HGH - Heartland Group Holdings

[winner (n)]

Basil says ' I expect the real reported profit in FY25 after haircuts on deeply problematic assets and all other provisioning to be down on last years $75m.'

I reckon lucky if they achieve $70m

Let's say an EPS of 7.0 cents

That's not very much is it

[Basil]

Most economists are predicting unemployment to continue to climb well into 2025 so one can expect more problems to surface in FY25 and FY26 as unemployed customers default on their loans.
Additionally, business receiverships and liquidations hit a ten year high in Sept 2024.  With a long lead time between when business's start getting into trouble and when they go into liquidation I expect many more liquidations in HGH's FY25 year and flowing through to FY26.

Then there's the massive write downs on all their seriously impaired assets they currently have no idea how to resolve, (euphemistically called non strategic assets)   Maybe they get 30-40 cents on the dollar on those ~ $200m of problem assets and there's another $100m worth of "deep systemic issues to come that they're presently disguising with Heartland "extend" and other possible concealment measures.

Somewhere around $70m before extra write-down's feels about right, (about 7.5 cps) to me but amortize circa $300m of bad bank loans and losses realizing them over the next 3-4 years and maybe after net realizations of problem assets reported eps is stuck about that level for several years as they spread out the realization of all the problem loans over a protracted period of time.

Here's how I see it BP.  HGH has been severely stress tested by the severe economic recession of the last few years and failed miserably and is in the process or spreading huge losses over many years.  Turners has likewise been severely stress tested and passed with flying colours.

Turners has earned huge respect with investors, institutions and analysts for how they have navigated the economic storm and HGH is in disgrace.

I'd rather back management I know I can trust.  The way Greg Tomlinson shut down my questioning at the annual meeting was a bloody disgrace.   How many more problems are they hiding?

HGH might be a risky speculative buy at some stage but I reckon we're far too early in the economic cycle at this stage.  Some people reckon a no growth company, (which is what HGH is), should trade on no more than 10 times eps.  I'm one of those people and I think HGH with all its known and highly likely, its hidden issues maybe is only really worth about 75 cents at this point.  Maybe one day they get back to reported, (not normalized) earnings of their average eps of 13 cps...but my sense is that's several years away as there's so much mess already to clean up on their balance sheet and plenty more problems coming in FY25 and FY26.

[BlackPeter]

Most economists are predicting unemployment to continue to climb well into 2025 so one can expect more problems to surface in FY25 and FY26 as unemployed customers default on their loans.
Additionally, business receiverships and liquidations hit a ten year high in Sept 2024.  With a long lead time between when business's start getting into trouble and when they go into liquidation I expect many more liquidations in HGH's FY25 year and flowing through to FY26.

Then there's the massive write downs on all their seriously impaired assets they currently have no idea how to resolve, (euphemistically called non strategic assets)   Maybe they get 30-40 cents on the dollar on those ~ $200m of problem assets and there's another $100m worth of "deep systemic issues to come that they're presently disguising with Heartland "extend" and other possible concealment measures.

Somewhere around $70m before extra write-down's feels about right, (about 7.5 cps) to me but amortize circa $300m of bad bank loans and losses realizing them over the next 3-4 years and maybe after net realizations of problem assets reported eps is stuck about that level for several years as they spread out the realization of all the problem loans over a protracted period of time.

Here's how I see it BP.  HGH has been severely stress tested by the severe economic recession of the last few years and failed miserably and is in the process or spreading huge losses over many years.  Turners has likewise been severely stress tested and passed with flying colours.

Turners has earned huge respect with investors, institutions and analysts for how they have navigated the economic storm and HGH is in disgrace.

I'd rather back management I know I can trust.  The way Greg Tomlinson shut down my questioning at the annual meeting was a bloody disgrace.   How many more problems are they hiding?

HGH might be a risky speculative buy at some stage but I reckon we're far too early in the economic cycle at this stage.  Some people reckon a no growth company, (which is what HGH is), should trade on no more than 10 times eps.  I'm one of those people and I think HGH with all its known and highly likely, its hidden issues maybe is only really worth about 75 cents at this point.  Maybe one day they get back to reported, (not normalized) earnings of their average eps of 13 cps...but my sense is that's several years away as there's so much mess already to clean up on their balance sheet and plenty more problems coming in FY25 and FY26.

Fair enough ... and fwiw - I hold a meaningful parcel of TRA as well as of HGH. Clearly - TRA is currently performing (much) better, but I expect HGH to catch up in due course. No idea, whether this will be 2025, 2026 or 2027, but at some stage the earnings from the reverse mortgages will start to flush in (not just as paper gain) - and with agriculture and small business going up again, this part of the business will come right as well.

Not sure even whether I am too worried about the " non strategic assets". Sure, if they have to make a fire sell, they will get only a fraction of what they are worth. Same as with owning shares - if you sell them at the bottom, you make a loss. However - do they really have to kill the companies and sell their assets at a discount? Most of the companies will survive with a supportive bank, and if they work with them constructively they will flourish again and the value of the assets will recover as well.

I guess sell at the bottom and buy at the top is not just for banks a bad strategy. Their choice whether they apply it (I hope not).

[Basil]

do they really have to kill the companies and sell their assets at a discount? Most of the companies will survive with a supportive bank, and if they work with them constructively they will flourish again and the value of the assets will recover as well.

Great you're holding Tina, opps sorry, Turners as well.
Massive problems in the construction sector...warehouses full of plant and equipment they can't sell.

 It's sad to say this as I once held this company in high regard, but I think Geoff has hidden problem loans in the company for years, culminating in them having to corral them all in a bad bank.

You saw my questioning at the annual meeting, if not there's a link in this thread to a YouTube of it and the way I was shut down.  None of the people I met at the meeting impressed me with their strategy for HGH including Greg Tomlinson.

I didn't like the answers to my questions during the meeting or after it.

How I see it BP is this.  I accept HGH will turn the corner at some stage in the years ahead and eventually revert to earning their long run average of 13 cps.  I no longer accept its a growth company.  At that point, in whatever year it is they revert to 13 cps reported earnings that makes this no growth company worth 10 times 13 cents = $1.30.   

I see better places for my capital elsewhere.

[lorraina]

Jeff not Geoff......lol.

[Basil]

Jeff not Geoff......lol.

LOL Maybe both Jeff and Geoff kept sweeping problems under the carpet hoping they'd eventually come right.

Posted by Balance on the other channel who has obviously looked at the RBNZ dashboard.

Sobering update from HGH Sept quarter - NZ profit down 38% from June quarter.
Total assets down $171m so NZ book is going backwards.

June quarter was bad, really bad, so 38% down on that is really ugly.  Maybe my $70m reported profit for FY25, (especially with a possible serious haircut to come on possible sale of some of their deeply problematic assets) is not pessimistic enough?  Whatever, nobody should be under any illusions that when they do give FY25 guidance at the February half year reporting mark, it's going to be anything other than a very ugly number, which assumes they give guidance at all.  Could just be the usual corporate speak we've got lately about market conditions still remaining too volatile.

[snapiti]

HGH testing the 12 months lows, got a feeling Mr markets is become very wary of the accounts and risky lending.....highly suspect new 12 month lows are going to be created and we will probably see an 8 in front of the SP soon

[Basil]

Yeah, not surprising to see all the 96 cent bids get cleaned out at the close and testing its year and decade low of 96 cents.

If they can make 7.5 cps this year, (and that's a BIG IF), its not hard to make the case HGH is only worth 10 times current year earnings = 75 cents.  Frankly I don't think they will make even that "reported" number, (not their creative B.S. normalized number) as there's likely to be a serious haircut on some of the bad bank realizations as they endeavor to smooth a mountain of losses over several years.

I think there's years of losses to come on bad bank problematic asset realizations which will heavily impact FY26, FY27 and FY28 results.
The sooner they disassociate themselves from Jeff's B.S. capital raise marketing lie of pretending $200 is a realistic target for FY28, the sooner they can start the multiyear task of trying to rebuild their shattered credibility. 

[snapiti]

Yeah, not surprising to see all the 96 cent bids get cleaned out at the close and testing its year and decade low of 96 cents.

If they can make 7.5 cps this year, (and that's a BIG IF), its not hard to make the case HGH is only worth 10 times current year earnings = 75 cents.  Frankly I don't think they will make even that "reported" number, (not their creative B.S. normalized number) as there's likely to be a serious haircut on some of the bad bank realizations as they endeavor to smooth a mountain of losses over several years.
I think there's years of losses to come on bad bank problematic asset realizations which will heavily impact FY26, FY27 and FY28 results.
The sooner they disassociate themselves from Jeff's B.S. capital raise marketing lie of pretending $200 is a realistic target for FY28, the sooner they can start the multiyear task of trying to rebuild their shattered credibility. 

that's the problem Basil, IMO they are using creative selective accounting(smoke n mirrors) to smooth over and disguise very crappy results, however I assume the markets are now well aware of this and will be reflected in the next 3 years results as they dispose of the pile of shit loans they have written over the last 2 to 3 years in a selective manner.
I do believe more SP selling pressure is coming.

[Basil]

that's the problem Basil, IMO they are using creative selective accounting(smoke n mirrors) to smooth over and disguise very crappy results, however I assume the markets are now well aware of this and will be reflected in the next 3 years results as they dispose of the pile of shit loans they have written over the last 2 to 3 years in a selective manner.
I do believe more SP selling pressure is coming.

Exactly, which is precisely what all the finance companies in the GFC were doing.  Remind me again, how did that work out in the end

[snapiti]

Exactly, which is precisely what all the finance companies in the GFC were doing.  Remind me again, how did that work out in the end

Am I correct in thinking the banking capital requirements should prevent this happening to HGH

[Basil]

Am I correct in thinking the banking capital requirements should prevent this happening to HGH

Most probably.  The bad bank is just on 2% of all assets.  Even allowing for another...say 2% of possible concealed bad debts that's 4% and their capital ratio is about 14% so there's plenty of headroom there, unless some major unforeseen exogenous shock of really serious proportions rocks the markets.
Bank accounts and term deposits will be Govt guaranteed from 1 July 2025 up to a limit of $100K but what will term deposit rates be by then with the OCR headed down to about 3% mid 2025.  Maybe 3.5%?  Less tax at 33% = 2.25% after tax so you're just treading water with inflation at 2%.

[snapiti]

ha ha, low interest rates good for BRM as they pay a consistent 8% after tax, that will close the gap between NAV and SP,  but that is for another thread, 

[Basil]

New all time low for HGH at 95 cents.  I can't say I am even a little bit surprised.  I don't have a price target for Feb 2025 when they report their half year but I'm happy to wager after that report it will be south of where the share price is now.
HGH use of the word "volatile" is code speak for, we're getting the life beaten out of us with bad and doubtful debtors.

[LaserEyeKiwi]

New all time low for HGH at 95 cents.  I can't say I am even a little bit surprised.  I don't have a price target for Feb 2025 when they report their half year but I'm happy to wager after that report it will be south of where the share price is now.
HGH use of the word "volatile" is code speak for, we're getting the life beaten out of us with bad and doubtful debtors.

Nah it was lower in the covid lows of March 2020.