HGH - Heartland Group Holdings

[winner (n)]

At least the $74.5m NPAT is higher than the $72.0m reported in F20 ...just

[winner (n)]

For what's it worth Segment profitability is interesting

By Segment Profit TY v Ly $m

NZ Motor  49 to 35 ......Down 14
NZ RM  37 to 43  ..........Up 6
NZ personal 1 to -2 .....Down 3
NZ Business 57 to 40 Down 17
NZ Rural 31 to 29 ........Down 2
Australia  44 to 28 ......Down 16
Other -125 to -100 .....Better off by 25

NZ Reverse Mortgages only segment to improve ...along with Others (HQ) spending less.

[LoungeLizard]

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)

I'd buy into that if this was a blue chip stock that is currently undervalued for whatever reason. HGH doesn't fall into that camp. It is not a safe stock to put one's money in, over any term. It may have a higher return potential, but the risk is high as well. Look at the SP graph over the last few years. Does that fill you with confidence?

Banks are a cyclical stock at the best of times, but Heartlands addiction to capital raises, and the added risk of their Oz expansion going south doesn't make for a safe stock to park one's money. This latest report,  in my opinion, doesn't change that equation.

Ironically, I was dithering between HGH and TWR and in the end decided to go all in on TWR which one could say was the riskier option to take. But timing is everything and the wind was, and still is, at TWR's back. HGH imo have got some headwinds to contend with for some time.

[Basil]

At least the $74.5m NPAT is higher than the $72.0m reported in F20 ...just

To be fair a lot of cost associated with the Challenger bank acquisition and becoming an accredited deposit taker in Australia which surely needs to be removed on any objective comparison.  Adjusted NPAT of $87.9m is not too bad in my opinion, page 8. https://api.nzx.com/public/announcement/437072/attachment/426005/437072-426005.pdf
Already over $1.4 Billion in retail deposits at just over 2% lower than wholesale cost giving an annualized saving of over $28m going forward based on deposits to date with plenty more to come as the size of the Australian retail deposit book grows over FY25.

So, they missed profit guidance by 4.9% and the market has smacked them back ~ 10% which seems a bit harsh.
Obviously, some of this is fresh concerns about performance for the rest of CY24 given lack of forward guidance but I think the long-term growth prognosis is sound as is the case to hold across the bottom of the economic cycle which we are surely traversing now.

[Breezy]

Lot of hype talk about this stock over the last few months but as has been proven a lowering tide sinks all boats and our economy is very much still in low tide mode.

[Basil]

Low tide alright.  Chart datum https://en.wikipedia.org/wiki/Chart_datum by the look of this result.  Probably the best time to buy for anyone with the medium to long term perspective because we know the tide always comes in after its completely out.

[winner (n)]

Book Value $1.33

Might be guide to where share price might head to in medium term

[LoungeLizard]

Book Value $1.33

Might be guide to where share price might head to in medium term

Maybe - but book value or NTA don't take into account a myriad of factors that exist in the real world, all of which probably tell more about true market value. OCA has an NTA of $1.41 but the market values it at 84c.

[winner (n)]

With its increasing exposure in Australia there's a danger that HGH could be seen as a 'small bank' and valued accordingly

Like BOQ (Bank of Queensland) and BEN (Bendigo & Adelaide) who over time have traded at about 0.8 Book Value

Ouch ...that would be about $1.06 ....oops that is spooky eh possums

[Basil]

With its increasing exposure in Australia there's a danger that HGH could be seen as a 'small bank' and valued accordingly

Like BOQ (Bank of Queensland) and BEN (Bendigo & Adelaide) who over time have traded at about 0.8 Book Value

Ouch ...that would be about $1.06 ....oops that is spooky eh possums

Preliminary estimate by Craigs of $110m for FY25 on 930.56m shares gives eps of 11.82 cps.
BEN currently trades on 13 times FY25 average eps estimate and BOQ 14.2 times, (source Market Screener)
Average of those small banks is 13.6.  11.82 cps x 13.6 PE = $1.61 possible price target once we get out of this recession.
There's always sunshine after rain...my Mum used to tell me that and she was always right.

[winner (n)]

Preliminary estimate by Craigs of $110m for FY25 on 930.56m shares gives eps of 11.82 cps.
BEN currently trades on 13 times FY25 average eps estimate and BOQ 14.2 times, (source Market Screener)
Average of those small banks is 13.6.  11.82 cps x 13.6 PE = $1.61 possible price target once we get out of this recession.
There's always sunshine after rain...my Mum used to tell me that and she was always right.

As Dire Straits said -

Why worry
There should be laughter after pain
There should be sunshine after rain
These things have always been the same
So why worry now
Why worry now

[Greekwatchdog]

For Bars Review
Heartland Group Holdings (HGH) reported a weak FY24 result, which was characterised by compressed net interest margins (NIM) and higher impairments. Importantly, progress has been made on key strategic initiatives, with the completion of the Challenger Bank acquisition, having its Australian authorised deposit-taker license granted, and completing work on its core banking system upgrade in NZ. The operating backdrop remains challenging, particularly for the motor and business lending portfolios, which is expected to continue into FY25. Despite this, HGH has reiterated its FY28 target of NZ$200m NPAT and 12%–14% return on equity. We need proof of both an improving macro backdrop and operational efficiencies to get more comfort around targets. NEUTRAL.

What's changed?
Earnings: Lowered FY25 on ongoing near-term uncertainty, and assume a longer period to recover earnings
Target price: Trimmed -9cps (-7.2%) to NZ$1.16.
Messy result with receivables growth offset by impairments
HGH reported a characteristically messy FY24 result, with underlying NPAT of NZ$103m (down -7% on the prior year) despite +7% receivable growth versus FY23. The two major contributors were: (1) underlying NIM falling -36 bps on the prior year to 3.64%, and (2) a +NZ$7.2m increase in impairment expenses, with underlying impairment ratios increasing +12 bps to 0.44%. This was marginally offset by a +NZ$3.4m increase in other operating income, and underlying operating expenses falling -NZ$1.3m.

Recurring one-offs
One-off items have become the modus operandi for HGH in recent years, and FY24 was no exception. In fact, the NZ$28m spread between reported and underlying NPAT in FY24 was more than double the prior year, with reported NPAT back at FY20 levels. While there is some merit to removing one-offs from earnings to get a view on the underlying profitability of the business, the growing level of one-offs reported does muddy earnings transparency. HGH expects one-off items to continue in FY25, albeit at a much lower level.

No FY25 guidance provided, but volatility expected to continue
No quantitative FY25 earnings guidance was provided, with HGH citing the volatile economic conditions. HGH did provide guidance for NIM to rise +16 bps to 3.81% (FBe FY25: 3.74%), with expansion supported by lower cost of funds as interest rates fall, while benefitting from its fixed loan books in particular. Cost to income (CTI) guidance of 45.2% was provided for Heartland Bank, and 45.4% for Heartland Bank Australia (FBe FY25 Group CTI: 47.1%). HGH remains committed to its FY28 targets of NZ$200m of NPAT, based on +10% receivables CAGR, NIM >4%, CTI <35%, and impairment expense ratios <0.3%. Our FY28 forecast is NZ$170m.

Summary forecast changes
The soft FY24 result and ongoing uncertain near-term conditions has resulted in a -7% reduction of our FY25 Underlying NPAT forecast to NZ$102m. Slower receivables growth, a low NIM assumption and higher assumed impairments are the three main factors lowering our profit expectations. We do expect economic conditions to improve. After a transition year, as HGH beds down its Australian business, the benefits of its strategy will be seen in FY26 and beyond.

HGH FY24 dividend represented a payout ratio of 55% of Underlying NPAT. Its dividend guidance is that it will pay at least 50%. We have targeted an ongoing payout ratio of ~55% for the next three financial years, which when combined with a lower earnings outlook reduces our dividend path -1.5cps per annum.

FY24 result summary
HGH has reported FY24 NPAT of NZ$75m, which was -NZ$21m below FY23. Underlying NPAT, the number HGH guides to and focusses on was NZ$103m, vs our forecast of NZ$108m and its guidance range of NZ$108m–NZ$112m, which was reiterated at its April 2024 equity raise. Loan receivables were up +6.4%, driven by +20% growth in both reverse mortgage books, but was offset by lower business (-3%) and AU livestock finance (-27%) receivables. Underlying opex was down -NZ$1.3m, with the cost to income ratio falling -10 bps to 41.9%. Reported impairment expense ratio rose +30 bps (+NZ$23m) to 0.66% or 0.44% on an underlying basis, adjusting for the NZ$16m provision related to legacy lending in December 2023.

[Shareguy]

Very disappointing, but I guess it's still paying a good divi and the future is bright, If it all goes well. We can expect better in 2026 but it might not be.

Winner. FB Ausi bank valuation comparisons including Bendigo (13.4} have average PE for 2025 of 16.1

HGH 9.5

[Perky]

Gotta love forbar language..." a messy result"...that's Friday humour right there

With banking being such a highly regulated industry with complicated compliance formulas and having to be very careful you get the decimal point in the right place...I'm not sure having your result called, sloppy, confusion or disorder is a badge of honour....

messy
adjective
ˈme-sē
messier; messiest
Synonyms of messy
1
: marked by confusion, disorder, or dirt : UNTIDY
a messy room
2
: lacking neatness or precision : CARELESS, SLOVENLY

[winner (n)]

Perky ...not just messy' but ' characteristically messy' says Forbar