HGH - Heartland Group Holdings

[Basil]

Interesting chart, thanks for posting Winner.  If you took out the huge plunge of early 2020 with the commencement of Covid, this is the most oversold it's been.
Not sure if the 12% growth will be supported going forward though because we basically now have metrics alignment with the average of the Australian banks and I am pretty sure 12% medium term eps growth is not sustainable.

Can't rule out $2 at some stage next year but I suspect we'll first need to see inflation coming under control and central banks pivoting their strategy.
I'm just going to "play possum stuck in the headlights" for a while with this one and hope I don;t get run over lol

[lorraina]

The big leg up to $3.00 may take a year to two...lol.

[Fiordland Moose]

for those interested
https://www.sharetrader.co.nz/showthread.php?8425-HGH-Heartland-Group-Holdings&p=977538&viewfull=1#post977538

[Shareguy]

for those interested
https://www.sharetrader.co.nz/showthread.php?8425-HGH-Heartland-Group-Holdings&p=977538&viewfull=1#post977538

Excellent post FM

[Left Field]

Fiordland Moose's post is spot on IMO.

The recent HGH cap raise was a hasty ill thought-out reaction to HGH finding the Stock Co purchase was not going to be as EPS accretive as they hoped.

To quote FM

"So what changed? Well, after the StockCo acquisition was announced the market was conditioned to expect it wound be funded by debt and thus EPS accretive. The actual result was the company would wholly fund it with equity, and in fact raise more capital than required for the purchase price alone to pad out growth capital reserves to grow it (and/or address some near term bond maturities). It's also my view that, in the absence of a competitive market or ignoring StockCos growth potential, HGH may have paid too much for it, which is proving to be dilutive in the short term. "

One hopes this was a rare 'one-off' error by HGH management...... but one wonders what will happen if there is more bad news in the months ahead? GLH.

[lorraina]

Much the same was "said" when HGH paid "far too much" for the Reverse Equity Loans business.
It is the same "said" that every under bidder  says at every auction sale.
HGH ended up owning The REL business and now own StockCo.
HGH  approach  buying each business saves them years of development time.Seem to remember they said buying the REL saved them 10 years.
ROE in the short term is affected.
However long term is "strong growth".

[Basil]

Guidance confirmed but subject to more and more caveats.
https://announcements.nzx.com/detail/400432
I wish Jeff would take his foot off the throttle of the endless ESG initiatives and ease back on the fintech stuff, especially in Australia and just let the business grow organically.  Jewel in the crown is the low risk reverse home loan lending which is growing very nicely.

In a quieter moment in this bear market I sometimes wonder if these high priced executives aren't trying to be a little bit too clever for their own or shareholders good. I am sure others will have a different view and that's fine but to me in these difficult times, boring and predictable low risk steady growth seems like the most attractive growth of all.

[LoungeLizard]

Guidance confirmed but subject to more and more caveats.
https://announcements.nzx.com/detail/400432
I wish Jeff would take his foot off the throttle of the endless ESG initiatives and ease back on the fintech stuff, especially in Australia and just let the business grow organically.  Jewel in the crown is the low risk reverse home loan lending which is growing very nicely.

In a quieter moment in this bear market I sometimes wonder if these high priced executives aren't trying to be a little bit too clever for their own or shareholders good. I am sure others will have a different view and that's fine but to me in these difficult times, boring and predictable low risk steady growth seems like the most attractive growth of all.

I've said as much myself, but perhaps more critically. The pivot to Australia and the investment required, may be good on paper, but I question the timing - the brink of a world recession with most Western economies struggling with stagflation. It smacks of hubris to me, to see this as a time to move away from the steady-as-she-goes growth and to roll the dice on expansion. Many a Kiwi company have come a cropper in mistiming or rushing into overseas markets, only to come home with their tail between their legs.

HGH have a good reputation in delivering solid growth and an attractive yield in the last ten years or so. Management have got a lot of credit in the bank with shareholders. That reputation is going to be tested - hopefully not to destruction - in the next couple of years.

[Basil]

Sorely tested I would say.  This year we have no growth in eps, (while other Australasian banks are doing quite well) and that now comes with caveats.  Final divvy was disappointing and the outlook for their capital hungry acquisition based growth means I've had to pull back on future years dividend expectations.

I was hoping for 13.5 - 14.0 cps fully imputed in FY23 and she's a long way back from there to my revised target of 11 cps.  Can't wait for them to print their entire annual report in Te Reo with no English translation...imagine how good that will make them look !  Jeff will want a pay rise for that stunning ESG accomplishment

[Left Field]

HGH to acquire Challenger bank and scraps plans to buy Avenue Bank.......... bit of a flip flop!?

https://www.nzx.com/announcements/400869

Strategic rationale
Heartland's strategic objective for expansion in Australia requires the establishment or acquisition of an ADI. Becoming a bank through an ADI in Australia would make possible a number of benefits:
• access to a deep and efficient pool of funding to support ongoing growth;
• potential uplift in margin, to the extent that retail funding rates are less than wholesale rates; and
• providing a platform to extend Heartland's best or only strategy into Australia.

The aim is to create a digital bank which, once Heartland assets are transferred to it, will be profitable. This, together with Heartland's best or only strategy, provides the opportunity for a differentiated proposition.

On 23 August 2022, Heartland announced it had entered into a non-binding memorandum of understanding with Avenue Hold Limited (Avenue Hold) for the potential acquisition of Avenue Hold and Avenue Bank Limited (Avenue Bank), a restricted ADI. Following that announcement, Heartland continued due diligence and negotiation of binding transaction documentation with Avenue Hold.

Since then, market conditions have changed. Heartland also became aware of Challenger Bank as an alternative opportunity. Heartland Board's assessment is that Challenger Bank is a stronger acquisition opportunity for Heartland's execution of its strategic objective for growth in Australia as it offers a full ADI licence. Challenger Bank has also recently undertaken a programme of significant investment to build out its digital capability, which fits with Heartland's digitalisation strategy.

Heartland has accordingly advised Avenue Hold that it will no longer be exploring the potential acquisition opportunity previously disclosed, and has discontinued due diligence and negotiations. Heartland made an initial subscription for A$5 million of capital (circa 11%) in Avenue Hold. No decision has been made on the future of this shareholding. For accounting purposes, this investment is classified as fair value through other comprehensive income, with any change in value not impacting Heartland's net profit after tax.

[lorraina]

Great move by HGH.

[Basil]

What's another $5m down another digital rat hole between friends ?
Its all going to pale into insignificance in the long run with the growth they get in Australia, (he tells himself hopefully)

Bit like marlin fishing with a few extra zero's.  Costs about $5,000 a day for a really good charter boat and crew and no guarantees you catch a big marlin.
What's the bet Jeff likes marlin fishing especially when others are paying the charter costs ?

[LoungeLizard]

Heartland seem to recognise that "market conditions have changed" but still want to pursue expansion into Aus.
They seem determined to burn cash no matter what, in order to pursue that strategy rather than question whether the time is right for that strategy at all. Personally I think the wiser option would be to recognise that the market and world economy in general, is just too unstable to pursue a wider growth strategy just yet. Keep your powder dry until the time is right, but hey ho, Jeff knows better.

[Gerald]

" A$89 million of retail lending, A$17 million of corporate lending and A$228 million of deposits. "

That would indicate about 100m sitting around not being loaned out?

Looks like a cynical way to get some more capital to cover for the cash burning in the reverse mortgage segment, push the next raise out by a few months.

[BlackPeter]

Heartland seem to recognise that "market conditions have changed" but still want to pursue expansion into Aus.
They seem determined to burn cash no matter what, in order to pursue that strategy rather than question whether the time is right for that strategy at all. Personally I think the wiser option would be to recognise that the market and world economy in general, is just too unstable to pursue a wider growth strategy just yet. Keep your powder dry until the time is right, but hey ho, Jeff knows better.

I guess this is the thing with speculations. If the economy calms down, everybody will applaud them for their wise foresight to buy now (when times are bad and stuff is cheap). If however things don't calm down, then, well, yes - people will be less complimentary.

Difficult to predict, but yes - there have been times when I was less worried about my investment into Heartland ...