HGH - Heartland Group Holdings

[Breezy]

Happy to hold and see what happens.  Always have been thinking that I've recently been investing on a "look through" the bottom of the economic cycle basis.
Disc 7.3% portfolio position all bought with prior realised profits made on HGH, so "free carry", at an average price of $1.07
FY 25 cloudy.  FY26 should be a ripper.

Remember others feel the same way about their chosen stocks eg SPK but we don't do random negative and trash talk on stocks we don't hold just for the sake of it.

[lorraina]

The arrears experienced in a subset of longer dated Motor Finance loans are a
result of operational issues in Heartland Bank's Collections & Recoveries
area and do not reflect any underlying issues with the credit quality of the
book. This is primarily a resourcing issue caused by illness, employee
turnover due to overseas travel, and a focus on Heartland Bank's core banking
system upgrade (which is now complete). This is being addressed through a
specialised recruitment strategy and automation. Underlying impairments are
otherwise performing as expected given the challenging economic conditions.
Heartland's asset quality continues to shift towards loans with lower risk
exposures.

The above was from their interim result.
More attention in this area is required,as things have got worse since then.

[Fiordland Moose]

I've enjoyed following this thread last few months..reading the pros vs the cons

There was a lot of talk about a pig still swallowing the python re cap raise but did I just see a lizard swallow a beagle...lol



Disc. Have a very small holding on asx....been waiting for results and guidance and I happy to sit and watch. Market could be interesting today. Will buy more of these one day...see what the market says.


Hard to believe management comment that shit only hit the fan in June/july eh
Bit like I nearly won powerball but missed by 1 number

yeah it was pretty bogus to imply that it was a bit of a surprise and recent development. If you go back to the equity raise presentation dated 8 april 2024 (hyperlinked below) and go to page 19 they had some graphs showing the increase in NZ motor finance and asset finance non performing loans and provision coverage for january-march (so post the last balance date). that graph showed NPL% continuing to climb and a widening delta between the provision coverage and NPL rate. It was also a bit amusing then on the same page they showed a graph with their expectation that NPL% rates would come down from December 2023. Me thinks they were being cute then with some under provisioning but with their bum already sore from having to add an economic overlay provision in December and right in the middle of a cap raise they didn't go as far as they otherwise would have.

https://api.nzx.com/public/announcement/429163/attachment/416304/429163-416304.pdf

and then watching the RBNZ banking dashboard over the last few months clear NPLs did continue to creep up so some of the graphs on the left hand side of page 19 look particularly silly now.

The provisions on the balance sheet relate to the non reverse mortgage business. Looking at the provision rate as a % of gross non RM receivables it is now 1.76%. Wouldn't be surprised to see that number approach 2% which if it had in this result been an additional $7.5m post tax hit. 2% is where the provision level sat back in 30 June 2020 when the world was looking pretty shaky.

[raW tent Buffer]

At first glance the results look pretty underwhelming, bordering on negative (not meeting guidance) but it'll be up to those with skin in the game to delve into the details. The acid test of course will be how Mr.Market will see it.

Mr. Market no likey

[LoungeLizard]

Yes, good-spirited debate is what this forum is all about!

And, with that in mind, I'm finding it difficult to see the upside in this report, apart from the poised-for-growth, somewhere-over-rainbow angle. The only good thing is that the inevitable hit to the SP might present a buying opportunity.

Everything an investor looks for to guide their decisions appears to be going in the wrong direction. NPAT down, borrowings up, EPS and dividends way down. Technical indicators - NIM/CTI/ROE -  are all significantly down. Needless to say, provisions and "technical adjustments" appear to be a growth area!

So what's left? I had to laugh when HGH seemed to trumpet their lower dividend as still being a  compelling yield. Forgetting of course that the yield is only moderate compared to risk and is based on a share price that has been decimated in recent years. They did say that divvy might be cut again, so at least they are being honest there.

The reverse equity business is still performing well, but there's an element of all the eggs being in one basket. And that business is all front loaded and capital intensive. I would have liked to have seen some reporting around Challenger even though it is integrated into the Australian banking business? The decision to purchase Challenger needs to be assessed against how it is performing, even though it is early days.

Oh well, the SP is getting a hammering and presenting the true believers with an opportunity to average down or throw more good money after bad, depending on how you see it

[Greekwatchdog]

Oh well, the SP is getting a hammering and presenting the true believers with an opportunity to average down or throw more good money after bad, depending on how you see it
[/quote]

Your last comment is short sighted at best. We can review that in 2/3 years where the share price is up and those shareholders are will be happy to throw it back at you I am sure.

The result was as expected given macro. It was always about looking forward and from 2nd half 2025 the economy will improve and get more assured.

The Aust. acquisitions will take to to be in bedded.

I bought in @ $1.05 6 weeks ago and will look to add sometime next week as I see real value in the next 5 years coming thru and a healthy yield in divvies at these levels.

[Basil]

Your last comment is short sighted at best. We can review that in 2/3 years where the share price is up and those shareholders are will be happy to throw it back at you I am sure.

And take a good bite out of the Lizards tail 
The positives I can see include very good NIM expansion forecast for FY25 and more will flow through in FY26 as a full year's trading is encapsulated with enhanced Australian NIM from retail deposit funding which is more than 2% lower than wholesale channels.
20% CAGR in reverse mortgage lending continues. 

[Fiordland Moose]

The reverse equity business is still performing well, but there's an element of all the eggs being in one basket. And that business is all front loaded and capital intensive. I would have liked to have seen some reporting around Challenger even though it is integrated into the Australian banking business? The decision to purchase Challenger needs to be assessed against how it is performing, even though it is early days.

RM growth good but a lot of that is optics....interest earned from the RM book is capitalised to the RM book rather paid in cold hard cash each month like a normal mortgage would be. So a good deal of the growth is simply interest income being added to existing balance and much lower voluntary repayments. New RM loans originations slowing/falling.

The biggest sin HGH committed was not raising capital in a position of strength. They were totally committed to an Aussie transaction so they should have raised capital well before settling Challenger. The risk was okay what if the transaction doesn't actually complete but its not like they wouldn't have a use for that capital. Instead they waited far too long and everyone started selling in anticipation of a cap raise. The economic cycle will correct but the impact on EPS is permanent as the shares were issued at a low price and the dilution significant.

[Shareguy]

Only had a quick glance but I'm not happy. To say they found some stuff last minute does not wash. Divi kept at 50 percent and no guidance.

[Basil]

Only had a quick glance but I'm not happy. To say they found some stuff last minute does not wash. Divi kept at 50 percent and no guidance.

Future dividends at least 50% of underlying profit. 

[Shareguy]

Future dividends at least 50% of underlying profit. 

Yes. Well the 3cps divi was better than I expected (2.5cps)

[SCOTTY]

The result was much as I expected with only 2 Months trading on the diluted capital after the last capital raise and pleasantly surprised with the 3c divi as was expecting only 2.5c. Great time to be signed up for the dividend reinvestment plan. Feeling pretty excited for the future growth of the business with the successful expansion into Australia through the Challenger purchase 😎.

[LoungeLizard]

RM growth good but a lot of that is optics....interest earned from the RM book is capitalised to the RM book rather paid in cold hard cash each month like a normal mortgage would be. So a good deal of the growth is simply interest income being added to existing balance and much lower voluntary repayments. New RM loans originations slowing/falling.

The biggest sin HGH committed was not raising capital in a position of strength. They were totally committed to an Aussie transaction so they should have raised capital well before settling Challenger. The risk was okay what if the transaction doesn't actually complete but it's not like they wouldn't have a use for that capital. Instead they waited far too long and everyone started selling in anticipation of a cap raise. The economic cycle will correct but the impact on EPS is permanent as the shares were issued at a low price and the dilution significant.

Good point about the RM growth.

One of my bugbears about HGH has been exactly as you mentioned - the ill-timed and ill-conceived capital raises that have had without exception a devastating effect on shareholder wealth. There's an argument to be made that they were never running a self-sustaining business and hence they have had to perform regular CR's to run/expand  operations. The latest CR is going to struggle to be earnings accretive. EPS has gone from 14 to 9.8cps (reported). That's a lot of ground to make up. I disliked how Jeff seemed to be oblivious to the negative effect his CR's had on the smaller shareholder - they were always structured so Institutions got in first and make a quick buck. And I'm afraid to say it, but I don't believe we've seen the last of HGH's capital raises.

My other well-documented concern was the timing of the pivot to Oz and perhaps if it was necessary at all, apart from the reverse mortgage business. I get the argument that the  wholesale/retail rates difference there provided an opportunity, but there was a lot of potential growth in NZ if they had focussed on being more of a general high street bank. Certainly, this Government might have supported them in trying to increase their footprint.

Anyway, the die is cast, Jeff has gone and the HGH's future is anything investors want to make of it. I'm in the negative camp, obviously. I would have bought in if this report had been more promising, but even at these levels, the risk of HGH struggling for years to make any headway at all is too great imo. Good luck to holders.

[Shareguy]

Craig's thoughts

HGH – STOP PRESS – The Heartland result was weaker than expected with the higher cost to income ratio, lower NIM and higher bad debt provisions all impacting underlying profit. The final dividend at 3cps was marginally better than CIP at 2.5cps. With respect to the outlook HGH expects further volatility in the markets within which it operates for the remainder of the 2024 calendar year as rate reductions bed in and the New Zealand and Australian economies recover. This creates too much uncertainty at this stage to provide an accurate underlying NPAT guidance range for FY2025. We expect them to revisit this through the year (CIPe currently at NZ$110m for FY25e). HGH currently trading -9% ... more from Wade Gardiner shortly

[LaserEyeKiwi]

Got an order in to my broker this morning to increase my holdings by 33% - hopefully price stays down long enough today for my trade to be placed.

Underlying growth continues to be extremely good, digging into fine print NIM already improving at end of reporting period.

This is one for the long term holders who aren't after a quick trade - you are buying at the bottom of the cycle and will reap the long term rewards if you engage diamond hands (to borrow a phrase from Gen Z)