HGH - Heartland Group Holdings

[Basil]

Only 15 months away from starting FY26, (1 July 2025).  Matket always looking 6-12 months ahead so to be ahead of the curve we need to look 12-36 months ahead so time to take another look as far out as FY26 at peer group metrics.
Based on average forecasted earnings for FY26 all off Market Screener, for the same peer group I have used for more than a decade now we have FY26 PE's as follows:-
BEN 12.2
BOQ 10.4
WBC 13.5
NAB 14.6
ANZ 12.6
Average of peer group 12.6
HGH 6.95.

(12.6 / 6.95) x 1.28 = $2.32

If HGH reverts to the average of its peer group, (it normally trades plus or minus 1) at some stage in FY26 the share price will be $2.32.

If punters get super excited about growth and it reverts to top of trading range of a forward PE of 18 like it has at times before the share price could theoretically go as high as 18 / 6.95 x 1.28 = $3.32

I was eating some Mainland cheese yesterday and the old Mainland advertisement jingle came to mind
"Good things take time"

[Left Field]

HGH Cap raise at $1.00 per share to fund Challenger acquisition for which it now has regulatory approval.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HBL/429162/416302.pdf

[winner (n)]

HGH Cap raise at $1.00 per share to fund Challenger acquisition for which it now has regulatory approval.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HBL/429162/416302.pdf

No sales sense ...everybody knows 99 cents is cheap while $1.00 is not cheap

[winner (n)]

All too hard for our Jeff ...packing a sad and getting out and leaving the mess he's leaving behind to be tidied up by others

Risk around Heartland has increased significantly

Thrown Basils peer comparison valuations model in the rubbish ...will never trade above $1.50 again ...no matter how eps accretive things get





 

[winner (n)]

F24 targeted to be 6 cents a share

That's not too bad in light of 200+ million more shares

Maybe targeted has a hidden meaning

[Teitei]

These accelerated institutional placements really do disadvantage retail shareholders.

They get their $1.00 new shares on 11th April while retail shareholders do not get theirs until 26th April, giving the institutions an advantage of taking profits for 2 weeks as the shares trade ex-entitlement 9th April.  * Theoretical ex-entitlement price - $1.17

[winner (n)]

At least the path to $200m profit in 2028 is still there

[BlackPeter]

No sales sense ...everybody knows 99 cents is cheap while $1.00 is not cheap

Look at it this way ... with Heartland a dollar is still a dollar, no cheap discounting going on ;

Anyway - for Heartland achieving this "indicative regulatory approval" (subject to a successful CR) is good news. Given that Heartland is the first non-Australian bank coming so far in Australia, we probably can be as well a bit proud.

From a personal perspective ... based on the info I have so far, happy to participate in the CR.

[Basil]

At first glance:- a few thoughts.
I don't think any of this will come as a surprise to anyone on here.  Frankly I am very pleased Jeff is going, (I think I've said that I wanted him to go on here before, certainly if I haven't said it, I've thought it many times), he has become far to ESG obsessed in recent years. I am a little surprised at the size of the discount to the last traded share price.  Its good though to get this out of the way as potentially this whole thing could have been hanging over the shares all year.

Couldn't disagree more with Winner's comment that peer group multiple comparisons are no longer relevant or that it will never trade above $1.50 again.

Well said BP.  I'm also happy to participate in the capital raise and will apply for more shares.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/HBL/429162/416304.pdf - Presentation

[Red Baron]

All too hard for our Jeff ...packing a sad and getting out and leaving the mess he's leaving behind to be tidied up by others

Two J(g)e(o)ffs down in two years!  Ze end of a dynasty!  Or maybe not?  I have a vriend in advertising and zhey have been vorking on ze advertisement to secure a new head at Heartland.

-----------------------

Chief Jeff Required
Heartland Group Holdings

A position of 'Chief Jeff' has arisen to head a progressive forward thinking spelling agnostic financial group.  We say 'spelling agnostic' because applicants under the name 'Geoff' will also be considered.  We respect the tangata whenua of our birth nation and are a rainbow tick employer.  This means that Maori women who have had a sex change and wish to be called Jeff are also encouraged to apply.

Salary and benefits are negotiable but will be in the zillions bracket.  An unfortunate consequence of the stresses of such a high powered job means that the lucky appointee will probably lose most of their hair (it happened to the other two JGeoffs).  So as compensation, the board has agreed to fully fund a 'Barry Gibb Bee Gees wig' for the successful applicant, and an associated package of disco dance lessons.

Applications should be addressed to:

Jeffthree vacancy,
Heartland Groupie Holdings,
Show us the love downtown,
Auckland,
Ashburton,
Rural Heartland New Zealand

-------------------

RB

[Basil]

Maybe eps accretive from FY26, or if not, FY27, what do you think Fiordland Moose ?

Found this quite encouraging.  Uptick in funds raised on deposit and serious increase in the indicated interest rate saved considering its was ~ $500m and 1.34% before.

From 30 December 2023 to 29 March 2024, Challenger Bank achieved retail deposit
growth of A$702m at a rate that is 1.74% lower than Heartland Australia's current cost of
funds.1

Emphasis added.

I really want Heartland to take a fully commercial approach and bank all this margin improvement themselves.  They are the dominant player in the reverse mortgage business over there and need to stop their obsession with all things ESG.

[Fiordland Moose]

Aye you are probably right re FY26 or onwards - far enough away and too many variables to do any sensible guess work. But it won't come as a surprise that I reckon it is dilutionary (given the weight of the capital raised and the low share price) to FY25 earnings. For that, I had to take a stab at status quo FY25 NPAT - so just used FY23 uNPAT of $110 which happened to be the consensus of the 3 brokers I've read. Yeah its dilutionary, but the pro-forma EPS (at a dollar) puts it at an obscene PE ratio. This whole process had a doom loop feature to it - the lower the SP trended, the more dilutionary the capital raise would be, which had the effect of pushing the SP lower and making it more dilutionary again.

Would have been accretive at the higher prevailing SP back mid to late last year, when guidance had been reiterated, before the missteps of not getting the provisioning right. Data table showing that below. Also have a range of NIM savings as I had also picked up on the NIM savings expanding. So perhaps 2% could be achievable? Fingers crossed more? But I don't bank on it.

You cannot view this attachment.

Note - for the above - I just popped in the $1 cap raise price and revised 1.74% NIM savings into my pre-existing spreadsheet. Ironically I had previously got a $1 cap raise price with previous assumptions. I haven't properly read any of the materials and updated my thinking from them so a bit dated and take with a reasonable grain of salt.

And - just to be clear - the dilution analysis simply reflects the cost savings on the 31 December 2023 estimated Australian debt. It doesn't take into account this or next years position which would expand those earnings further, nor does it assume additional book growth coming specifically from the growth capital injected into Australia. It's very much a backwards looking figure, albeit with the starting FY25 npat assumption a steady state / more normal trading year. I am sure the brokers and the company, taking into account the above factors, would show less dilution. I'll turn my mind to that when I have time.

Those motor vehicle and asset finance book NPL and 30 day plus have tracked up post 31 December 2023. May need to top up the provision - I posted about that previously with a pro-forma PBT/NPAT impact. Need to have a look at again.

[LoungeLizard]

Jeff leaving just as Challenger get their licence? Not a good sign however you look at it.

Just like last time this placement favours the institutional investors - they get their $1 shares a full two weeks before retail investors. And like last time it is highly likely that there will be a dump of shares post entitlement leading to a plunge in the SP. History repeating itself.

Final dividend will be cut and I'll believe the "EPS accretive" line when I see it. Going forward I think HGH will struggle to maintain dividends let alone increase them.

Challenger is a real roll of the dice - no-one can say how this will play out for investors. But the CEO leaving at this time isn't a good sign. Watching and waiting is going to be the safest and best option imo.

[Basil]

Thanks Fiordland Moose.  Good work and much appreciated.
The FY26 forward metrics look very cheap, (as you suggest, obscene), and I think strong growth in eps will eventuate over time.

I think apart from the doom loop you suggested, it's also a loss of confidence in Jeff and as you have suggested before, perhaps in no small part due to the expression of confidence around provisioning at last year's ASM and then only one month later, the opposite.  Pleased he's going and hopeful of a fresh properly commercial approach going forward.    The rate at which the savings in Australian funding costs have grown suggests to me 2%+ is plausible going forward.

I'm going to apply for all shares under my entitlement as well as the maximum 100% uplift to see how many more I can get at $1.00.

[BlackPeter]

Jeff leaving just as Challenger get their licence? Not a good sign however you look at it.

Just like last time this placement favours the institutional investors - they get their $1 shares a full two weeks before retail investors. And like last time it is highly likely that there will be a dump of shares post entitlement leading to a plunge in the SP. History repeating itself.

Final dividend will be cut and I'll believe the "EPS accretive" line when I see it. Going forward I think HGH will struggle to maintain dividends let alone increase them.

Challenger is a real roll of the dice - no-one can say how this will play out for investors. But the CEO leaving at this time isn't a good sign. Watching and waiting is going to be the safest and best option imo.

Well, I guess you always need somebody to stir, and you are clearly good in hosing down everything with generic (and in its generality clearly wrong) black sludge. Unbalanced generalisations are always wrong.

While warnings supported by data are great - just spreading negativity feels a bit pointless.

Lets look into your statements:
Jeff leaving just as Challenger get their licence? Not a good sign however you look at it.


Maybe you need to try to look a bit harder to find a different viewing point? Jeff is now for 15 years in this job, and no matter how you measure his performance, he brought the company a long way forward. But yes, he might get as well a bit stale (his overemphasis of ESG might be one symptom of that). Happens to all great leaders - there is a reason they try to replace the leaders of countries after typically 8 to 10 years. Remember - its the new brooms who are said to sweep well. So, I think a fresh leader with a new perspective for the next big challenge in Australia might be a good thing.

I prefer organisations which renew their leaders at (or short after) their prime instead of procrastinating with them until the inevitable biological solution.

Final dividend will be cut and I'll believe the "EPS accretive" line when I see it. Going forward I think HGH will struggle to maintain dividends let alone increase them.

Anything of substance you could add? FM's interesting analysis shows a different picture for the coming years ... and no matter which analyst you take - I see EPS predictions everywhere going upwards after 2025. Sure, analysts are always optimistic, but this does not mean that we need fact free negativity to outbalance ... 
 
Challenger is a real roll of the dice - no-one can say how this will play out for investors.

Well, yes - how is this different from any other investment choice? If you put your money under the mattress, you can loose it as well - and there is not even a reward for taking the risk of loosing your money.

Come on, Lizard - I think you can do better. By all means, keep playing the Advocatus Diavolo  (though don't expect me to lend you my avatar) for HGH, but please ... instead of just spreading pointless negative sludge - could we try a bit more balanced and fact based posts?