HGH - Heartland Group Holdings

[Basil]

Shareguy postd this bit from Craigs - HGH Currently trading on 10.6x PE vs Aust sector average of around 11.6x (Aust majors 12.4x / Minors 10.0x).

Love how Craig's gurus think all things should be 'equal'

However couldn't call HGH a 'major' so a PE of 10.6x makes it slightly expensive in their eyes if 'minors' are on 10.0

Bit unusual to trade at a premium to its peer group.  Result much as expected with the write-down on Harmoney a disappointing example of their all-things digital strategy going wrong.

Heartland having to pay 6.0% for one year term deposits now shows their funding costs are certainly on the up and up. I thought the reduction in NIM was quite material, (certainly something we have never seen before), and expect to see this reduce further as more expensive funding costs eat into the margin on fixed rate motor vehicle lending. 

I'm also expecting a significant number of business failures as a result of the recent extreme weather events resulting in widespread damage across the country.

Finally on the business strategy front, I struggle to understand what is the point of borrowing with term deposits at 6.0% for one year and lending on home loans at 6.14% for 1 year or 5.99% for 2 years?  What's that going to do to their net interest margin going forward?

[Plata]

I struggle to understand what is the point of borrowing with term deposits at 6.0% for one year and lending on home loans at 6.14% for 1 year or 5.99% for 2 years? 

Does seem a bit pointless. Although, I do wonder... looking at some of the numbers the banks have been releasing of late indicates many people are keeping significant amounts of money on call at miniscule interest rates. Maybe the reason for these mortgage rates is to suck in borrowers, and profit from the sizeable percentage that chose not to refix etc and end up paying 8% or whatever it is these days after 1 or two years. I bet that % is pretty big, be it due to apathy, inconvenience, lack of understanding or fear. Are those mortgage deals for new customers only or everyone?

[winner (n)]

HGH seems 'reasonably' priced at the moment on a P/B basis

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[winner (n)]

Media full of stories about how the greedy, nasty,  mean and horrible banks are making huge profits while households are suffering and we urgently must have an enquiry into it and sort the buggers out

Stuff headline was By the numbers: Here's why some people think banks are making too much money and story goes on -

Banks continue to make record profits while households experience enormous increases in their mortgage rates.

Bank ethics are also being questioned, after it was revealed banks were offering secretive home loan deals at rates far below those offered to their loyal customers.

So why are so many people so angry? and then they show a chart headed 'The rise and rise of bank profits'

Although the anger is probably aimed at the big banks it seems that Heartland with their 'rise and rise of profits' could be just as greedy and nasty and horrible

Cool chart though

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[winner (n)]

Ricketts has passed away

Was pretty dedicated to Heartland .....even had to put up with being called a 'an old grey haired fuddy duddy' by a shareholder at a ASM

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HGH/408202/390539.pdf

[Basil]

SP at $1.77 - back to the SPP price of six months ago. I said at the time of the cap raise that the SP will be in the doldrums for the next couple of years, and I don't see that changing.[/b] I hope for holders sake that the divvy is going to increase to offset the SP decline, but I have my doubts. It is possible even that the HY divvy will drop to 5c or maybe even 4.5%.
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Jarden's Grant Lowe is a good guy and must be a guru analyst -- BusinessDesk reports he was more upbeat with a $2.27 target, up from $2.09, and an "overweight" recommendation.
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I can't see $2.27 or very close to that, not with the way the economy is.  I think our resident Lizard has called it correctly.

[LoungeLizard]

Jarden's Grant Lowe is a good guy and must be a guru analyst -- BusinessDesk reports he was more upbeat with a $2.27 target, up from $2.09, and an "overweight" recommendation.

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Ironically investors might have been better off avoiding the cap raise and taken a  6% 12 month term deposit with Heartland 

[lorraina]

Now that's a thought...lol

[Waltzing]

Risk is accessed on numbers...if your whole system is single dimensional and overloaded it wont matter how good your analyst are..

whole system mean your economic reporting system from small business right the way to reserve banks.

[lorraina]

Hard to figure "the real reason" for HGH weakness.
Is it;
a] American Bank Failure,
b] Robobank lowers NZ milk price forecast.
c] Geoff Ricketts death.

[LoungeLizard]

Hard to figure "the real reason" for HGH weakness.
Is it;
a] American Bank Failure,
b] Robobank lowers NZ milk price forecast.
c] Geoff Ricketts death.

As Waltzing alluded too there's company and industry data/risk and then there's the whole macroeconomic picture. There's a few bad news stories specific to HGH and the banking industry that are lining up, on top of the economic headwinds that NZ and global economy are facing.
Banks aren't the steady-growth stocks that some people think they are - they are cyclical. HGH took an unnecessary risk expanding at the worst possible point of the down cycle. It will be some time - a couple of years - before shareholders see the SP getting back to where it was before the cap raise ($2.16) and the divvy will be under immense pressure in that time, as costs mount. I'm no longer a holder - happy to sit this one out. Others may be coming to that conclusion?

[Waltzing]

LZ  nailed it...

https://www.stuff.co.nz/business/131458989/all-five-major-banks-now-forecasting-economy-shrank-in-december-quarter

down turn cant last forever and really makes you think maybe trading global events is very very profitable...

buffet says he never sells but that is not true... probably only applies to a group of staples and certain stocks they got at bargain prices.

and lets be clear Dick Bove today lambasted the reserve bank model of QE...

https://edition.cnn.com/2023/03/12/investing/svb-customer-bailout/index.html

[Onemootpoint]

Banks aren't the steady-growth stocks that some people think they are - they are cyclical. HGH took an unnecessary risk expanding at the worst possible point of the down cycle. It will be some time - a couple of years - before shareholders see the SP getting back to where it was before the cap raise ($2.16) and the divvy will be under immense pressure in that time, as costs mount. I'm no longer a holder - happy to sit this one out. Others may be coming to that conclusion?

Exactly....

[Plata]

IMO the damage is already done. Barring drops in EPS, or higher than expected inflation/interest rates going forward, I don't see much potential for further falls. I think it is pretty fair value where it is now and would be surprised to see this head below 1.5 any time soon. But in saying that, maybe silicon valley bank was pretty fair value 2 weeks ago 

[Basil]

Banks trading at high single digit PE's is not uncommon heading into a recession.
BOQ and ANZ already are and WBC is only on 10.0.
Its not all that difficult to make a case for 9 times eps of about 15.5 cps = $1.40 but more likely it will just flop around in a sideways direction for the foreseeable future.