HGH - Heartland Group Holdings

[Left Field]

Not much interest on the 'buy side' today.....

Much now resting on the success of their Challenger acquisition. What could possibly go wrong?

Happy not to hold and watching from the sidelines.

[Basil]

My goodness...that's thrown the cat amongst the pigeons.  Agree with Snapper, this is a real clanger right out of Left Field.
The size of the new overlay is a real surprise.  Costs regarding Challanger are not a surprise to me.
I think what's two ongoing concerns is they make a lot of assumptions about a stronger second half.  We'll see.  Secondly there seems to be an ongoing drift towards and increasing number of expenses being taken below the line as extraordinary items.  i.e the forecast is far from a "clean" result.
It didn't used to be this way in years gone by. 

As previously expressed, I remain of the view that the analysts' consensus dividend outlook over the next few years 12, 13 and 14 cps through to FY26 is too optimistic, FAR too optimistic now.

There's also the very strong likelihood of a capital raise in due course to establish Challenger bank on a sound capital footing, which is currently overhanging the market.  I'm with others, there's no hurry whatsoever to take a position at this stage.  What if downgrades come in three's and this is only the first?

[lorraina]

Thanks LF. I have been looking at buying back in, was concerned about the impact of the slow down eventually hitting the banks and of course the drought in Aust. No idea from here. Maybe will take a position early New Year....

No rush now..
However their long term strategy is right in my opinion.

Agree no rush.

[Basil]

Interesting to note quite a few Aussie banks grouped in a tight bunch on a PE of 10.5
HGH before extraordinary items, (of which there are many), now look like doing only about 13.5 cps this year.
13.5 x 10.5 = $1.42.  Just as well HGH are going to grow much faster than the Aussie banks in the years ahead and have fewer problems doing so...or are they?...Hmmm

[lorraina]

Just a matter of looking at each bank's strategy and deciding for yourself whether they are capable of executing it.
For me HGH know Reverse mortgages,motor vehicle lending and Lives stock lending.The ups and down of the motor vehicle and lives stock lending will continue in future years.

[winner (n)]

Proactive provisioning / financial engineering (or whatever yoy want to call it) to smooth out earnings over time always comes back to bite the perpetrators on the bum ...... Jack Welch from GE was a master of it but it all turned to custard in the end

There's only one NPAT number to look at now for Hesrtland ...the real one

Trend is
F21.  87.0m
F22.  95.2m
F23.  95.5m
F24.  95.0m say

Good trend eh ....and of course heaps more shares on issue now

So expected F24 EPS (real) is 13.2 cents ....was 14.9 cents in F21 and 16.1 cents in F22

All I can sai hmmmm

[notmaurice]

Long term holder and continue to add if the price is right.

[LoungeLizard]

For me, this result is what I feared when they announced their pivot to Australia at a time when all economies and consumers  were under all sorts of pressure. I sold out at that time and haven't got back in since.

So they didn't expect or consider the very things that they are now announcing:
1.A decrease in purchase of new cars
2.Adverse climactic conditions in Australia impacting livestock purchases
3. A tighter deposit market affecting NIM
4.Increased costs from The Challenger Bank purchase.
5.Legacy lending issues impacting bottom line.

All of those could and should have been known or predicted. Poor strategic thinking and appalling timing in making a major organisational change. Now the stakes are very high that the Aussie initiative goes well. If it doesn't then all Heartland have going for them is their reverse mortgages ie eggs in one basket.

Maybe the second half of the year will be better, we'll see. But HGH have gone from a steady growth, high-ish yield stock to something riskier. It should have higher dividends to compensate for that risk, but they will be lucky to even maintain current levels.

The silver lining is that if you buy into the business model, the lower SP might be attractive. But what was that about not buying on a downtrend...

[snapiti]

some good posts on here...todays GDP numbers show a slow down is still occuring....will sit back patiently to see how the next 6 months pans out....fully expect no turn around and a much weaker SP in 6 months time

[Basil]

Agree with all of the above, all very well said and frankly I am quite relieved as I was VERY close to buying back in again, so this was a very timely update from HGH as far as I am concerned.  It's really disappointing that people paid (literally millions), haven't got more foresight in an economic slowdown and cost of living crisis as Lounge Lizard has so eloquently said.  Frankly, less time on their mindless ESG crap and more time with strategic thinking wouldn't go amiss.

In addition, the extra risk of taking a new bank into the market in Australia should be noted as well as the aforementioned probable pending capital raise and ongoing constraint on paying dividends in the medium term to help fund Challanger's growth.

Having now reflected on this a bit more and remembering they have a very high level of "finance company" type lending (which they clearly have been managing in a sub optimal way), and with the additional risks of that and a new bank in Australia, assuming it gets approved, my quick back of the envelope position is I'd want to see a 1 PE discount to the major Aussie banks in that 10.5 PE group so taking Winner's real eps of 13.2 at face value and applying a PE of 9.5 = $1.25 = (my quick back of the envelope price point where I'd start to get interested again).   Obviously its not going down there overnight so this can go on the backburner for sometime in 2024 and I'll follow the downtrend on the chart as much as anything else and let that tell me where the bottom is.

Frankly I can understand how holders would feel bitterly disappointed with this kick in the guts just before Christmas.

[winner (n)]

Must be reading things wrong,

In F22 a Covid overlay of $9.6m was created in case punters couldn't pay

In F23 they said not used so released ...to profit

Now it seems to have miraculously reappeared (using term 'legacy') and it seems to have increased to $16m

Did they stuff up last year or was it case of taking proavtivity too far?

Maybe I do have it all wrong ...Jeff's not always clear in what he writes

Seems to echo Basil comments ...these high paid managers don't have the finger on the pulse and seem surprised how cost of living issues affect punters

[Shareguy]

Well I see things a little more positively.

Have had a sizeable holding since it first spun out of PGC.  All I no is this share has been very good to me over the years.  I sold down a chunk some years ago, so mostly a free carry position that I hold.  Have also been adding from day one with the DRP.  Just the dividend's alone add up over time.

This update was not unexpected especially with the farming in Australia being very tough mainly due to the weather and higher interest rates. Its a downgrade but not a major is how I see it.

I rate the CEO and IF there is capital raise with Challenger I will be participating. 

Jeff has stated his ambition to double underlying NPAT within 5 years
• Since 2012, Heartland's NPAT has more than tripled.
• Ambition to continue track record of income growth by doubling underlying
NPAT within 5 years.

Disc  Added more this morning   

[lorraina]

Jeff.......
Geoff died.

[Shareguy]

Jeff.......
Geoff died.

Thanks have changed

[Mos]

The bit about not maximising NIM to be socially responsible was good comedy (end of paragraph below). Regardless, happy to keep holding for long term growth story despite the tide going out short term.

"Rising interest rates in New Zealand and Australia have created a more challenging environment in which to manage margins. Heartland intentionally delayed passing the full impact of these increases onto some borrower customers, specifically in the case of New Zealand Reverse Mortgages and Australian Livestock Finance. While this did not maximise potential NIM, it was considered the socially responsible and more sustainable approach."