HGH - Heartland Group Holdings

[kiwi2007]

Somebody pulling out all the stops to try to halt the drop below $1.80 !

[Minimoke]

Somebody pulling out all the stops to try to halt the drop below $1.80 !

Not me. I've taken my $0.055 divi and sold out at $1.83 today. Simply unimpressed with this capital raise. 1 year chart is showing a downtrend. Time to cut my losses

[LoungeLizard]

Yep, HGH firmly in a downtrend. The market has woken up to the folly of the cap raise - at least for shareholders. Having expansionist ideas at a time of a worldwide economic downturn that is only going to get worse is madness. I fully expect yield growth to go backwards as cost go up and the SP will stay in the doldrums for years. I don't see much support below $1.80 - this could get messy.

[kiwi2007]

If $1.75  holds I think it'll be OK myself.

[Bob50]

Quite a bit of negative sentiment re Heartland at the moment.
This 200 million capital raise is not for some risky speculative investment but mostly to pay the $154-165 million bill for its Australian stock financing purchase, the rest I assume will largely be used to fund its development into an Australian bank.
I am somewhat unimpressed by the expected 10-12 million profit expected from this large investment into stock finance but if one liked the company a month ago I see no reason not to like it now.
I will not be selling my current holding and therefore view future 11cent dividends on the $1.80 raise to be an adequate investment. I believe this dividend is sustainable so will be applying for at least enough for my holdings not to be diluted.
If there was no pending possible recession it would be an easy decision for me.

[Fiordland Moose]

Quite a bit of negative sentiment re Heartland at the moment.
This 200 million capital raise is not for some risky speculative investment but mostly to pay the $154-165 million bill for its Australian stock financing purchase, the rest I assume will largely be used to fund its development into an Australian bank.
I am somewhat unimpressed by the expected 10-12 million profit expected from this large investment into stock finance but if one liked the company a month ago I see no reason not to like it now.
I will not be selling my current holding and therefore view future 11cent dividends on the $1.80 raise to be an adequate investment. I believe this dividend is sustainable so will be applying for at least enough for my holdings not to be diluted.
If there was no pending possible recession it would be an easy decision for me.

Yes quite a bit of negative reaction on various forums but not too much in the press (I was expecting a very unimpressed Jenny Ruth to slay Heartland on its choice of capital raising but hasn't yet transpired)

There are some negatives for sure. Going from giving the impression StockCo was going to be debt funded and thus EPS accretive to fully equity funded was a bit of a downer.  And the final dividend was below expectation (and DRP turned off), but in the context of HGH wanting to raise capital to fund StockCo and have a spare few coins not surprising.  HGH probably mindful of not wanting to pay a large dividend only to have a larger capital raise, but not wanting to pay a misery yield which would put punters off. Difficult balance.  Keeping the DRP would have helped (I think the DRP has netted on an annual basis about $20m) but the lawyers probably fretted about what price to set it to (my answer would have been the SPP price, lower of $1.80 or 2.5% discount to 5 day VWAP on issue), and wanting to look like they were providing capital to fund their entitlements.

I suppose you could say HGH was being prudent in equity funding StockCo and not funding it with corporate debt, given possible headwinds.

Many are concerned about the acquisition of Avenue Bank Ltd in AU, which has a restricted ADI license, with the transaction presumably conditional on it receiving its full license prior to settlement, and probably require another capital raising (or hopefully corporate debt financing, but probably a placement). I suppose that is fair enough - investors invest on the basis of a risk/return profile, and a deepening presence in Australia can challenge that. People question if HGH is off to recreate HGH v2 in Australia, playing in SME loans etc. It's probably more to do with diversifying & optimizing funding sources through securing retail deposits. I assume/hope its doing that to support its core business of reverse mortgages and now stockco, rather than a willy nilly expansion plan.

HGH see it as the fastest, most outcome orientated decision to getting access to that, rather than getting their own license or buying a more established bank. Avenue is a start up, and currently backed by Sherman Ma (Liberty Financial), who isn't everyone's cup of tea. That could be off putting when people dig into it, but I think Jeff reckons he is up to the task. It's probably best not to buy an established bank which would be larger and have a better book and financial profile, but start ups are unencumbered by legacy IT issues, and we all know HGH fancies itself as an undiscovered fintec.

Struggle to see how they won't be buying anything much more than a license, and won't be EPS accretive, although on proforma synergy access to retail deposits won't look as bad. But only $55m.

I'm participating in the capital raise to fend dilution and will look to average cost in should the price fall over the next 12-18m, which is a possibility.  But I think HGH have done a good job at carving out their own niche in the wider market, with a few cash cows like vehicle financing and reverse mortgages with its very positive long term demographic trends, etc.  I see enough dividend yield there to keep me content with my existing shareholding, and some positive buying opportunities over the next 18 months if the market becomes more pessimistic.

[SuperMario]

and DRP turned off

In practical sense, does it matter that the DRP was turned off for this dividend? Can the same result not be achieved by using the dividend payment as your cash for the SPP? Or is there a difference I'm missing? (other than extra effort by shareholders)

[Fiordland Moose]

In practical sense, does it matter that the DRP was turned off for this dividend? Can the same result not be achieved by using the dividend payment as your cash for the SPP? Or is there a difference I'm missing? (other than extra effort by shareholders)

Aye shareholders can do it themselves, I think I am just a fan of DRPs. Having the DRP turned on could have reduced the size of the required capital raise, in theory, and the dilution to those unable to get their prorata

[winner (n)]

One of the highlights of the results announcement was this bit - Five year total shareholder return (TSR) of 66.9%, (19 August 2017 – 19 August 2022) compared with the NZX50 Index TSR of 56.7% in the same period.

And a nice chart to give punters the warm fuzzies (did have different dates but who cares)

Share price down 16% since then

Suppose that would make the chart look a bit different .... and they might not have included it

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[LoungeLizard]

One of the highlights of the results announcement was this bit - Five year total shareholder return (TSR) of 66.9%, (19 August 2017 – 19 August 2022) compared with the NZX50 Index TSR of 56.7% in the same period.

And a nice chart to give punters the warm fuzzies (did have different dates but who cares)

Share price down 16% since then

Yep, if they had included the recent drop in SP then we are looking at parity with NZX50. Which begs the question - given the macroeconomic headwinds plus the risk inherent in HGH's expansion in Australia - is HGH really worth the gamble? Probably not in my view, at least not at current prices. I am still picking for the SP to go lower still. Might be worth a flutter then.

Suppose that would make the chart look a bit different .... and they might not have included it

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[LoungeLizard]

Yep, if the recent drop had been included then we are looking at parity with NZX50 over the last 5 years. Which begs the question - given the macroeconomic headwinds and the increased risk in HGH's expansion into Australia - is it really worth the gamble. I would say not, at current prices. SP could/will  still go lower and then maybe it might be worth the risk, otherwise I'm giving them a miss.

[Basil]

Over many years I have observed Heartland including the days when it traded under the old ticker code generally trade within a forward PE range of 11-17.5.
At $1.80 its on a forward PE of just on 11.5, right towards the bottom end of the normal range which probably seems about right considering the readily apparent economic headwinds but I note they retain an $8m overlay for same.

I note a gross yield based on 11 cps fully imputed of ~ 8.5% @ $1.80.

Very rarely they trade outside the range above and its back the truck up time or sell outside the top end as the case may be.

I think the angst and doom and gloom is probably more than a little overdone.  Hold and adding more under the share purchase plan.

[TGB]

After PEB I'm going to give participation a miss but I'm going to stick with current holding.

I'll consider adding if price falls.

[winner (n)]

Agree with you basil in that HGH is near the bottom band of its valuation range

My preferred measure is Price/Book value and allowing for the cap raise and recent share price action that has fallen quite dramatically ....and near to the bottom of a multi year range

So I reckon HGH is pretty 'cheap' at the moment too

Things will settle down in a couple of weeks time and we'll be wondering what all the fuss was about.

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[lorraina]

I could not help myself.Applied for just a few in HGH's SPP.
So easy.

Perhaps Hobson Wealth are right.:?.

Price catalyst
• 12 - month price target:    NZ$ 2.25 based on a    DDM methodology.
• Catalyst :  Avenue Bank outcome, asset growth/quality progression