HGH - Heartland Group Holdings

[Basil]

I think the result is a foregone conclusion, will be within guidance range.
Be interesting to see how they account for fair value on their (dis?)harmoney stake.
Much more interesting will be the outlook for FY23. 
My hint, read the presentation which always has all the relevant stuff in good old fashioned Queen's English and skip the annual report with its almost endless pandering to ESG matters and significant quantities of Te Reo altogether.

[Left Field]

Mmmmm.... result in line with guidance..... giving with one hand (divvy) while taking with the other (Cap raise). $200 Mill in 'new' shares.....EPS being tested??


Heartland announces record FY2022 profit, and equity raising to retire bridge debt and fund growth ambitions for existing business

Heartland Group Holdings Limited (Heartland) (NZX/ASX: HGH) is pleased to announce a net profit after tax (NPAT) of $95.1 million for the financial year ended 30 June 2022 (FY2022), an increase of $8.1 million (9.3%) compared with the financial year ended 30 June 2021 (FY2021). On an underlying basis, FY2022 NPAT was $96.1 million, an increase of $8.2 million (9.3%) compared with the FY2021 underlying NPAT.

Heartland is also pleased to announce a $200 million equity raise comprising a $130 million fully underwritten placement and a $70 million non-underwritten share purchase plan to shareholders in New Zealand and Australia, with the ability for Heartland to accept oversubscriptions at its discretion. Proceeds will be used to repay a A$158 million acquisition finance facility outstanding in relation to the recent acquisition of StockCo Holdings 2 Pty Ltd and StockCo Australia Management Pty Limited (together, StockCo Australia), and to provide additional growth capital for Heartland's existing businesses in Australia and New Zealand.

Highlights for FY2022
‒ NPAT of $95.1 million, up 9.3% ($8.1 million). Underlying NPAT of $96.1 million, up 9.3% ($8.2 million) on FY2021 underlying NPAT.
‒ One-off items had a $0.9 million net impact on NPAT.
‒ Gross finance receivables (Receivables) of $6.2 billion, up 15.3% ($765.9 million).
‒ Return on equity (ROE) of 12.1%, up 21 basis points (bps). Underlying ROE of 12.6%, up 59 bps.
‒ Net interest margin (NIM) of 4.16%, down 19 bps.
‒ Net interest income (NII) of $250.1 million, up 7.1%.

https://www.nzx.com/announcements/397408

[Plata]

If Stockco is expected to contribute 10-12 million of NPAT in 2023, lets call it 11 million, doesn't that imply ex StockCo guidance of 98-103 million? Not very impressive... Don't see how this equity raise will be accretive at least for the next year or two.
If 2022 NPAT of 96.1 underlying had 1.4 contribution from stock co, that is 94.7 mill ex stockco, for ex stock co underlying eps of 0.1597
If $200 million shares are issued at 1.80 (best case dilution scenario):
At low end of guidance of $103 million, EPS 2023 will be 0.1548, a decrease of ~3%
At top end of guidance of $114 million, EPS 2023 will be 0.1619, an increase of 1.377%

Either way, it appears 2023 EPS growth will be garbage based on this guidance. We best hope they put the new capital to work quickly so that 2024+ EPS shows some benefit.

[Left Field]

Well said Plata....... perhaps HGH relying on more acquisitions??? (which usually means more future cap raises?)

Stock Co's contribution to NPAT in a world of climate change is no certainty IMO.

GLH.

[Plata]

I suppose on the bright side the raising price of $1.80 is reasonably attractive for a 2023 EPS of 0.1548+, kind of like buying at a forward PE of ~11.6.

[winner (n)]

That $16.7 million gain in relation to derivatives saved the day eh

Hid the embarrassment of the big writedown in the Harmoney stake

Then again when Harmoney comes right that can be used to hide some future sins

[Basil]

Jarden came out with an extensive note earlier this month predicting no eps growth in FY23 given economic headwinds so it is what it is and I agree that eps is likely to be flat for FY23.  PE in the mid 11's and long term growth from reverse equity book sees me putting my hand up for a sizeable allocation in the placement @ $1.80  Final divvy was underwhelming but understandable in the circumstances.

eps growth in FY22 at 8.1% was very satisfactory considering what a tough last 12 months we've all endured.
From memory Jarden's price target was $2.36 going into this result.
My FY23 and beyond dividend assumptions need to be pulled back.

[Plata]

Another thing to consider is how are they going to manage growth in the loan book while also increasing capital ratio from the current ~13% to the future minimum of 16%. The book growth seems to be increasingly dominated by longer term type loans (ie more reverse mortgage, more home loans, less motor loans, less personal loans) which will complicate things further.

[Basil]

Yes, they need to manage that carefully considering most of the growth in the deposit book is in short term notice saver accounts.  There's the dividend reinvestment plan of course and they could easily tweak the discount level to make that more attractive.  They're raising fresh capital here at a ~ 12% discount to recent VWAP so why not increase the DRIP discount to 4 or even 5% ?

[Shareguy]

Have not had a chance to go through all this.

Have the directors stated they will be taking thier allocation?

[Basil]

Sorry mate I have been flat out.  Only had time to skim through results of this and SUM so far.

[lorraina]

From today's presentation;

 On current footings, Heartland Bank would
require $24 million additional capital to meet the
14% Tier 1 ratio requirement, and a further $93
million to meet the 16% total capital
requirement. Heartland Bank currently has no
hybrid capital (additional tier 1 or tier 2) on
issue.
• Heartland Bank's current capital position and
organic growth in capital is expected to be
sufficient to meet future minimum requirements.

[Plata]

Have not had a chance to go through all this.

Have the directors stated they will be taking thier allocation?

I think only Tomlinson has committed to the raising, via Harrogate Trust maintaining at least a 9.8% stake.

[kiwi2007]

The disadvantage to only having a share dealing account with ASB is that you rarely get a chance to participate in things such as this afternoons offer. Fortunately I do have a broker account too but I'm sure lots of those investing via ASB don't.

[Raven]

At the risk of sounding stupid, why is there such speed on the placement today?
Why have to review offer, make decision, and have available cash sitting around all on the same day? Also both the placement and SPP seem unfair to any shareholder who doesn't have cash sitting around to get the (bargain) discounted shares and stop some dilution of their holding.