HGH - Heartland Group Holdings

[Basil]

It's very disappointing to see the share price still languishing around a decade low, close to the desperation pricing of the last capital raise many months ago.

[winner (n)]

One lesson all should take on board from this mess is that 'normalisation' of profits is a bad practice.

Often as in the case of Heartland the abnormals turn out to be real and not abnormal after all

The start of this practice was a red flag ......especially iafter years of Jeff always doing what he said he would do.

The start of normalising b

It was a sad day when Jeff started 'normalising' to smooth profits ...like Jack Welch at GE it all catches up with them.

Hope new guy stops the practice

[Basil]

Leopards not going to change its spots.  For one thing, you can see they are smoothing the losses on their newly classified $217m of non Stategic assets over the next few years.  Even going to report on them separately as if to suggest they have learned their lesson from certain types of lending and these sorts of losses will not be recurring in the future.   It's just plain unadulterated creative accounting AKA "fudging the books"

[entrep]

Did you sell out Basil? I have not followed this thread for some months

[BlackPeter]

OK - sounds like HGH is currently in the bad books of some of our gurus. Bashing time?

And fair enough ... normalized profit (like underlying earnings or EBITDAFXY) might be useful to point the torch on a certain aspect of the financial system based on a whole lot of working assumptions (which may - or more often - may not be right), but it is more often used to fudge the big picture (which is always wrong). So, yes they clearly turned into the wide and comfy way leading to reporting hell instead of choosing the steep and narrow path to reporting heaven.

And clearly - buying into Harmoney was not one of their better decision either (and in hindsight easy to see) - even if this is long time back and it has not really any material impact anymore.

Not sure about their car loan lending criteria ... but if I take minimoke's story at face value, then it sounds as well quite concerning if they loan 100% of the value of a security which starts to loose value before the ink under the purchase contract is dry to any warm body without evidence of prudent money skills. Actually - I think this is one of the more concerning stories - but lets face it, the last financials didn't look that concerning, didn't they?

On the other hand - their big business contributors are reverse mortgages and farm lending. Reverse mortgages can only grow (and are safe) and farming seems to be at the bottom of the cycle, green shoots are clearly visible (like horticulture and recently sheep) - and hey - farming won't go away anytime soon - will it?

If I look at the IFR earnings - they made over the last 10 years an average of 13 cents per year, and analysts  predict the same average for the three years to come (plus 2024). So - lets call this a non growth company and they should be worth (8.5 times earnings) something like $1.10 per share. If they don't grow, they are fairly priced with a bit of headroom.

Obviously - analysts think that they are currently at the bottom of an earnings cycle (but hey, analysts are normally optimistic and can't tell the future either) - and all up from here, which means, if they are right, there might be significant upside potential.

So - I guess the real question is - is HGH like one of these finance companies which didn't survive the GFC, or do they have enough of a bank to pull themselves through and thrive?

So far I have nobody heard making a case for their Exitus (and lets face it, I have seen no supporting data either) - i.e. the chance for them of thriving in the coming upturn appears to be significantly higher than the alternative ...

Might be a case of always good to buy around $1 ;

[Basil]

If I look at the IFR earnings - they made over the last 10 years an average of 13 cents per year, and analysts  predict the same average for the three years to come (plus 2024). So - lets call this a non growth company and they should be worth (8.5 times earnings) something like $1.10 per share. If they don't grow, they are fairly priced with a bit of headroom.

I think that's a fair synopsis and probably a good way to look at it across different economic cycles.  You could even argue that with lower equity risk premiums these days, (although whether that's applicable to a finance company / bank is highly debatable), a fair no growth PE is 10 and fair value is $1.30.  I think it will take quite some time to get there but in theory patience should be rewarded.  I say in theory because if they are fudging their books and disguising massive losses on their $217m of non-strategic assets, NSA's (more than 2 years profits), then what they really made across the bottom of the economic cycle could have been such a depressing number they might not have got the capital raise done.  I'm going to focus a fair bit of my questioning at the annual meeting on these so-called NSA's and if I don't like the answers to questions, my shareholding in HGH will become a NSA to me.

entrp, I've sold half at break even on cost and my remaining stake in HGH now represents just under 3% of my portfolio.  This move reflects my concerns noted above and a lower level of confidence in HGH than I used to have.

[TGB]

Selling mine off today, looking at buying a business and I'd rather take $1.04 today than risk bad news tomorrow and have SP drop away.

[winner (n)]

Well, that AGM was a great display of self indulgence from the top table

Nonetheless one shareholder rattled Chairman Greg when he questioned about these Non-Strategic Assets ...think he got grumpy with them being described as assets put in the naughty boys cornet. Anyway he didn't answer the question and had to revert to the 'I'm mindful of time' trick to avoid further questions from that shareholder.

You get the impression big problems ahead with these. Laughed when one manager said they had to restock a farm so they get a good price for it ...or something like that.

Pretty poor meeting really ...gave shareholders no confidence of things going well in short/medium term.



 farm

[BlackPeter]

Well, that AGM was a great display of self indulgence from the top table

Nonetheless one shareholder rattled Chairman Greg when he questioned about these Non-Strategic Assets ...think he got grumpy with them being described as assets put in the naughty boys cornet. Anyway he didn't answer the question and had to revert to the 'I'm mindful of time' trick to avoid further questions from that shareholder.

You get the impression big problems ahead with these. Laughed when one manager said they had to restock a farm so they get a good price for it ...or something like that.

Pretty poor meeting really ...gave shareholders no confidence of things going well in short/medium term.



 farm

Hmm - interesting. Just wondering whether they had two different meetings on to make sure everybody gets to hear what they expect (hey - this would be stakeholder service, wouldn't it?)?

Anyway - I heard a lot about a refreshing focus on shareholders value ... and the session didn't require me either to pull out my Te Reo dictionary in order to follow. This was good.

I saw a significantly refreshed leadership team, and it sounded that they acknowledged and understood the problems of the recent past.

So - to me it felt they made the right noises. Obviously - whether they manage as well to convert them into the right deeds, we need to see. Project 2028, isn't it? - but I think we can expect gradual improvements before.

PS: In case nobody noticed - the shareholder question you referred to had been discussed on this very thread before. Just wondering whether we might know the shareholder who asked the question?

[Basil]

Pretty poor meeting really ...gave shareholders no confidence of things going well in short/medium term.

I think that sums it up in a nutshell pretty well.    Apparently, there will be a recording of the meeting available on HGH's website tomorrow.  If you watch closely, the clues about FY25's performance are there if you go looking for them and then you can make your own mind up..  Keep in mind the hugely increased number of shares on issue now and impairments in future years on those $217.9m of NSA's which are really EPA's (Especially problematic assets).   

[snapiti]

oh dear, usually easy to walk away from AGM's feeling upbeat having listened to the cheerleading, certainly appears to be some creative accounting as well, big red flag right there.

[raW tent Buffer]

entrp, I've sold half at break even on cost and my remaining stake in HGH now represents just under 3% of my portfolio.  This move reflects my concerns noted above and a lower level of confidence in HGH than I used to have.

Will you be keeping your remaining shares after that lacklustre meeting yesterday?

[winner (n)]

Greg Tomlinson didn't seem to like that shareholder descibe these non-strategic things as  "Corral the bad stuff and put them in the naughty boys corner" and hope for the best

Couldn't help think that sounds like Oceania and their dud assets they call assets for sale.

Greg's modus operandi

[Whome]

Wasn't sure what to post this under, but with HGH asm yesterday stimulating plenty of discussion, it seemed appropriate.

This is an invitation to all posters to meet, gratefully organised by Ronaldson as follows per his notice:
Hi everyone. The forward weather forecast for Sunday mid-afternoon is 19 degrees, sunny, minimal wind, so great for the Terrace at Oyster and Chop. Put it in your diary and make a point of attending. The event/Happy hour starts at 3.00pm for drinks, and oysters too if that is your taste. All welcome so don't miss out on meeting fellow forum posters/readers, not to mention insights into what to choose for the 2025 Competition!

See you then.

[Basil]

I wasn't happy with the answers to the questions I was allowed to ask yesterday and frankly it was a crock of s**t that shareholders question time was cut so short.  Most shareholders only have one chance a year to question the board and management and the manner in which the time was cut short showed scant respect for shareholders rights to communicate with them.

All the 2028 aspirational talk doesn't fit with what scant information was provided in terms of FY25 trading. The company would know full well what their first quarter profit was to 30 Sept as this is required to be disclosed to the RBNZ but chose not to share this information.

The $217.9m of EPA's (especially problematic assets) will prove a major challenge in the years ahead to realise at anything like book value.  In discussions after the meeting Leanne Lazuraus CEO of Heartland N.Z. was adamant they had not segregated out a bad bank from the good bank, but that's exactly what they have done in my opinion.  $217.9m is more than two years of total normal operating profit, so yes, this is very material.

They are going to report on the bad bank separately going forward but its important to understand that losses going forward are not exceptional items, this is simply a process of realizing what is mainly extremely doubtful loans incurred over the bottom of the economic cycle, over a period when hopefully the economy recovers.

Quite surprisingly after the intense questioning I gave them at the meeting I thought I would be persona non grata after the meeting, but I had good discussions with several directors who came up to me and thanked me for my questions, including Greg Tomlinson.

I might share a bit more about what was discussed next week after I have reflected on everything yesterday and reworked my expectations on earnings and dividends for the next 3 years.

In terms of my shareholding, I have taken steps to reduce this further and the remaining shares are now classified as...you guessed it, a non-strategic asset