HGH - Heartland Group Holdings

[winner (n)]

Intrigued as to why rhetoric around how great Australia is going is not feeding into better financial performance ....so I did a Snoopy Segment Analysis. Numbers from Financial statements for Australian Banking Group

Firstly look at Net Operating Income. This is mainly Net Interest Income with a few bits and pieces thrown in.

The trend for the last 5 half years is -

H123. 36.5m
H223. 41.3m
H124. 36.2m
H224  34.8m
H125. 45.1m

OK H125 looks relatively good but not spectacular, esp v say H2323

So how has Profit Before Tax gone -

H123. 24.0m
H223. 20.5m
H124. 24.9m
H224  3.6m
H125. 17.7m

Not that great eh ...profits down quite a lot.

Bit of a worry in preso for H125 it shows NIM down 41bps and cost ratio up 1606 bps.

ROE fell from 13.3% as at December 23 to 5.5% as at December 24

No doubt they will say all this doesn't matter and they are going through a transition period ..... but that declining NIM is a worry

You get the feeling that numbers don't matter with Heartland and they are basically story tellers. Say good things about the recent past and exciting things about the future ... just like that load of bull shit they spun to raise $200m a while ago

Wonder what this will look like in 6 months time

[Basil]

Can't be right, they said it had been a "strong performance by the Australian bank, Heartland Bank Australia Limited"  What's strong about profit being down 29% in 1H FY25 to $17.7m compared to $24.9m in the PCP last year ?

Message to the board and management.  Please start straight talking to investors rather than treating shareholders like they are 5 year old schoolchildren.

This "strong" performance was "offset by active derisking and repositioning of some of the New Zealand bank, Heartland Bank Limited's (Heartland Bank), non-performing loans (NPL) which contributed to a significantly higher impairment expense".  Let me translate that for you.  We have to have our interim financial statements audited and the auditors picked up that we have been far to slack with provisioning for bad and doubtful loans. (Recall that they said the recent profit downgrade happened after the auditors had performed most of their work).  Active derisking and repositioning is just code speak for we got caught with our pants down by the auditors, in my opinion.

Winner thinks they're "full of it" and I couldn't agree more.  Shares at a 13 year low...obviously the market thinks they're full of B.S. too.  Can't help wondering what the credit rating agencies might make of their recent report when they've finished reviewing it.  Oh well, nothing another capital raise won't fix I suppose...

[Red Baron]

Winner thinks they're "full of it" and I couldn't agree more.  Shares at a 13 year low...obviously the market thinks they're full of B.S. too.  Can't help wondering what the credit rating agencies might make of their recent report when they've finished reviewing it.  Oh well, nothing another capital raise won't fix I suppose...

I have a cunning plan to take over zhis company.   I have joined ze DRP.    All I have to do eez vait vor ze zhare price to drop to zero.  Zhen Heartland vill have to issue me vith an 'infinite number of zhares' to zubstitue vor my voregone cash dividend.   Job done!  Heh heh heh.

RB

[Minimoke]

I wonder how much value the Rainbow Tick is achieving.

[LaserEyeKiwi]

Can't be right, they said it had been a "strong performance by the Australian bank, Heartland Bank Australia Limited"  What's strong about profit being down 29% in 1H FY25 to $17.7m compared to $24.9m in the PCP last year ?

Message to the board and management.  Please start straight talking to investors rather than treating shareholders like they are 5 year old schoolchildren.

This "strong" performance was "offset by active derisking and repositioning of some of the New Zealand bank, Heartland Bank Limited's (Heartland Bank), non-performing loans (NPL) which contributed to a significantly higher impairment expense".  Let me translate that for you.  We have to have our interim financial statements audited and the auditors picked up that we have been far to slack with provisioning for bad and doubtful loans. (Recall that they said the recent profit downgrade happened after the auditors had performed most of their work).  Active derisking and repositioning is just code speak for we got caught with our pants down by the auditors, in my opinion.

Winner thinks they're "full of it" and I couldn't agree more.  Shares at a 13 year low...obviously the market thinks they're full of B.S. too.  Can't help wondering what the credit rating agencies might make of their recent report when they've finished reviewing it.  Oh well, nothing another capital raise won't fix I suppose...

Winner & Basil: I'll give you both the benefit of the doubt and assume you both missed the details about the Australian operation in the half year report and on the earnings call.

The Australian business is doing very well.

The main cause of the net income drop in Australian business in mostly due to the business completely transforming vs the comparable period last year: They bought a bank!

Now that they are a bank, the Australian operation experienced a one time big increase in OpEx to meet the Australian regulatory requirements of becoming a bank, hence even with the strong growth in Australian reverse mortgages, along with the seeming turnaround of the Australian livestock lending business (which has been a drag the last couple of years), and the in progress transition from wholesale to deposit funding - Net income didn't reflect the strong performance.

Australian Reverse Mortgage business has total receivables of $1,968, grew 15% in the 6 month period.

Reverse mortgage is an absolute juggernaut, already approaching majority of lending for HGH - in several years all the other parts of HGH are going to be minor sideshows.



 

[lorraina]

Absolute juggernaut will require a lot of feeding.Big eater of upfront capital.
I think the questions are;
1] When will the next capital raise be.?
2] At what price will it be.?

[Greekwatchdog]

Absolute juggernaut will require a lot of feeding.Big eater of upfront capital.
I think the questions are;
1] When will the next capital raise be.?
2] At what price will it be.?

Absolute juggernaut will require a lot of feeding.Big eater of upfront capital.
I think the questions are;
1] When will the next capital raise be.?
2] At what price will it be.?

2 years @ $1.30

[lorraina]

I agree.
[after the 1 for 2 share consolidation].

[LaserEyeKiwi]

Absolute juggernaut will require a lot of feeding.Big eater of upfront capital.
I think the questions are;
1] When will the next capital raise be.?
2] At what price will it be.?

It's true that reverse mortgage cashflow is different to a regular mortgage business, but thanks to how long HGH has been doing it their loan book is maturing and the cashflow generation from reverse mortgages being repaid actually covers a significant amount of the new reverse mortgage lending being originated.

HGH is now very well capitalized (thanks to the last capital raise) and thanks to its new ability as an Australian Bank to take cash deposits it has retail cash deposit growth providing far cheaper funding than it had previously (hence why they are transitioning quickly from Wholesale funding to deposit funding in the Australian business).

The same half last year Heartland Australia had $1.737B in wholesale/debt funding and zero deposits. In the half just reported they now have $967B in wholesale/debt funding and $1.495B in deposits. Most of the remaining wholesale funding will be repaid by year end.

Most of the net reverse mortgage growth comes from capitalized interest on existing loans (that requires zero cash from heartland).

Here is how the reverse mortgage books performed in the 6 month period just reported:

Australian reverse mortgages:

Increase in Reverse mortgage total: $126m AUD
New Reverse mortgages originated: $176m AUD
Cash repaid from reverse mortgage customers: $133m AUD

So the difference in money lent for new reverse mortgages originated less the amount of cash repaid from existing mortgages was only $43m ($176m - $133m) well below the increase in cash deposits during the half.

It also means that $83m in Australian reverse mortgage growth was capitalized interest from existing reverse mortgages (which requires zero new cash deployment from Heartland). 

Now lets look at NZ reverse mortgages:

Increase in Reverse mortgage total: $82.4m
New Reverse mortgages originated: $106m
Cash repaid from reverse mortgage customers: $80m

So the difference in money lent for new reverse mortgages originated less the amount of cash repaid from existing mortgages was only $26m ($106m - $80m).

It also means that $56.4m in NZ reverse mortgage growth was capitalized interest from existing reverse mortgages (which requires zero new cash deployed from Heartland). 

[winner (n)]

So in H125 the reverse mortgage juggernaut teams increased the number of loans by 221 in NZ and 244 in Au

Can't really work out NEW less REPAID to give those numbers

Suppose around 10 a week not too bad an effort

[lorraina]

It's true that reverse mortgage cashflow is different to a regular mortgage business, but thanks to how long HGH has been doing it their loan book is maturing and the cashflow generation from reverse mortgages being repaid actually covers a significant amount of the new reverse mortgage lending being originated.

HGH is now very well capitalized (thanks to the last capital raise) and thanks to its new ability as an Australian Bank to take cash deposits it has retail cash deposit growth providing far cheaper funding than it had previously (hence why they are transitioning quickly from Wholesale funding to deposit funding in the Australian business).

The same half last year Heartland Australia had $1.737B in wholesale/debt funding and zero deposits. In the half just reported they now have $967B in wholesale/debt funding and $1.495B in deposits. Most of the remaining wholesale funding will be repaid by year end.

Most of the net reverse mortgage growth comes from capitalized interest on existing loans (that requires zero cash from heartland).

Here is how the reverse mortgage books performed in the 6 month period just reported:

Australian reverse mortgages:

Increase in Reverse mortgage total: $126m AUD
New Reverse mortgages originated: $176m AUD
Cash repaid from reverse mortgage customers: $133m AUD

So the difference in money lent for new reverse mortgages originated less the amount of cash repaid from existing mortgages was only $43m ($176m - $133m) well below the increase in cash deposits during the half.

It also means that $83m in Australian reverse mortgage growth was capitalized interest from existing reverse mortgages (which requires zero new cash deployment from Heartland). 

Now lets look at NZ reverse mortgages:

Increase in Reverse mortgage total: $82.4m
New Reverse mortgages originated: $106m
Cash repaid from reverse mortgage customers: $80m

So the difference in money lent for new reverse mortgages originated less the amount of cash repaid from existing mortgages was only $26m ($106m - $80m).

It also means that $56.4m in NZ reverse mortgage growth was capitalized interest from existing reverse mortgages (which requires zero new cash deployed from Heartland). 

Thank you for your considered reply.

[Basil]

Reverse mortgage is an absolute juggernaut, already approaching majority of lending for HGH - in several years all the other parts of HGH are going to be minor sideshows.

The growth rate of reverse mortgage lending has slowed from circa 20% CAGR to now be about 15% and forecast to be at that lower rate.  A lot of this growth is merely compounding interest on existing loans.

$1.6 Billion in motor vehicle loans is not nothing by any stretch of the imagination and they continue to lend on secondhand cars on no deposit and five year terms in a rising unemployment environment.  What could possibly go wrong... 

Michelle, whatever her last name is that's leading Heartland Australia said at the annual meeting that other banks in Australia are stepping back from motor vehicle loans and they see that as a real opportunity there.  Why are the other banks stepping back from it? (see the rhetorical question above)

Reverse mortgages are the only part of the business that's any good in my opinion but it is very intensive on capital demands which is the key reason other Australian banks have stepped back from it in the past but interestingly, one of the directors after the meeting told me he thinks there's a real risk one of the bigger banks in Australia will reenter this market in the not too distant future.  More competition with lower margin's coming ?

[Waltzing]

"What could possibly go wrong...

everything... do they even have an accurate ledger....

[winner (n)]

If I've done my sums right it appears that Heartland currently have about 7,800 reverse mortgages on their books in NZ

I was bit surprised how low this number is but I suppose they are meeting market demand. They have a pretty high share don't they.

Suppose they have something in common with Oceania et al in thst an ageing population should boost future growth

One government dept has said that up to 25% of homeowners over 60 should take advantage of these products to give themselves a better lifestyle. That's a big potential market eh.

[snapiti]

Surely Heartland must be inline for a rating agency downgrade soon