HGH - Heartland Group Holdings

[winner (n)]

What Pritesh Patel got up to with his mate

https://www.fma.govt.nz/assets/Enforcement/Enforceable-undertakings/FMA-Pritesh-Patel-enforceable-undertaking.pdf?utm_source=miragenews&utm_medium=miragenews&utm_campaign=news

[Basil]

Good post Shareguy.
Chump change isn't it winner.

I think after the trading update https://www.nzx.com/announcements/442642 and RBNZ dashboard metrics for HGH for Q1 FY25 there's plenty of warning signs about FY25.  Reported FY25 profit will struggle to match the $75m in FY24 after taking some of the bad bank losses on the chin is how I see it.  There's 930.56m shares on issue now so reported, not normalized, eps is, (and I am going for a very wide range here because so much is unknown) likely to fall into the range of 6-8.5 cps.  I see the midpoint of that as being the most likely, about 7.25 cps.   If I am right and acknowledging that brokers are a fair bit higher than me, that put's the shares on a forward PE of 13.4 which is about the average HGH has traded on for the last decade.

I think the shares are probably priced about right where they are at just under $1 and the market is absolutely correct to have a very jaundiced view of their near-term prospects.

FY26 and FY27 gains from extra NIM on reverse mortgages in Australia by funding them from deposits are likely to be substantially obliterated from losses that are spread over those years from realizations in their bad bank is how I see it.

I was not impressed at all by Leanne Lazurus or Greg Tomlinson to be quite frank about it.  There is going to be NO attempt to try and be more proactive about improving / tightening their loan origination procedures to try and reduce bad debts going forward. Just think about that for a few minutes and ask yourself what part of that makes common sense given the extreme headwinds in the economy?  No proactivity whatsoever was signaled to me by Leanne Lazurus.  Contrast that with Turners who have tightened their lending criteria many times during the recession.  Ask yourself which approach has been more successful, the proactive approach of Turners with their finance book or the reactive one of Heartland.  To be crystal clear, I think Heartland have engaged in reckless lending with standardized approval processes that are very weak, and are still doing it.

In the meeting they clearly signaled they were looking at stepping back from residential mortgage lending due to inadequate returns on capital.  I see on their website today, nearly two months after their statement at the meeting, they are still lending on one-year mortgages at just 64 bps above 1 year term deposit.  That suggests to me Heartland are a clumsily run ship just drifting along and hoping to make progress and maybe one day the skipper will ask, gosh the returns are really poor on that lot of capital employed and gosh, we need to reach the new capital adequacy ratios the RBNZ set us, we'd better do something about it now.  When's that going to happen ?  Leanne Lazurus said to me after the meeting that residential lending was a non-strategic activity, and all loans were also non-strategic assets.  Well Leanne, why are you still doing that type of lending then and at market leading rates?

Food for thought. How big is their bad bank of NSA's going to be next year ?

I have very little confidence in the board or N.Z. management.  I think they will do well with reverse mortgages, but most other lending will plague them with ongoing heavy losses and together with losses from realizations of assets from the bad bank the total effect on profitability is likely to be quite brutal.   They will dress these normal, across the bottom of the economic cycle losses from the bad bank up as extraordinary and unusual items and normalize profit to try and make things look better.  Creative accounting 101.   

It's very easy to make the case that large parts of the group are ostensibly a finance company dressed up as a bank.  Finance companies never do well in deep recessions, the GFC taught us that and there were very few finance companies that survived that and almost none that weren't seriously affected.

Just as well they have their specialist loan product "Heartland Extend" to conceal as many overdue finance receivables as they can.  Just keep that practice up, what could possibly ever go wrong.  Hmmm   I hope I am too pessimistic, and this works out okay for holders.    I sold all my stake at just over $1, breaking even and invested it all into more Turners shares at just on $4.50.   You can sleep very well at night with Turners shares and their exceptional management team, in my opinion.

[Red Baron]

I think they will do well with reverse mortgages, but most other lending will plague them with ongoing heavy losses and together with losses from realizations of assets from the bad bank the total effect on profitability is likely to be quite brutal. 

It's very easy to make the case that large parts of the group are ostensibly a finance company dressed up as a bank.  Finance companies never do well in deep recessions, the GFC taught us that and there were very few finance companies that survived that and almost none that weren't seriously affected.

Just as well they have their specialist loan product "Heartland Extend" to conceal as many overdue finance receivables as they can.  Just keep that practice up, what could possibly ever go wrong.  Hmmm  I hope I am too pessimistic, and this works out okay for holders.   

Vow, Basil.  Ze bit een bold. Take of zhose blinkers. Eet has taken you until now to vigure zhis out?  You are much zharper zhan zhat!

Of course Heartland eez a vinance company!  Even Jeff admitted 'Heartland Bank" vas a marketing slogan.  Ze vact that all Heartland Bank accounts in NZ are actually Westpac NZ accounts vas another giveaway.

A "Bank" (I vill continue to humour ze 'cult of Jeff' and call Heartland that) vill be remembered by eets customers on how zhey are treated een bad times, not good.  Your 'zolution' to ze bad bank eez to zell off all ze diesel builders utes and vans at ze bottom of ze market?  Who eez going to buy zhem?  Eet eez a very deeferent market to Turners 'light passenger vehicles' vith a much broader potential customer base.

You may not like 'Heartland Extend' but eet eez ze only zolution, apart vrom 'zending builders bankrupt'.  Yes zome loans vill turn bad, but ze alternative eez 'all loans vill turn bad'.  Eef you are a long term investor, you go in with zee knowledge that een downturns 'bad times vill come'.  Eef you do not realise zhis, zhen you zhould not have been invested een Heartland to ztart vith!

Vhat makes Heartland distinct vrom all of zhose other 'vinance companies' out zhere eez ze 'reverse mortgage portfolio' (as you have identified).  Zhis eez zee arm of zhis company zhat vill zee Heartland through 'tough times'.  Heartland vill survive, make no bones about zhat.  And vith other vinance companies teetering, and real banks zhying away vrom 'vehicle lending', who vill be zhere to pick up ze pieces een ze 'trade and equipment funding space' vhen ze market turns?  Zhis eez ze 'medium term game' vor Heartland and eets zhareholders.  And I theenk eet eez a 'vinning ztrategy'.

RB


 

[Greekwatchdog]

Good post Shareguy.
Chump change isn't it winner.

I think after the trading update https://www.nzx.com/announcements/442642 and RBNZ dashboard metrics for HGH for Q1 FY25 there's plenty of warning signs about FY25.  Reported FY25 profit will struggle to match the $75m in FY24 after taking some of the bad bank losses on the chin is how I see it.  There's 930.56m shares on issue now so reported, not normalized, eps is, (and I am going for a very wide range here because so much is unknown) likely to fall into the range of 6-8.5 cps.  I see the midpoint of that as being the most likely, about 7.25 cps.   If I am right and acknowledging that brokers are a fair bit higher than me, that put's the shares on a forward PE of 13.4 which is about the average HGH has traded on for the last decade.

I think the shares are probably priced about right where they are at just under $1 and the market is absolutely correct to have a very jaundiced view of their near-term prospects.

FY26 and FY27 gains from extra NIM on reverse mortgages in Australia by funding them from deposits are likely to be substantially obliterated from losses that are spread over those years from realizations in their bad bank is how I see it.

I was not impressed at all by Leanne Lazurus or Greg Tomlinson to be quite frank about it.  There is going to be NO attempt to try and be more proactive about improving / tightening their loan origination procedures to try and reduce bad debts going forward. Just think about that for a few minutes and ask yourself what part of that makes common sense given the extreme headwinds in the economy?  No proactivity whatsoever was signaled to me by Leanne Lazurus.  Contrast that with Turners who have tightened their lending criteria many times during the recession.  Ask yourself which approach has been more successful, the proactive approach of Turners with their finance book or the reactive one of Heartland.  To be crystal clear, I think Heartland have engaged in reckless lending with standardized approval processes that are very weak, and are still doing it.

In the meeting they clearly signaled they were looking at stepping back from residential mortgage lending due to inadequate returns on capital.  I see on their website today, nearly two months after their statement at the meeting, they are still lending on one-year mortgages at just 64 bps above 1 year term deposit.  That suggests to me Heartland are a clumsily run ship just drifting along and hoping to make progress and maybe one day the skipper will ask, gosh the returns are really poor on that lot of capital employed and gosh, we need to reach the new capital adequacy ratios the RBNZ set us, we'd better do something about it now.  When's that going to happen ?  Leanne Lazurus said to me after the meeting that residential lending was a non-strategic activity, and all loans were also non-strategic assets.  Well Leanne, why are you still doing that type of lending then and at market leading rates?

Food for thought. How big is their bad bank of NSA's going to be next year ?

I have very little confidence in the board or N.Z. management.  I think they will do well with reverse mortgages, but most other lending will plague them with ongoing heavy losses and together with losses from realizations of assets from the bad bank the total effect on profitability is likely to be quite brutal.   They will dress these normal, across the bottom of the economic cycle losses from the bad bank up as extraordinary and unusual items and normalize profit to try and make things look better.  Creative accounting 101.   

It's very easy to make the case that large parts of the group are ostensibly a finance company dressed up as a bank.  Finance companies never do well in deep recessions, the GFC taught us that and there were very few finance companies that survived that and almost none that weren't seriously affected.

Just as well they have their specialist loan product "Heartland Extend" to conceal as many overdue finance receivables as they can.  Just keep that practice up, what could possibly ever go wrong.  Hmmm   I hope I am too pessimistic, and this works out okay for holders.    I sold all my stake at just over $1, breaking even and invested it all into more Turners shares at just on $4.50.   You can sleep very well at night with Turners shares and their exceptional management team, in my opinion.

Really and yet just before the result you were telling everyone how great this was and how big the divvies are going to be. It was all out there if you bothered to get your nose out and  do some real research Basil and you missed it. You actually think you get some sort of pardon after telling everyone you have XXX amount and another $300k to go in.

You chop and change with the weather. Stick to HLG and TRA as they suit you better thou note wasn't it Percy on the other channel that was praising TRA long before you got in? And your comment it was only cars.

Always the same everything is great until its not, simply the writing was on the wall well before the FY result.

[Auto Rower]

Really and yet just before the result you were telling everyone how great this was and how big the divvies are going to be. It was all out there if you bothered to get your nose out and  do some real research Basil and you missed it. You actually think you get some sort of pardon after telling everyone you have XXX amount and another $300k to go in.

You chop and change with the weather. Stick to HLG and TRA as they suit you better thou note wasn't it Percy on the other channel that was praising TRA long before you got in? And your comment it was only cars.

Always the same everything is great until its not, simply the writing was on the wall well before the FY result.

I think its a good sign/ethos when someone can change their opinion in a stock and admit it as Basil has done before .
It could save you a lot of money ,this sort of posting should be applauded for its honesty  ,and encouraged .
Loyalty to a stock is a mugs game & the sooner we all learn off peoples doubts the better & sooner we can reappraise said stock/company rightly or wrongly .

[Greekwatchdog]

I think its a good sign/ethos when someone can change their opinion in a stock and admit it as Basil has done before .
It could save you a lot of money ,this sort of posting should be applauded for its honesty  ,and encouraged .
Loyalty to a stock is a mugs game & the sooner we all learn off peoples doubts the better & sooner we can reappraise said stock/company rightly or wrongly .

Not when you go shooting Tom, Dick and Harry down praising the company then all of a sudden the wind changes and think you can save grace. Remember the Pied Piper it didn't up to well for him.

[Red Baron]

Not when you go shooting Tom, Dick and Harry down praising the company then all of a sudden the wind changes and think you can save grace. Remember the Pied Piper it didn't up to well for him.

Regular readers of thees vorum all know Basil's ztyle and can read his posts in zhat context. Can I zuggest we move the discussion on vrom 'Heartlessnessland' (kick the dog)- it is Christmas after all- back to 'Heartland'.   

RB

[Shareguy]

Good post Shareguy.
Chump change isn't it winner.

I think after the trading update https://www.nzx.com/announcements/442642 and RBNZ dashboard metrics for HGH for Q1 FY25 there's plenty of warning signs about FY25.  Reported FY25 profit will struggle to match the $75m in FY24 after taking some of the bad bank losses on the chin is how I see it.  There's 930.56m shares on issue now so reported, not normalized, eps is, (and I am going for a very wide range here because so much is unknown) likely to fall into the range of 6-8.5 cps.  I see the midpoint of that as being the most likely, about 7.25 cps.  If I am right and acknowledging that brokers are a fair bit higher than me, that put's the shares on a forward PE of 13.4 which is about the average HGH has traded on for the last decade.

I think the shares are probably priced about right where they are at just under $1 and the market is absolutely correct to have a very jaundiced view of their near-term prospects.

FY26 and FY27 gains from extra NIM on reverse mortgages in Australia by funding them from deposits are likely to be substantially obliterated from losses that are spread over those years from realizations in their bad bank is how I see it.

I was not impressed at all by Leanne Lazurus or Greg Tomlinson to be quite frank about it.  There is going to be NO attempt to try and be more proactive about improving / tightening their loan origination procedures to try and reduce bad debts going forward. Just think about that for a few minutes and ask yourself what part of that makes common sense given the extreme headwinds in the economy?  No proactivity whatsoever was signaled to me by Leanne Lazurus.  Contrast that with Turners who have tightened their lending criteria many times during the recession.  Ask yourself which approach has been more successful, the proactive approach of Turners with their finance book or the reactive one of Heartland.  To be crystal clear, I think Heartland have engaged in reckless lending with standardized approval processes that are very weak, and are still doing it.

In the meeting they clearly signaled they were looking at stepping back from residential mortgage lending due to inadequate returns on capital.  I see on their website today, nearly two months after their statement at the meeting, they are still lending on one-year mortgages at just 64 bps above 1 year term deposit.  That suggests to me Heartland are a clumsily run ship just drifting along and hoping to make progress and maybe one day the skipper will ask, gosh the returns are really poor on that lot of capital employed and gosh, we need to reach the new capital adequacy ratios the RBNZ set us, we'd better do something about it now.  When's that going to happen ?  Leanne Lazurus said to me after the meeting that residential lending was a non-strategic activity, and all loans were also non-strategic assets.  Well Leanne, why are you still doing that type of lending then and at market leading rates?

Food for thought. How big is their bad bank of NSA's going to be next year ?

I have very little confidence in the board or N.Z. management.  I think they will do well with reverse mortgages, but most other lending will plague them with ongoing heavy losses and together with losses from realizations of assets from the bad bank the total effect on profitability is likely to be quite brutal.  They will dress these normal, across the bottom of the economic cycle losses from the bad bank up as extraordinary and unusual items and normalize profit to try and make things look better.  Creative accounting 101. 

It's very easy to make the case that large parts of the group are ostensibly a finance company dressed up as a bank.  Finance companies never do well in deep recessions, the GFC taught us that and there were very few finance companies that survived that and almost none that weren't seriously affected.

Just as well they have their specialist loan product "Heartland Extend" to conceal as many overdue finance receivables as they can.  Just keep that practice up, what could possibly ever go wrong.  Hmmm  I hope I am too pessimistic, and this works out okay for holders.    I sold all my stake at just over $1, breaking even and invested it all into more Turners shares at just on $4.50.  You can sleep very well at night with Turners shares and their exceptional management team, in my opinion.

Thanks Basil. A few points that I want to clarify

I agree it's a big ask to exceed last years reported profit of $75m. Forbar has renewed their research after the last update and are saying $99m. Yes that's reported not normalised. A lot hinges on 2H. For what it's worth I have low expectations and think anything around $75m under the circumstances would be good, hopefully bottom cycle result.

You stated

"FY26 and FY27 gains from extra NIM on reverse mortgages in Australia by funding them from deposits are likely to be substantially obliterated from losses that are spread over those years from realizations in their bad bank is how I see it"

Your concerns may well be right Basil. I don't no Greg Tomlinson personally but he was adamant that there is not a bad bank hiding. Greg I thought clearly stated that there will be no fire sale and that the nsa are already provisioned and independently reviewed. Greg is a very very wealthy man and I personally don't think he would try and hide anything and have no reason to doubt what he stated at the agm. His credibility would be on the line if we see any massive writedowns on the existing nsa,s is how I see it. So until I see otherwise I'm expecting an orderly sell down at close to book value over all.

At the end of the day I see Australia as the prize and the additional Nim is going to be a game changer.  The market is already pricing in a shocker 2025. What if it's not that bad. If we don't see this "bad bank" eventuating and guidance for FY25 is simalar to last year then I suspect the share price will head up again.

I'm a long term holder and think there is not many shares on the NZX that have such potential. You might prove to be right Basil(I hope not) If I see massive write downs as you suggest and this bad bank materialises then I will be selling.

As far as Turners gos, well it's been on my watchlist and I have come close to buying it several times. It's a great company and well managed I just don't see it as a buy at the current price. But watch this space.....

Your concerns get us all thinking which is good, so thanks for that Basil.

Well it's time for a swim and a cold beer.

[winner (n)]

I asked this ChatGPT thingie "Does Heartland Bank MZ have a looming bad debt problem"

Came back "Whoop,something went wrong"

Think it was too embarrased to say "Yes, they've stuffed up badly and significant writeoffs will inevitably result"

I'll ask it again later on ..
Might be in a better mood

[Buzz]

I asked this ChatGPT thingie "Does Heartland Bank MZ have a looming bad debt problem"

Came back "Whoop,something went wrong"

Think it was too embarrased to say "Yes, they've stuffed up badly and significant writeoffs will inevitably result"

I'll ask it again later on ..
Might be in a better mood

Maybe it didn't like "Heartland Bank MZ"

Here's what it has to say, to exactly the same question, with "New Zealand" (note the answers were found from NBR and RNZ articles):

While rising bad debts are notable, Heartland Bank appears to be addressing these challenges strategically, and its overall financial stability is not in immediate jeopardy.

Heartland Bank in New Zealand is currently navigating challenges related to rising bad debts, though the situation is not yet indicative of a major crisis. The bank's financial results reveal an increase in provisions for bad loans, primarily in sectors like motor finance and asset finance, which have been affected by subdued market demand and heightened competition. For example, net impaired and overdue loans rose by $6.2 million in the first quarter of the current fiscal year.

Contributing factors include operational issues from recent system upgrades, elevated arrears in longer-term loans, and economic challenges faced by business clients in sectors like transportation and forestry. However, Heartland Bank has been actively managing credit quality, implementing recovery strategies, and maintaining strong retail deposit flows to offset these issues.

Despite these challenges, the bank's core lending portfolios, such as reverse mortgages and small business loans, have shown resilience and growth potential. Heartland expects conditions to improve in 2025 as economic pressures ease and interest rates decline

[Basil]

Regular readers of thees vorum all know Basil's ztyle and can read his posts in zhat context. Can I zuggest we move the discussion on vrom 'Heartlessnessland' (kick the dog)- it is Christmas after all- back to 'Heartland'.

"Heartlessness land" hits the nail right on the head.  Deep shame on that feral animal for going into rabid attack mode at this time of year.

Thanks for your kind words Auto Rower.

Thanks Shareguy.  Balance on the other channel, who for other than his sometimes very controversial political views seems to talk a fait bit of common sense, reckons there's warehouses full of plant and equipment HGH are sitting on.

HGH has been a disappointment to me this year. I think my key mistake was underestimating the depth and severity of the recession. I Don 't think I was alone in making that mistake.

HGH's time to shine will come again at some stage but it's increasingly clear there's a big mess to clean up first. I think we agree, the cost of cleaning up that mess is a key determinant with the future share price of HGH.

My concerns over management's capabilities and the veracity of their loan approval processes will remain until HGH can prove otherwise.
I've said enough about TRA in that thread.

Anyway it's time for that drink and swim. Mrs is complaining it's too hot. I asked her if she had noticed the big swimming pool all around us lol

[BlackPeter]

This sort of shite by a former 'accountant' at Heartland really undermines investor confidence. I'm surprised Heartland hasn't acknowledged it to the market, or how they're ensuring it will never happen again!

https://www.fma.govt.nz/news/all-releases/media-releases/individual-pleads-guilty-to-insider-trading-charges/

Undesirable, but I don't see how this would be material to Heartland?

A certain percentage of people are crooks - some petty crooks as in this case and others large. This is a fact. Some of these crooks happen to be accountants and use their knowledge for insider trading with whatever organization they happen to work for.

How does this reflect on HGH other than that HGH and FMA together have been able to catch the crook and get him to admit his guilt and accept a penalty.

All good. At worst a boost of confidence into the system.

[Basil]

Dog's of the Dow theory. I reckon a few people will punt on HGH and some of the other stocks named below using the theory that those that have performed worst in 2024 might have a good 2025.  Extract from recent Herald article.  I think many of these companies face deep systemic issues and / or poor management.  It would be interesting to see if say, $10K invested in each one outperformed the market in 2025.  I'm not game to give it a go, I'd prefer to invest in winners in an uptrend, trading on compelling metrics.

The top 10 losers were KMD Brands minus 48.67%, THL (48.65%), Spark (42.5%), Fletcher Building (38.7%), The Warehouse (33.9%), Heartland Bank (29.6%), Ryman (27.8%), Sky City (20.4%), Vital Healthcare (13.5%) and Genesis (8.4%).

[BlackPeter]

Dog's of the Dow theory. I reckon a few people will punt on HGH and some of the other stocks named below using the theory that those that have performed worst in 2024 might have a good 2025.  Extract from recent Herald article.  I think many of these companies face deep systemic issues and / or poor management.  It would be interesting to see if say, $10K invested in each one outperformed the market in 2025.  I'm not game to give it a go, I'd prefer to invest in winners in an uptrend, trading on compelling metrics.

Dogs of the Dow theory is based on good earnings but low hype.

This is something, which is true for some of these stocks and others not.

I see ...

HGH: has a 6.2% dividend yield, a (10y) backward PE of 7.7 and a (3yr) forward PE of 7.3. Not bad - might well be one of these outstanding dogs? But sure, the world might stop spinning, and than it will not. But hey, who would care?
GNE: dividend yield: 6.5%, backward PE: 20, forward PE: 21 ... not bad for a Gentailer.
RYM: no dividend, backwards PE 6.5, forward PE: 13.5: might be a good dog for people prepared to wait;
KMD: no dividend,  backwards PE 3.7, forward PE 29.5. Hmm ... I guess it depends how fast (and if at all) they dig themselves our of the current hole (but yes, there are clearly risks - the market has changed).
FBU, WHS - less a numbers thingy and more a punt on whether they learned something ...
SPK - check my view on the relevant thread and ...
... the others - yeah, right.

So, yes, I do see some dogs worthwhile to invest in (and I did) ... and others not so.

All dogs, but the trick is to find the dogs which are going to perform.

[winner (n)]

The Dogs of the Dow is an investment strategy that identifies the highest-yielding, yet underperforming, stocks in the Dow Jones Industrial Average in an attempt to achieve share-price gains faster than peers with lower yields. ....theory being the share price might increase to reduce yields to more realistic levels.

So what are the highest yielding stocks on the NZX ... they're the Dogs ofvthe NZX

Suppose HLG and TRA would be included?