan!). There are always 'options' out there if you are a good farmer. And if you are 'not so good', then a loan from Heartland gets more likely!

SNOOPY