HGH - Heartland Group Holdings

[winner (n)]

AI - is Heartland a growth company or not?

Heartland Group Holdings (NZX/ASX: HGH) exhibits characteristics of a growth-oriented company, as indicated by strong growth in specific lending areas and positive future growth forecasts from analysts. However, this is balanced by a recent history of fluctuating profitability, earnings misses, and a past focus on "growth at all costs" that led to asset quality issues.

Heartland Group is in a transitional phase where it is actively pursuing high-growth strategies in specific niche markets while simultaneously working to improve asset quality and profitability after past challenges. Future performance will depend on management's ability to execute this strategy effectively and for the market to regain full confidence in the "growth story

[Greekwatchdog]

AI - is Heartland a growth company or not?

Heartland Group Holdings (NZX/ASX: HGH) exhibits characteristics of a growth-oriented company, as indicated by strong growth in specific lending areas and positive future growth forecasts from analysts. However, this is balanced by a recent history of fluctuating profitability, earnings misses, and a past focus on "growth at all costs" that led to asset quality issues.

Heartland Group is in a transitional phase where it is actively pursuing high-growth strategies in specific niche markets while simultaneously working to improve asset quality and profitability after past challenges. Future performance will depend on management's ability to execute this strategy effectively and for the market to regain full confidence in the "growth story

You needed A1 to tell you that? Thankfully I don't have to worry about that as I don't use it

[winner (n)]

You needed A1 to tell you that? Thankfully I don't have to worry about that as I don't use it

AI echoes what Basil is saying ....so maybe you and basil agree and on same page lol

[Greekwatchdog]

AI echoes what Basil is saying ....so maybe you and vanilla agree and on same page lol

LOL, really. Hardly. Good grief. I prefer Man in Black to Vanilla

[Shareguy]

Gosh this is turning to custard. Please Let's not go down the OCA way. Everyone's posts need to stop being so personal.

Happy new year to all.

[winner (n)]

Could say Heartland is a growth company
Includes forecasts out to June 27 .... had to amend the previous chart because that  showed their target of $200m by 2030 lo
Wont put up EPS chart because that is really sad looking .... definitely not GROWTH material but its not really their fault they had to so a couple of capital raises

Rolling 12 month NPAT
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[Basil]

Thanks Winner  EPS is what counts. If you have the time, please put up an EPS chart for the same timeframe.

Also, sorry to ask for more but I believe the real problem for HGH is their costs. A chart of their cost to income ratio over that time frame would give some very useful insights as to why EPS is not growing.

Ever since they promised to reduce CTI to 35% by FY28 costs have gone the wrong way at a disturbing rate.

[winner (n)]

OK Basil here's the chart showing EPS over the years

I see what you mean ... currently the hopeful 11 cents way doen from high


Back on track to 20 cents EPS maybe

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[winner (n)]

and even found this in my HGH workings
Going back to 53.%% in FY26 they say

Not as pretty as in their presentations

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[winner (n)]

PS ... the numbers I've used in those charts are the real reported numbers .... not used the fiddled numbers to make things look good or not so bad

[Basil]

Thanks Winner, much appreciated.  Those are very useful charts which give great insight into the lack of EPS growth and rapidly ballooning costs..  The scariest thing worth reflecting on in my opinion is that if they hit analyst forecast EPS target in FY27 that's only the same as they were earning 11 years earlier in FY16. (approx 35% lower in inflation adjusted terms, based on RBNZ inflation data from then to now and assuming inflation continues at approx 2% until June 2027).
As your second chart illustrates, the rate at which costs have gone up over the last 4 years is quite extraordinary and in my opinion is one of the key reasons why eps has not grown.

If you zoom out and take a helicopter top down view of this company over the long run its hard to come to any other conclusion that the only division that's  really worked and given an acceptable return on equity is reverse mortgages.  Very low risk, very low write-offs and could be automated and run with a tiny fraction of the staff and management currently employed.

[BlackPeter]

Thanks Winner, much appreciated.  Those are very useful charts which give great insight into the lack of EPS growth and rapidly ballooning costs..  The scariest thing worth reflecting on in my opinion is that if they hit analyst forecast EPS target in FY27 that's only the same as they were earning 11 years earlier in FY16. (approx 35% lower in inflation adjusted terms, based on RBNZ inflation data from then to now and assuming inflation continues at approx 2% until June 2027).
As your second chart illustrates, the rate at which costs have gone up over the last 4 years is quite extraordinary and in my opinion is one of the key reasons why eps has not grown.

If you zoom out and take a helicopter top down view of this company over the long run its hard to come to any other conclusion that the only division that's  really worked and given an acceptable return on equity is reverse mortgages.  Very low risk, very low write-offs and could be automated and run with a tiny fraction of the staff and management currently employed.

Well, I assume you realize that the 2025 cost growth is mainly based on their Australian expension. Some people would call this investment, but sure, if they are on your bad-list, its all wasted money, isn't it.

This is what HGH said aobut the 2025 costs in their annual review:

The increase in costs during FY2025 was mainly driven by the full year impact of costs related to the acquisition
of the ADI, with much of the increase fixed in nature. Looking ahead, Heartland does not anticipate any further
material cost increases and is firmly committed to disciplined cost control, with a particular emphasis on
improving the underlying CTI ratio for both banks.

[Basil]

Its about their track record BP.  In one breath they say their CTI is going down to 35% by FY28 which would have been a decent improvement from the low 40's but the rate at which costs have exploded since then makes a mockery of their FY28 target.   Do you realise they already had a large operation in Australia, (dominant 40% share of the reverse mortgage market) before forming Heartland Australia and becoming a registered bank there ?  My contention is quite simple.  Costs are out of control.    A reminder, I put 80-90% emphasis on what a company has done and its track record and 10-20% emphasis on what they say they are going to do.  That approach with a very strong emphasis on the historical facts and numbers has served me incredibly well over the years.   Heartland are a "show me" story now.  Market has lost confidence they can get earnings back into the mid teens EPS.

[winner (n)]

Difference between Underlying NPAT and Reported NPAT over the last 5 years total $53m

That's a lot of one-offs and other fiddles (aka as 'normalisation') eh .... on a relative basis almost as bad as Fletchers

Now they are the habit of normalising things no doubt the practice will continue

[winner (n)]

Time to compare valuations of peer group

P/B multiples -

ANZ  1.5
BEN   0.9
BOQ. 0.7
CBA. 3.2
NAB. 2.0
WBC. 1.8
HGH. 0.9

PE ratio -

ANZ  18.0
BEN   na as lost
BOQ. 33.8
CBA. 25.3
NAB. 18.6
WBC. 19.0
HGH.  28.1

On this basiss if one considers HGH in same light as small regional banks like BOQ and BEN then HGH seems reasonably priced

But maybe it should be priced like ANZ and WBC ...maybe