HGH - Heartland Group Holdings

[Benji]

I like this share.

First buy it 5 year ago and buy more sometimes and not sell any.

Friend says well run and to keep in draw.

[Minimoke]

I held, and sold since 2017. Have to say its been a bit of a love / hate relationship. Hence the sales. But I have bought back in. For me it is a shame they are investing so much capital in social justice ambitions. But I have to put ethical investing aside while I enjoy the dividends.

Theres an old saying and I can't remember how it goes. Something about having deposits in a bank or shares in a bank. I chose the latter

[lorraina]

"Better to own a bank than having money in the bank"

[Minimoke]

"Better to own a bank than having money in the bank"

Thats the one!

[Beagle]

Has it bottomed ?
On CNBC this morning some of the leading banks are trading on single digit PE's e.g. Bank of America on 8.
Some of the regionals on as little as 5.
The case was made after the recent successful stress test that while during the GFC bank stocks were trashed and at times in other recessions as well, their capital ratio's are now a lot more robust than previously and they may represent a good proxy and good beta for a recovery in the US.  For context the US financials are down 31% year to date.

Where are we with HGH ?
1. Its clear we're still in a confirmed downtrend.
2. Forward PE based on average analyst earnings for FY23 is 11.2  https://www.marketscreener.com/quote/stock/HEARTLAND-GROUP-HOLDINGS-47041144/financials/
3. I am expecting 13.5 - 14.0 cps fully imputed dividends next year = 9.8% - 10.2% gross yield, lets call it 10%

The growth in their reverse home loan book has been exceptional
I think they will take a decent sized hit from this recession in their business finance book but will that be more than covered by previous Covid provisioning ?...its too early to tell.  What's the impact of the write-down in Harmoney this year ?

The metrics are attractive but not profoundly compelling in the context of a well established Bear market.  I have seen them on a forward PE of 9 before which indicates they could, (and I emphasize this is only one possibility of a range of possible outcomes) go as low as $1.53 in a bad recession.
Perhaps most pertinent is the fact some Australian Banks are already on considerably more compelling FY23 metrics e.g. ANZ on 9.8, BOQ 9.5

I remain cautious.  Don't buy in a downtrend (KW)
 

[snapiti]

going to be interesting how deep this recession is going to be..........good time to keep plenty of cash just in case some overdue opportunities arise

[LoungeLizard]

Yep, cash is king.
 I'm with Beagle on this one - keep your powder dry until the uptrend is confirmed. Yes, you might miss out on early gains but better that than trying to pick the bottom which, in these very unpredictable times, is a mugs game.

[LoungeLizard]

Maybe the uptrend in HGH is starting to emerge? Early days but up8c today.

[Benji]

Maybe the uptrend in HGH is starting to emerge? Early days but up8c today.

Maybe down tomorrow, market is like that.

I think this is good company and price still OK to buy but not pay more than $2.05.

[BlackPeter]

Yep, cash is king.
 I'm with Beagle on this one - keep your powder dry until the uptrend is confirmed. Yes, you might miss out on early gains but better that than trying to pick the bottom which, in these very unpredictable times, is a mugs game.

No fool proof strategy around. Buy too early and you are catching knives and wait for a confirmed bottom (whatever your personal favorite indicator might be) - and you are either ways late or you have a good chance it was just a false flag and the bottom is not yet in. Uncertainty is just one of these inevitable things of life.

Obviously - picking the exact bottom has a similar likelyhood to winning a million in the lottery. Pure luck and not repeatable.

What worked for me in previous bears is to wait until companies look like compelling value (and yes, many do now) and then start buying over an extended time frame (say spend 10% of the free cash per month).

I must however admit - I did this during the last Covid peak, picked up some real bargains early in the game (like e.g. MFT in the thirties), but ended up with too much cash when the best part of the recovery was already over.

Hard to predict in advance how fast the recovery will be - sigh. 

[winner (n)]

For what's it worth here's the link to that report on NZ banks the media mentions when sort of saying banks make excessively high records profits.

Report sort of meaningful re Heartland but remember that they aren't really a bank but really a finance company.

Yes it shows Heartlands high NIM (relative to others) that punters rave about ..... but this is offset by a significantly higher debt provisioning ratio ....reflection of lending.

https://assets.kpmg/content/dam/kpmg/nz/pdf/2022/06/fips-quarterly-march-2022.pdf

[lorraina]

https://www.google.com/url?client=internal-element-cse&cx=006730714154542492986:oh6vl0ybuqy&q=https://www.stuff.co.nz/life-style/homed/retirement/128310127/the-number-one-reason-over65s-take-out-reverse-mortgages&sa=U&ved=2ahUKEwiMxrjBue_4AhWH3nMBHezWD_AQFnoECAkQAg&usg=AOvVaw3kK_Ag7TPIgcOE7N7ruEzo

[Ferg]

Interesting article thanks.  While the growth in house prices exceeds the interest rate, equity is preserved before taking into account inflation.  As house prices fall, I would expect demand for reverse equity loans to reduce - but that may not be the case per that article.  I suppose the appeal is avoiding demands on weekly cash flow and the preference is putting the debt "on tick".

[lorraina]

The salient point of the article to me as a HGH shareholder, was the fact the demand for RELs remains strong while house prices fall.
"It was traditionally thought that a combination of falling house prices and rising interest rates would see a downturn in demand for reverse mortgages, but rising living costs, and the increasing debts of people in retirement, meant that was not happening, Ford says."

[Benji]

I think Heartland is good company and picks right specials to offer.
Will have not so good years but long term is bright.