HGH - Heartland Group Holdings

[Basil]

https://www.goodreturns.co.nz/article/976523009/nz-sharemarket-down-0-5-again.html?utm_source=GR&utm_medium=email&utm_campaign=GoodReturns+Market+Report+for+9+Apr+2024

Interesting comment,

Matt Goodson, managing director of Salt Funds Management, said the local market was "a little bit soggy, and maybe it was focussed on the Heartland equity raise".

Heartland Group resumed trading and was down 7c or 5.98% to $1.10 after completing its institutional placement that raised $131m, with 98% of shareholders taking up their entitlements.

The retail offer of one new share for every 6.85 shares held, at $1 a share, opens on Thursday and will complete Heartland's $210m capital raising to help fund the purchase of the Australian Challenger Bank.

Goodson said Heartland's institutional offer was well bid. "It was good to get the raise out of the way and in combination with pulling back the dividend to 50% of net profit, Heartland won't be back to the market for a considerable period of time, if ever."

I think shareholders need to attend the annual meeting and send the message loud and crystal clear, we are really sick and tired of you issuing new shares, especially on more advantageous terms to new institutional shareholders who then flood the market and take a quick buck.

From where I sit the dividend situation for FY25 and beyond is quite opaque.  While they've stated this years position clearly, all they had to say going forward was.

Having regard to the equity raise, acquisition of Challenger Bank and associated growth opportunities, the Board expects to target a total dividend payout ratio in the financial year ending 30 June 2024 of 50% of underlying net profit after tax. The Board will, as it has historically, actively manage dividend settings and carefully consider the declaration of any dividend based on Heartland's capital needs, ROE accretive growth opportunities, balance sheet flexibility and Heartland's financial performance

Has Goodson read more into this than he should or does their retrenchment to 50% divvy payout ratio for FY24 signal their future strategy, (remembering it has historically averaged about 70%) ?  Thoughts ?

[winner (n)]

From above post ....Goodson said Heartland's institutional offer was well bid. "It was good to get the raise out of the way and in combination with pulling back the dividend to 50% of net profit, Heartland won't be back to the market for a considerable period of time, if ever."

Should make Lizard keen to get back into Hgh ....no more cap raised

[Teitei]

From above post ....Goodson said Heartland's institutional offer was well bid. "It was good to get the raise out of the way and in combination with pulling back the dividend to 50% of net profit, Heartland won't be back to the market for a considerable period of time, if ever."

Should make Lizard keen to get back into Hgh ....no more cap raised

Self defeating statement from Goodson?

Banks by definition, being in the business of cash/capital, need capital to grow and the greater the growth, the bigger the capital required.

Reverse mortgage is a very capital
Intensive and cashflow sapping business until critical market size and loan maturity profiles are reached - another 10 or 15 years imo to go for HBL.

Only alternative is to cut back on dividends to fund the growth. 

Or as the other banks have done, place more emphasis on fee income like credit cards, funds management etc.

[Left Field]

Banks by definition, being in the business of cash/capital, need capital to grow and the greater the growth, the bigger the capital required.

Reverse mortgage is a very capital
Intensive and cashflow sapping business until critical market size and loan maturity profiles are reached - another 10 or 15 years imo to go for HBL.

The latest Elders market update to the ASX suggests all is not well in the Aust farming scene.

https://elders.com.au/for-investors/updates/asx-announcements/


Just saying....

[Ricky Bobby]

Yeh saw this as well, say the same goes for Nz as well...

[LoungeLizard]

From above post ....Goodson said Heartland's institutional offer was well bid. "It was good to get the raise out of the way and in combination with pulling back the dividend to 50% of net profit, Heartland won't be back to the market for a considerable period of time, if ever."

Should make Lizard keen to get back into Hgh ....no more cap raised

Never say never - and I direct that towards Goodson when he seems to suggest that HGH's days as a serial capital raise merchant are over. Does he have any idea how capital hungry HGH's business model is?

I'm no banker, thank God, but either HGH will go to the well once again, or they are going to have to seriously retrench dividends, which will irk some even more. With all those extra shares floating around and a new payout ratio of only 50% of NP, shareholders better get used to the idea of Heartland 2.0 cutting its dividends. I'd figured that the final dividend would be cut to 4c but it may turn out to be less than that, particularly if there's a few hiccups with Challenger. On the bright side, if the SP gets below $1, the yield might still be ok for new investors.

The SP is going to be under serious pressure in the days ahead. The last CR saw the SP hit the placement price of $1.76 within a week of trading. Will it hit $1 in a similar time frame? Time will tell.

The problem holders face now is the SP went into a long steady decline since the last CR and KW, - our resident TA expert -  warned about going against a pretty strong downtrend. There was no sign prior to the announcement of this new CR that there was any upswing happening, so will the downtrend continue? There's no good evidence to suggest that it won't unless there's a shift in market sentiment which won't happen until HGH 2.0 starts producing some good numbers. Cutting the final divvy to 3-4c, which is likely, isn't going to help the SP either.

I don't see an upside for holders at the moment - the risk of Jeffs master plan going south are still there, and the macroeconomic picture still isn't good. Much better to be an onlooker and wait for either an upswing to happen, or the SP to get low enough ($1) to risk a punt.   

[Left Field]

Well said Lizard..... I've been watching HGH as I like beaten down shares that show signs of life .... however I still see lots of warning signs with HGH and I'll need to see definite signs of a turnaround in HGH fortunes and upside TA signals before I invest.

I also agree with Bull on the other channel who said.... "(HGH) hasnt been that great of an investment for cap gain , was good as a income stock but that appears to have dis-appeared as well now unless challenger turns into a roaring success. but that will take time. in the mean time the cut in div payout to under 50% of npat implies this may not be a income stock again for a while."

That's all from me on HGH..... no more posting till I think HGH is a BUY.... better things to do....I'll leave it to holders. Good luck all.

[KW]

In conjunction with TA it is always wise to test the performance of a stock against its peers.  If its underperforming the entire industry, that should be ringing alarm bells.  The market always knows why a particular stock is uninvestable, even if the average retail punter doesnt.  The truth will out eventually. 

So how is HGH performing against its ASX peers?

"Investors increasingly priced out of the country's largest banks – some of the most expensive in the world – are turning to smaller alternatives for cheaper exposure to the sector ahead of expected interest rate cuts.
Long the unloved peers to their larger rivals, investors have pushed the share price of small lenders like Judo Bank up over 32 per cent and Tasmania's MyState up 14.7 per cent. Even Bendigo and Adelaide Bank outperformed the ASX, climbing 4.3 per cent this year."

https://www.afr.com/markets/equity-markets/expensive-big-banks-send-investors-toward-long-laggard-smaller-rivals-20240408-p5fi5d

[LoungeLizard]

In conjunction with TA it is always wise to test the performance of a stock against its peers.  If its underperforming the entire industry, that should be ringing alarm bells.  The market always knows why a particular stock is uninvestable, even if the average retail punter doesnt.  The truth will out eventually.

So how is HGH performing against its ASX peers?

"Investors increasingly priced out of the country's largest banks – some of the most expensive in the world – are turning to smaller alternatives for cheaper exposure to the sector ahead of expected interest rate cuts.
Long the unloved peers to their larger rivals, investors have pushed the share price of small lenders like Judo Bank up over 32 per cent and Tasmania's MyState up 14.7 per cent. Even Bendigo and Adelaide Bank outperformed the ASX, climbing 4.3 per cent this year."

https://www.afr.com/markets/equity-markets/expensive-big-banks-send-investors-toward-long-laggard-smaller-rivals-20240408-p5fi5d

Couldn't read the article but it will  be interesting to see how HGH stacks up against the other digital banks, once it gets going.

Of course, 3 of the 4 most prominent digital banks in Australia, including Volt, have already folded, most of them citing the inability to raise sufficient funds to meet banking requirements. And although Judo, the 4th most prominent, is doing better of late, it's current share price is 40% lower than it was 18 months ago. Which I guess puts in on a par with HGH...

Challenger itself is/was a loss making entity, so it will be very interesting to see how HGH goes in turning it around and taking the OZ banks on.

[Basil]

Challenger was losing money recently for a range of reasons including winding down previous operations but obviously still had its existing head office cost structure and more recently also because they have been taking hundreds of millions in deposits in the lead up to the ownership changeover and investing it in money market funds rather than lending it out.  That changes going forward.  Back Heartland's 1.9 Billion reverse home loan business into Challenger straight away and with a circa 2% lower funding cost going forward than what they are currently paying, that's $38m per annum increased NIM right there.

I also see 3-4 cents in the way of final divvy, I think that's clear enough, but this was never going to be about the divvy the year Challanger was bought or the one immediately thereafter.

It's clear a lot of people have their panties in a bunch over this acquisition, but I remain of the view it will be eps accretive over time.  That might take until FY26 or even FY27 and that's okay with me.  I also see dividends being at a lower level than the 70% they have averaged in previous years, maybe 50-60% and I'm okay with that too.

[Bob50]

This is still a bitter pill to swallow. I am a buy and hold type. It doesn't seem to long ago I bought $50,000 worth of shares at $1.79ish in the last capital raise.
Now with my average cost at $1.48 per share - I suppose I throw the max I can at it to lower my average and hope for the best.
I hope they can keep the yearly dividend at least 8 cents plus some imputation credits. Which at least makes any $1 purchase acceptable to me.

In regards to concern about StockCo and Australian having an agricultural downturn I assume their stock trading conditions are similar to here. Here the same number of lambs are being sold to traders whom will require finance to purchase. It's the price they are paying that is different to last year. Last year a store lamb to buy was $125 while this year it's about $77. That adds up to a lot less money needed to be borrowed.

[Waltzing]

Yes the experts got the covid recovery money printing wrong unlike in 2008 GFC....

the inflation hikes were the fastest ever?

it could take 5 years for markets to rebuild due to the loading up of government debt and no way for them to repay it off any time soon.

GFC took 10 years to repair....

very few professional insto's get it right all the time and retail investors are at the mercy of the markets.
 

[winner (n)]

Got an email re capital raise

Had an Entitlement Number and I though jeez that's a huge number of shares I can apply for ...and 100% more

Stupid me ...it's a code to do the stuff online

[Alekhine]

I don't usually post unless I have something to say, but Monday was the final straw with Heartland.
I have followed this company for many years (at one stage it was my biggest position), listening to the story of its potential, while feeling uneasy about its annual reporting, online annual meetings, smoothed earnings, rapid cap raises, increasing share count, not passing full interest rate costs onto customers, provisioning and a bunch of excuses for why they treat retail investors like sh*t.
 
While I have to rely on my own instincts, and a bit of advice from the others on Stocktalk, I decided to hold on before making any hasty decisions, in order to have a chat with Leanne Lazarus (CEO Heartland NZ) at the NZSA Auckland Meeting about a month or so ago. I liked Leanne and really appreciated her fronting up (I haven't seen Jeff's face in person for years). Leanne, after being unable to answer a few tough questions from the floor, about Challenger being loss making and how they were going to fund the whole thing (she really played down the chance of a capital raise), really put the final nail in the coffin. I did see Ronaldson at the NZSA meeting, so he may have a different take on things.

I used the opportunity after the meeting to spend another 40 minutes or so with Leanne, asking all the questions I have never really had the chance to ask. After that conversation and a better understanding of how the bank operated, I went and sold half my shares (about 30,000 ish), in order to reduce my exposure. Heartland is not a real bank (it might soon be) or a fintec (what bullsh*t), it relies on a rolling deal with an Aussie bank (from memory it was Westpac) to use their banking infrastructure. In fairness she gave some good answers and it is hard to be put on the spot late at night. Overall, I was very impressed with her, but she is not the one pulling the strings. Jeff must be a smart guy, because he, like a certain prime minister, knows when to get out.

I feel very sorry for those who have lost money and who bought in at the $1.50 to $1.60 range (or higher). My only saving grace is that I bought a truckload in the depths of the pandemic, so have come out slightly up. As far as the cap raise goes, the steep discount to the market price has once again eroded shareholder value. Large funds may be able to buy up this garbage without worry and pump and dump it onto their retail clients, but retail investors will have to ride the lightning.

Can you make money in this stock? - I am sure you can, but I like to deal in companies. The shift towards Auzzie could be a long-term masterstroke, but for me, it is about trust, and when it is gone- it is gone.
The market is suffering at the moment, but there is much better quality out there with better long-term returns to be had. Basil may be able to move in and out (making money), but I want a company to hold for the long term, with management I can trust.

If you are new to Heartland, pick up an annual report from a quality company like Turners or Mainfreight and hold it next to an annual report from Heartland. Even better would be to go to all three meetings (online if you have to) and experience the difference for yourself. I am not an expert in banking, NIMs, etc and I defer to others' wisdom on this forum, but I have background in dealing with thousands of people at all levels and my "spidey senses" tell me that there is something not right with this company.

I'm out. I'll chalk this one up to experience and some lessons learned. Best luck to those holding and I am sure there is some money to made out of the cap raise, if you play your cards right. Long term- I don't want to ride this horse. Profits may be going up, but you will need to keep a close eye on that share count.

Discl: No longer a holder as of Tuesday. I saw a quick spike and I took the exit (not interested in a quick buck with this kind of animal). I like catching a sugar hit (getting in at a good price for a quick gain), like everybody else, but after the party, you are still left with a bad investment in a volatile company. Even though I can now buy back in at $1, there is no certainty that Aus will pay off and you won't get screwed in the future. I currently hold both MFT and Turners (so I am biased!).

[LoungeLizard]

I don't usually post unless I have something to say, but Monday was the final straw with Heartland.
I have followed this company for many years (at one stage it was my biggest position), listening to the story of its potential, while feeling uneasy about its annual reporting, online annual meetings, smoothed earnings, rapid cap raises, increasing share count, not passing full interest rate costs onto customers, provisioning and a bunch of excuses for why they treat retail investors like sh*t.
 
While I have to rely on my own instincts, and a bit of advice from the others on Stocktalk, I decided to hold on before making any hasty decisions, in order to have a chat with Leanne Lazarus (CEO Heartland NZ) at the NZSA Auckland Meeting about a month or so ago. I liked Leanne and really appreciated her fronting up (I haven't seen Jeff's face in person for years). Leanne, after being unable to answer a few tough questions from the floor, about Challenger being loss making and how they were going to fund the whole thing (she really played down the chance of a capital raise), really put the final nail in the coffin. I did see Ronaldson at the NZSA meeting, so he may have a different take on things.

I used the opportunity after the meeting to spend another 40 minutes or so with Leanne, asking all the questions I have never really had the chance to ask. After that conversation and a better understanding of how the bank operated, I went and sold half my shares (about 30,000 ish), in order to reduce my exposure. Heartland is not a real bank (it might soon be) or a fintec (what bullsh*t), it relies on a rolling deal with an Aussie bank (from memory it was Westpac) to use their banking infrastructure. In fairness she gave some good answers and it is hard to be put on the spot late at night. Overall, I was very impressed with her, but she is not the one pulling the strings. Jeff must be a smart guy, because he, like a certain prime minister, knows when to get out.

I feel very sorry for those who have lost money and who bought in at the $1.50 to $1.60 range (or higher). My only saving grace is that I bought a truckload in the depths of the pandemic, so have come out slightly up. As far as the cap raise goes, the steep discount to the market price has once again eroded shareholder value. Large funds may be able to buy up this garbage without worry and pump and dump it onto their retail clients, but retail investors will have to ride the lightning.

Can you make money in this stock? - I am sure you can, but I like to deal in companies. The shift towards Auzzie could be a long-term masterstroke, but for me, it is about trust, and when it is gone- it is gone.
The market is suffering at the moment, but there is much better quality out there with better long-term returns to be had. Basil may be able to move in and out (making money), but I want a company to hold for the long term, with management I can trust.

If you are new to Heartland, pick up an annual report from a quality company like Turners or Mainfreight and hold it next to an annual report from Heartland. Even better would be to go to all three meetings (online if you have to) and experience the difference for yourself. I am not an expert in banking, NIMs, etc and I defer to others' wisdom on this forum, but I have background in dealing with thousands of people at all levels and my "spidey senses" tell me that there is something not right with this company.

I'm out. I'll chalk this one up to experience and some lessons learned. Best luck to those holding and I am sure there is some money to made out of the cap raise, if you play your cards right. Long term- I don't want to ride this horse. Profits may be going up, but you will need to keep a close eye on that share count.

Discl: No longer a holder as of Tuesday. I saw a quick spike and I took the exit (not interested in a quick buck with this kind of animal). I like catching a sugar hit (getting in at a good price for a quick gain), like everybody else, but after the party, you are still left with a bad investment in a volatile company. Even though I can now buy back in at $1, there is no certainty that Aus will pay off and you won't get screwed in the future. I currently hold both MFT and Turners (so I am biased!).

Great, considered post there, Alekhine.
There are those of us who are all gung-ho about HGH (Basil) and those who are all doom and gloom (me), but I think you have encapsulated well the sense that HGH is no longer a company that one can reliably consider to be looking after it's smaller investors. Maybe it never was, but the last two CR's have really turned the screw. Like you I am a pretty conservative, buy-and-hold investor - my biggest holding is Infratil. I've become a fan of Turners as well.
There may be money to be made with this stock but the deck is stacked in favour of the big Institutions. With dividends being cut there's a lot riding on strong, consistent growth which to me looks like roll-of-the-dice stuff, and I'm damned sure that we haven't seen the last of the capital raises, which wipes away any SP gains everytime. Anyway, I'm not a holder, so I'll leave it to others to bang the drum on this one.