HGH - Heartland Group Holdings

[Shareguy]

HGH – Wade Gardiner has published on Heartland Bak overnight ("Banking on further growth") ahead of its interim result next week (26th February). HGH reported NPAT of c$27m for 1Q26 and hence appears well on-track for FY26 Guidance "greater than $85m NPAT". Gardiner now expects underlying interim 1H26 NPAT of $40.1m with the key variables being 1) Net Interest Margin (NIM) with HGH guiding to > 3.9% 2) CCY (benefit from a weaker NZD/AUD) 3) impairment expense ratio guidance of 0.55% and 4) a CTI capital ratio of 53.5%.... Gardiner's forecasts assume a lower NIM but also lower impairments. Gardiner is currently forecasting interim DPS of 2.5c but notes scope for a higher DPS given it implies a c58% payout on his estimates relative to a policy of 70%. Gardiner's revised TP of $1.34 (last at $1.24) implies a 1 Yr Fwd. PE of 10x and cash dividend yield of 5.4%. With the macro outlook continuing to improve Gardiner retains the Overweight recommendation

Disc/ Moderate position

[Left Field]

1H26 update from HGH - very  happy at first look..... interim dividend of 3.5 cents per share (cps) is nice when your holding SP is under $1.00,....Underlying NPAT up 332.7% at $46.1m from $10.7m and EPS up 3.8cps...... looks great for holders.


https://www.nzx.com/announcements/468197

Overview: 1H2026 performance
 ‒ Underlying ROE, Heartland's key performance metric, was up 540 basis points (bps) to 7.3% (up 142 bps from the six-month period ended 30 June 2025).
 ‒ Average NIM expanded, up 51 bps to 3.92%.
 ‒ Underlying operating expenses (OPEX) remained steady, up $3.6 million (4.0%) primarily due to investment in Australia to support growth and technology programme costs.
 ‒ Underlying cost-to-income (CTI) ratio was down 304 bps to 54.6%.
 ‒ Consistent Reverse Mortgage growth by Heartland Bank Limited (Heartland Bank) and Heartland Bank Australia Limited (Heartland Bank Australia), with gross finance receivables (Receivables) up 15.2% and 18.9% respectively.
 ‒ Further momentum in Heartland Bank's Rural portfolio through direct channels and intermediary partnerships, while Heartland Bank Australia saw solid growth in Australian Livestock Finance.
 ‒ Heartland Bank's strategic shift to higher quality used and franchise Motor Finance lending saw a 4.8%5 reduction in Receivables, accompanied by significantly improved asset quality metrics.
 ‒ Heartland Bank's Business Finance Receivables retracted as business conditions remained challenged – however Heartland Bank entered the second half of FY2026 (2H2026) with a compelling growth pipeline.
 ‒ Significant asset quality improvements reflect the benefits of Heartland Bank's more prescriptive collections and recoveries policies, and its refined strategic focus on core product sets.
 ‒ NSA realisation continues to progress ahead of expectations, with a recovery rate in excess of 90%, and is tracking to be largely complete by 30 June 2026.
 ‒ Through NSA realisation and recent Reserve Bank of New Zealand (RBNZ) capital decisions, Heartland is well positioned for growth, holding excess capital across the group.
 ‒ Interim dividend of 3.5 cents per share (cps).

I also liked this  - "Through NSA realisation and recent RBNZ capital decisions, Heartland is well positioned for growth, holding excess capital across the group."

[Basil]

Cost to income ratio of 54.6% is still hideously high compared to every year in HGH's history except last year when it was even more ludicrously high.

Very weak board paying management vastly more than they're worth. Result is only "okay"  in my opinion and I remain with no confidence that bad and doubtful debts are being provisioned correctly with business liquidations the most elevated they've ever been since the GFC.

Put succinctly, I do not trust management.  Why would you when the former CFO who was directly complicit in sweeping tens of millions in bad and doubtful debts under the carpet is now group CEO ?  Does a leopard change its spots...

[SCOTTY]

Paying out 72% of NPAT to fund the 3.5c dividend when the payout target is 50% doesn't look like prudent capital management to me.

[Pierre]

Paying out 72% of NPAT to fund the 3.5c dividend when the payout target is 50% doesn't look like prudent capital management to me.

The dividend payout policy hasn't changed, however the company is holding excess capital due to NSA realisations and beneficial regulatory changes by the RBNZ.
The former was used to fund the extra dividend, the regulatory change will be used to fund more growth in the business.

[LaserEyeKiwi]

Cost to income ratio of 54.6% is still hideously high compared to every year in HGH's history except last year when it was even more ludicrously high.

Very weak board paying management vastly more than they're worth. Result is only "okay"  in my opinion and I remain with no confidence that bad and doubtful debts are being provisioned correctly with business liquidations the most elevated they've ever been since the GFC.

Put succinctly, I do not trust management.  Why would you when the former CFO who was directly complicit in sweeping tens of millions in bad and doubtful debts under the carpet is now group CEO ?  Does a leopard change its spots...

Look at all the NPL metrics, which are broken down in three groups indicating payment delinquency: 3-6 months, 6-12 months, 12+ months.

The figures are all going in the right direction over the last 6-12 months. claims they aren't correctly provisioning bad debts when the NPL data indicates an ever-healthier loan book doesn't seem correct.

But it's ok Basil, obviously this stock isn't for you, and that's ok as there are plenty of other stocks for you to invest in. You didn't like it when it was priced in the 70c range, so I'm not surprised you don't like it at $1.25

[LaserEyeKiwi]

Paying out 72% of NPAT to fund the 3.5c dividend when the payout target is 50% doesn't look like prudent capital management to me.

The dividend policy is "at least 50% payout ratio"

Last time I checked 72% is higher than 50%, so falls into the "at least 50%" payout policy.

Helps they have almost $200 million in excess capital now.

[Basil]

I doubt many bought right at the bottom LEK. Very few people fluked that. I sold at an average of just over $1 in late 2024 and reinvested it into Tower at about the same price. Tower inclusive of monster dividend last month has doubled in price and HGH is up about 20%.  You're quite right. Its not hard to find better managed companies than this one.

[LaserEyeKiwi]

I doubt many bought right at the bottom LEK. Very few people fluked that. I sold at an average of just over $1 in late 2024 and reinvested it into Tower at about the same price. Tower inclusive of monster dividend last month has doubled in price and HGH is up about 20%.  You're quite right. Its not hard to find better managed companies than this one.

I'm glad you found happiness investing in a different company after deciding heartland wasn't for you.

[Greekwatchdog]

For Bar left at Neutral. Lifted target price from $1.09 to $1.30



Some takeaways



Reported a solid 1H26 result, providing another proof point that the business is steadily turning around. Impairments dropped materially (aided by strong recoveries), non-performing loans stepped down in 2Q26, and the wind-up of the non-strategic asset book is ahead of schedule.



With reverse mortgages (RM) continuing to perform well, the only notable miss from our perspective was higher opex, which has also weighed on FY26 guidance remaining unchanged.



Surprise was the NZ3.5cps interim dividend, well ahead of expectations and a positive signal., Should be viewed more like a special dividend.



Trades on ~1.2x NTA. Applying a ~2.0x multiple to its high-returning, high-growth RM business implies the remainder of the portfolio is valued at ~0.8x NTA.



We see this as slightly on the full side today, but fair if HGH can continue to improve returns in these portfolios.

[winner (n)]

Footnotes in the presentation comes up with revelation thst they have changed the basis as to how they report Underlying NPAT v Reported NPAT

Seems convenient to me and in H1 produces a higher Underlying number than if they had been consistent with how they had things in the past

H126 Reported NPAT $48.8m and Underlying $46.1m .... I reckon if they were consistent in their treatment Underlying should be about $44.5m or less

Never mind ...it would just be more transparent if they did away with this Underlying nonsense and just use the real NPAT

[LaserEyeKiwi]

Footnotes in the presentation comes up with revelation thst they have changed the basis as to how they report Underlying NPAT v Reported NPAT

Seems convenient to me and in H1 produces a higher Underlying number than if they had been consistent with how they had things in the past

H126 Reported NPAT $48.8m and Underlying $46.1m .... I reckon if they were consistent in their treatment Underlying should be about $44.5m or less

Never mind ...it would just be more transparent if they did away with this Underlying nonsense and just use the real NPAT

I actually thought the opposite in that they did not account for the voluntary early $100m debt note repayment's $2.3m termination fee as a "one off" and instead included it in regular OpEx. 

[Left Field]

I doubt many bought right at the bottom LEK.

Picking bottoms is a grubby pursuit.

Much better to pick a rising trend..... at the end of the day missing out on 1 to 2% by being cautious is preferable to being wrong.

At present any HGH  holding with a av SP below $1.00 av cost,  is looking "well positioned."

ps Clever new television ads for HGH reverse mortgages screening at present look  likely to boost demand

[Left Field]

ps Clever new television ads for HGH reverse mortgages screening at present look  likely to boost demand

Here's details of the new Heartland campaign..... impressive.

https://lbbonline.com/news/true-new-zealand-heartland-bank-first-work

[Shareguy]

Had a quick skim over the results.  I thought not bad overall especially the divi.

Craigs think

Over the medium-term we think structural changes (eg the Australian deposit refinancing) will abate, meaning NIM and opex costs will likely plateau. Provided there and no further declines in credit quality and increase in impairments then we think HGH should see good leverage from ongoing book growth. He has slightly increased his final dividend estimate to NZ$3.25cps (previous 3.0cps) taking the total for the year to 6.75cps. At a current one year forward PE of 11.8x (vs sector average 18x) with a cash dividend yield of 5.4% he retains the Overweight rating $1.38