With the lowest exposure to the NZ residential property market, I would think they are in better shape to weather an economic down turn.I would expect any big downturn in NZ would be lead by residential property.
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I have been told of someone who took out a car hire purchase loan from MARAC for no deposit.
I have no information about the credit worthiness of the borrower or the due diligence undertaken by MARAC, but I would classify this type of lending as adventurous as well as sensitive to negative economic changes.
Boop boop de do
Marilyn
Both Heartland [Marac] and Turners have very few motor vehicle loans go bad.
In fact people pay their car loans before they pay their house mortgages,'
They need their car to get to work.
Both Turners and Heartland have good records of checking borrowers' credit worthiness.
Neither do adventurous.
To be fair this loan may be bundled into their securitisation channel and the losses endured by the widows and orphans who are dependent on the pension funds who buy this stuff.
I have no problem with this buccaneering style of lending it is covering it with a cloak of probity that concerns me.
Boop boop de do
Marilyn
Holders will of course say its justified based on superior earnings growth whereas those who have recently sold such as myself would say its got a little ahead of itself and as primarily a value investor I see better value elsewhere. I simply present the information and its up to readers to assess for themselves.
FY18 PE's according to 4traders average brokers forecasts based on Friday's closing price, (all figures rounded to the nearest single decimal point).
ANZ 12.2
NAB 13.1
WBC 12.8
BEN 13.0
CBA 13.8
BOQ 13.2
HBL 17.0
As JeremyALD astutely noted, not a huge amount has changed to HBL in the last eighteen months other than moderate EPS growth but mainly the extraordinary SP outperformance is simply a function of the fact that its been rerated from a considerable discount to its peer group to quite a considerable premium. Whether that premium is warranted or a whether a reversion towards the mean average of its peers is more likely in the medium term is of course the question. Some might even try and make the case that an even bigger PE premium is warranted and I wish them good luck with that.
I had shares in cbs so was handed shares when HBL took over.
I have since increased my meagre shareholding only because unlike the big Aussie banks i thought that this would be my one chance to get into a bank at a resonable cost.
Enjoyed the ride so far.
HBL play in niche areas and have grown small business lending significantly. These are the types of areas that will have lower take up rates and higher levels of default in the times of economic crisis. They also have a stake in the likes of Harmoney which haven't been through an economic crisis as of yet and have a lower credit rating which means their cost of credit will be higher. They also won't be able raise capital as easily in a recession and they are one of the only big banks that has chosen to come to shareholders for cash.
The big banks in ANZ have performed fairly well in recessions and property downturns. With HBLs new model and large amounts of lending in small business, personal and reverse mortgages I see it as riskier in hard times.
My understanding is that HBL have in fact funded a substantial amount of the lending that's happened on the Harmony platform and that all the lending is unsecured. I believe it runs to many tens of millions of dollars but Percy might know more about it, could be closer to $100m by now ? Like Jeremy I wonder about the default rate of this sort of lending if the economy ever goes pear shaped, ditto small business lending and dairy lending if there's another crisis in that sector which is already affected by farmers carrying much higher than normal level's of legacy debt from the last dairy crisis. March 2018 marks the nine year anniversary of the great bull market. I'd like to think there's a tenth year in this great bull market and maybe even an eleventh ?... but time will tell, we must get another recession sooner or later.
Yes Heartland own 10% of Harmony.Yes Heartland appear to have first pick of the loans.Yes Heartland have lent approx. $30mil via Harmony.Yes Heartland are more than happy with the arrangement.
Secured lending.All lending carries risk.With secured lending the asset borrowed against may not realise the full value of the loan.
Unsecured lending.Lenders will check the borrower's credit history,and financial and personnel details very carefully.
We can argue all we like,however the likes of HBL and TRA have extremely low default rates.
Talking to Heartland I have learnt the following.
Yes you could drive out of the dealer's yard with a new Holden, with no deposit.However you would need to have one of the best credit ratings in NZ.The promotion was to get customers into the Holden dealers.Most people wanted to trade their car in,and did not want a huge finance package.A successful promotion.
Open for business.Open for etc.The take up has been excellent.More products,and even trialling some products in Australia.So far defaults are well below budget.Small business owners rely solely on their business for their livelihood,Borrowings are used in their businesses,to produce profits.
Reverse Equity Mortgages.Good security and higher interest charged.Heartland hold a very small portfolio of residential mortgages, other than RELs.
Niche lending.Heartland have stayed away from competing with the Aussie banks.Heartland's expertise in niche lending has helped Heartland to achieve the highest net interest margin.Very profitable lending adds to the overall strength of Heartland.
Cost of funds.Heartland do not use European wholesale funding.Heartland have proved investors support them via capital raisings,bonds and general deposits,both term and on call.
The Reserve Bank of NZ's outlook is positive for NZ,so the doomsters will have to wait a few years.In the meantime I will continue to enjoy growing fully imputasted divies,because I remain well positioned.
Minor quibble, but I believe both the shareholding and amount lent is larger than this
"Harmoney has Heartland Bank as a 12.9% shareholder. Heartland also lends money through Harmoney, and as of June 30 had lent $78 million through the P2P lender. A Heartland spokeswoman says this has continued to grow since, and Heartland’s lending through Harmoney represents around one-third of the Harmoney loan book."
Between Heartland, TSB, and other institutional investors, approx. 75% of Harmoney's funding is wholesale.
https://www.interest.co.nz/opinion/9...-fund-managers
Whether this poses a risk to Heartland I couldn't say, but I sold out at about 1.80 as I felt the price was getting a little rich. Is it purely being bumped up by speculation regarding UDC now the planned sale has fallen through?
Thank you for this Percy, even though as mfd has pointed out the numbers about Harmoney may be a little higher. The main point is that HBL has consistently achieved higher interest margins than other banks and defaults have consistently been very low. As you pointed out, people tend to continue paying their car finance as they need their car and in the event of them not continuing payments, default amounts are normally quite low.
HBL also continues as recently proved to be well supported for funding from shareholders and do not hold large amounts in the risky home mortgage business, which I "astutely note" will suffer much more in any economic crisis than the niche lending HBL does.
Yes HBL is "fully priced" on historical earnings as has often been discussed on this platform over the years, but it is worth reminding that nobody on here foresaw their forays into reverse mortgages or P2P lending the way they have done. This includes becoming one of the largest players in reverse mortgages in Australia. I believe this lending will continue to grow significantly, particularly in any economic crisis where older generations (i.e. Beagle) may help the younger generations (i.e. Beagle's daughters) using such tools.
A few thoughts mate. If lending to Harmoney was $78m as at 30 June 2017 then I think its safe to say its well on it's way to $100m or possibly more by now, perhaps at least three times Percy's suggestion which is of course factually a lot more not a little.
Default rates have been consistently low because the economy has been consistently good since the GFC. Default rates would change substantially if another GFC eventuated most especially for unsecured lending.
I disagree about your assertion that lending to small and medium business and unsecured would have lower default rates than standard housing lending in another recession and believe the GFC provided ample evidence of that. Bottom line when people are made redundant en-masse they have no chance of their motor vehicle, personal or business lending being bailed out by their benefit or the Government whereas on the other hand people often get assistance through the accommodation supplement paid in addition to their unemployment benefit to pay their housing costs.
I'm not sure how many older folks would borrow on a reverse equity credit facility to help their kids get into debt on a mortgage but I certainly wouldn't.
As mentioned yesterday I think the PE re-rating thing has run its course and on a forward PE of 17 v a sector average of just on 13 this now looks quite stretched. Yes its a good company and there's good organic growth and that's now fully priced in, in my opinion. The undisputed fact is HBL's credit rating is well below the major trading banks so the credit ratings agencies think its more vulnerable in the event of a major economic downturn or major exogenous shock.
For me its all about maximizing returns and minimizing risks. After a ~ 50% gain last year I think the chances of HBL outperforming the index this year are extremely slim. I guess I have turned into someone who's chasing outperformance and am prepared to sell shares after a period of substantial outperformance when I assess the chances of further market outperformance in the ensuing year are very slim. The problem with owning shares that have given you a 50% return in any one year is one tends to want to look for the next big thing that will do that the following year :) Disc Sold HBL in Dec 2017 at $2.14 and used to the proceeds to invest further into HLG at $3.50.
Consensus is the NZ stocks performing ok this year in a Goldilocks kinda way. And black swan events not withstanding the investment climate looks low risk and stable imo. Last few years have been exceptional. Realistically few will outperform this year. Hard to find value on the NZX and expected growth built in already to the s/p of many. Agree ,reverse mortgages a real grower.
I think comparing HBL to the big Aus banks is a waste of time, apples with oranges. Holding but watching all my stocks that have run up ,closely. And where to put the funds if one sells a quality stock like this? Not m/any choices esp in this sector atm.
ANZ today informed the market ;
"UDC sale to HNA not proceeding"
Yes heard that on CNBC, tantalising thoughts/dreams on the HBL thread ehh:D
We are well positioned to live in interesting times.?...lol.
There is an article on the interest.co.nz website speculating on whether Heartland will make bid for UDC Finance.
The article suggests Heartland will have trouble digesting an outfit the size of UDC if ANZ do not leave some vendor finance in or there is a lack of support by UDC debenture holders.
https://www.interest.co.nz/opinion/9...en-now-quickly
Boop boop de do
Marilyn
If Vodafone is contemplating a float on the N Z market why not UDC as well ?
https://www.interest.co.nz/opinion/9...en-now-quickly
Another capital raise for Heartland coming ?
That would appear to be the nub of the issue. They're presently paying well over the odds at 2.75% to attract at call money..one wonders how much of that support disappears overnight at the slightest hint of additional risk / gearing or the hint of a hurdle to replace the ANZ support you've highlighted ? (My money would be out of there the same day any deal was announced that at least didn't maintain the current capital ratio and ensure HBL had a really long period of time to garner support from debenture holders to replace ANZ funding). On the other hand one would imagine there would be considerable synergies between the two finance companies, opps I mean finance company and bank.
Hmm. Look like I may need to save some cash for the next capital raise sooner than expected
On the other hand, Chris Lee just posted his first weekly newsletter for the year pontificating that based on ~ $60m in profit ANZ could raise "the thick end of a billion dollars" listing UDC on the market. Why discount this heavily just for the sake of a quick sale to Heartland ?...after all its not like ANZ is a forced seller is it !
Jeff Greenslade was a director of UDC.
Other senior HBL management staff are ex UDC.
UDC would be a perfect fit.
Instos would rerate HBL immediately up to $2.50.
Raising the equity capital would not be an issue.
The issue would be UDC bond lenders,most of whom would have been attracted to UDC via ANZ,remaining depositors.
That would take a couple of years to settle down.
Always remember HBL have the highest net interest margin of all the listed banks.
Perhaps Percy but ANZ will want maximum $ and the NZX is desperate for new listings so I think Chris Lee makes a good point.
Chris Lee also seems to take a swipe at share forums like this one...he's referring to sharechat.co.nz, although that doesn't seem to have a forum attached to it...is sharetrader run by IRG?
(Anyway, I still value the insight I get on sharetrader, but obviously interesting to see his views).
"It runs one of the dreadful internet chat forums, where anonymous idiots mingle with sharemarket traders, debating matters of the market, with or without knowledge, but certainly without constraint."
Lee has his very own forum - only problem is there's just one member, who debates matters of the market, with or without knowledge, and certainly without constraint. Powerhouse anyone?
Not just a matter of retaining the bond lenders though, if, as suggested, ANZ has also funded UDC to the tune of $2b. Unless, of course, ANZ could be persuaded/induced to continue. But that would appear to be contrary to their original intention to quit finance companies and other "fringe" activities.
Exactly.This is the "catch 22 " ANZ have found themselves in.
Quitting UDC has had the reverse effect.ANZ have had to replace the fleeing bond holders.So more money in.No money out.
I can't see HBL agreeing to buying UDC, without some arrangement over the $2 b plus ANZ have had to support UDC borrowings.
How long that support would be required my take someone of Chris Lee's calibre to tell us..lol.
Then on the other hand we could just guess at two years.
Current market cap of HBL is $1158m. One of the biggest issues I foresee is attracting debenture holders from a company that has enjoyed the guarantee from the ANZ Bank with a substantially higher credit rating. We have already witnessed what's happened to debenture holder support in regard to the proposed acquisition by HNA, admittedly they had a proposed credit rating lower than HBL but the decimation of support has been quite dramatic to say the least. Is it prudent banking practice to simply assume HBL can attract new debenture funding of $2b just because its now a bigger N.Z. owned company and if so how can one be reasonably assured a two year transitional timeframe is enough ?
Hopefully he's not referring to Sharetrader, where there is value in informed and uninformed debate and discussion. Anonymity, however thin, creates a collaborative environment for sharing views and ideas, asking questions and getting a variety of answers, and synthesising those or not into ones own decisions.
The value of Sharetrader is evident in its longevity and frequent contributors going back many years and for some time running in parallel to the Sharechat discussion forum which was made defunct. It's not perfect, but then neither is the market, or the brokers, or the advisors, or the media. It's a perspective and a useful one at that. IMHO.
I wonder how many customers Chris (or whomever of his team wrote the article) just offended by calling them idiots for the simple sake of them frequenting an internet chat forum. Unintended consequences lurk beneath ill considered opinion. They should stick to their knitting.
BAA
Totally agree Baa Baa.
I'm amazed he'd use perjorative language about individuals who could be his customers and use sharetrader as a vehicle for checking the "pulse" of their investments.
Besides that, I'm not an idiot - I am a very special cat, since I have opposable thumbs.
The collaboration you talk about in your post is important here - I respect what Chris Lee has to say, but there's a myriad more opinions or discussions on this forum that also adds value. What I choose to accept or discard as advice is up to me.
Perhaps that's the rub for Mr Lee - forums like this could be regarded as competition for brokers, the choice between 'DYOR' or pay someone else to do it for you.
Cats do tend to be solitary creatures - but they also respect the other animals (eg, sheep, tigers, beagles) around them. Long may free animal noises reign.
The Australian
ANZ Bank’s UDC Finance operation remains in the crosshairs of suitors, with Heartland Bank and two parties out of Asia in pursuit of the operation, according to sources, after an earlier deal to sell the business to China’s HNA collapsed.
Jeff probably resigned to paying more than he really wants to after being ‘outbid’ last time
In spite of Mr Lee speculates they could get for $600m and change
I think they're just better off continuing their pretty strong organic growth. Looks like a competitive process with two possible other suitors plus the option of floating it.
I wonder about the IPO option. Given the amount of funding required - ANZ has $2b advanced, supposedly - and in the absence of a strong "parent", it's difficult to see an IPO'd UDC with a sufficiently high credit rating to attract the funding required. Anyone care to postulate a scenario?
After the double top fail on 9/1 and breakdown of the steep rising trend line Oct-Jan, this with indicators pointing down and room to follow through, suggests an imminent test of the 50EMA currently 2.02 and possibly minor supports at 1.98-2.00 and solid technical support at 1.86.
Laura was already part of the Senior Management Team. I suppose the encumbent HR person Sarah is moving on or something
Having a women in charge of HR doesn't really cpunt as 'diversity'. A large proportion of these leaders are women ....maybe companies feel they need the warm fuzzy empathetic maternal touch to be in charge of people.
Unless the new COO (assuming there will be one) is a woman the balance of diversity of Heartland Senior Manager won't change.
I met a one-legged Asian girl once in Cambodia - shall I get her CV?
QUOTE=dabsman;700895]I met a one-legged Asian girl once in Cambodia - shall I get her CV?[/QUOTE]
Said her CV to Winner69.
Sure his mate at Co-Op Bank will be excited to employ her.
A quote from Chris Lee's "Taking Stock" (published Jan 25th).
Link to wider article: https://www.chrislee.co.nz/taking-stock
He obviously does not think much of HBL as a "quality" issuer...
WHEN Fisher & Paykel Finance was sold to an Australian fund manager NZ investors in finance company debentures were left with a realistic menu of one.
The remaining option for those who use tap issues from finance companies was one – UDC Finance.
Then the owner of UDC, the ANZ Bank, announced it had sold UDC to a Chinese conglomerate (HNA), with an airline base.
Then there were none.
However the ANZ/HNA deal was never consummated and UDC now reverts to being at least temporarily available, hopefully until someone, like Heartland Bank, buys the book at a banker’s price, rather than an entrepreneur’s price.
After that there again would be none, if one categorises as ‘’useable’’ only those companies with long histories, strong shareholders and credit ratings (preferably).
Chris who?
Got to the part about Alan Hawkins before nodding off. Great bloke - made me loads out of Equiticorp in the day - got me securely on the housing ladder at the time. With the obvious rider "You've got to know when to hold 'em. Know when to fold 'em"
I read it differently.
After UDC is sold there will be no quality "FINANCE" company issuer.
I would also point out that Chris Lee's company have been strong supporters of Heartland Bank.Michael Worrington is a shareholder,and I am sure Chris Lee and Kevin Gloag are also shareholders.Kevin Gloag has followed Heartland very closely.
I seem to remember Chris Lee thought it was a great idea to merge Heartland,UDC and TSB.?
Ahhh..."Finance" company. That makes more sense, thanks percy. (Note to self: Must. Get. Better. Brain.)
Yes, I had thought that they were supporters of the consolidation that formed HBL in the first place...hence the comment piquing my interest.
Would a kind poster please post the link to www.Chrislee.co.nz taking stock.
His view on Heartland remains positive,and has interesting thoughts on HBL/UDC.
half year announcement due today... hopefully we are still "well positioned" as percy would say.
7% NPAT increase...not sure what that means yet, but probably supports the 7% increase in share price...but below the full year expectation of 12% NPAT growth. Would explain why the share pirece has softened below $2 over the last few weeks (starting even before the market decline). My 'quick view' seems to think the share price is fair value right now...maybe a slight softening in the achievability of end-of-year targets...
Disc: hold
...with negative op cashflow and capital raise continuing to fund a big increase in receivables.
“Earnings per share for the six months ended 31 December 2017 was 6 cents per share, consistent with the 2017 financial year” – hmm, so no EPS growth? a bit disappointing.
“Heartland expects its NPAT for the year ending 30 June 2018 to be at the upper end of its previously advised range of $65.0m to $68.0m” - upper end of guidance - ok, good
Expansion in Ozzy & reverse mortgages sounding like a sweet spot, but overall I think this will be a little below (high) market expectations.
Be interesting to see the reaction today. Still reasonably happy to hold long term.
filthy
Yes we remain "well positioned".
Strong equity ratio.
Growth coming from digital platforms.Good organic growth in all sectors.
Interesting noting the 45% increase "open for business" platform is achieving and the fact they will offer it to the Australians.
Also of interest is HBL's growth strategy in Australia, which is via brokers/Harmoney/Spotcap and their own platforms.
I also note HBL's statement of increasing lower risk/lower margin lending.Yet HBL's net interest margin remains high.
Some costs with new banking system are one offs.These as well as timing seems to have affected eps.
I see no reason for eps not to increase going forward.
3.5cps fully imputed dividend will be paid on 3rd April.Record date 16th March.
Has their banking website improved at all, feedback was it is clunky and slow?
Q1 npat up 12% and Q2 npat only up 3% giving 7% for 1st half
2nd half needs to be 19% up on pcp to achieve $68m
As they do what they say they will do yes a stonking 2H coming up.
No increase in eps in H1 .... and not much of an increase for the FY (Percy doesn’t like consistent eps ...he likes eps to be growing)
One thing for sure I don’t think that Jeff will be coming out touting npat of $70m for a while ...I misread him again ...although I take heart when he says impairments in the motor book also increased due to an intentional adjustment to risk settings in previous years which has resulted in a gradual but expected increase in impairment levels. - code word for proactive provisioning ...read into that what you want and the torrential rain in Wellington at the moment might be a hint.
Is hope a strategy?
It's a good result, but I think the SP more than accounts for a strong year. If you look at this stock it has gone up well above its eps growth in the last couple of years.
Totally agree winner69...you've read the quarter results the same way I did. Looking forward to a big 2nd half; needs to be.
i don't mind the "proactive impairments" - I know there was a discussion on this thread before highlighting some concern over how they treated impairment, so its good to see them being proactive. Maybe that's creating some of the wiggle room to deliver a big 2H.
But think jeremy ALD also has it right - growth in share price is fair based on the above result, and so is the tapering off in the last few weeks - the "froth" isn't there to support $2.10, but good solid numbers that support $1.95.
Everything is showing huge growth except EPS and dividends
Taken my rose tinted glasses off and said to myself - BUGGER, should have listened to Beagle when he told me to sell at $2.14. He’s right as usual ...no wonder he’s at the top of the stock picking comp.
Still lumbered with heaps of HBL .....might sell a lot but it hurts when they are down 10% from when I should have sold ....but might do the calcs to see how many I need to sell to make the remaining ones free. That’ll cheer me up
That's the issue I have with it. EPS growth on an annual basis, (this half is worse), looks to be slowing to be in line with the other 6 Australasian banks I follow but HBL was on a POE of ~ 17 when I sold at $2.14 and the average of its peers is just 13. Three years ago HBL traded at about a 2 PE discount to its peers when EPS growth was significantly higher so SP performance in the last three years has vastly outstripped earnings growth and has substantially been predicated upon PE expansion which frankly I think is extremely unlikely to continue. Far more likely that the PE will fall back into line with its peers, especially now that annual EPS growth has slowed to be more or less in line with same. Those looking for capital gain from here will need to be very patient. I will spare shareholders the pain of making a call on where I see fair value at present, suffice to say I think there are far better opportunities in the market.
Not sure I agree it is a good result. It's reasonably solid and little to worry about. As Percy points out, we have growth in nearly all the business, including big growth in expenses !! What I like most is the good growth of reverse mortgages (+22%) and personal lending through Harmoney & Spotcap in Australia, resulting in Australian receivables growing 27% to $615M. Also nice to see them maintain well above industry average NIM at 4.44%. Solid and well positioned.
http://www.sharechat.co.nz/article/d...k-improveshtml
Strongest growth seems to be in impairments, up a whopping 51% ! I have warned before about the risk of finance company type lending on no deposit deals with motor vehicles. Coming back to bite them with more biting to come ? Lending growth is great but if its riskier then the effect on EPS growth is clear to see.
What's the bet a lot of unsecured Harmoney loans have turned out to be anything but harmonious ?
Learned it doesn't pay to be too negative, nobody thanks you so I'll leave it at that.
At risk of having a different opinion again as some other respected posters, here's how I see things (updated).
2nd Qrt 2017, NPAT $14.8m on 499.17m shares, = EPS of 2.96c
2nd Qrt 2018, NPAT $15.1m on 522.3m* shares, =EPS of 2.89c (* removes the dulitionary effect of the 34.8m shares issued from the Rights issue in Dec 2017)
So EPS growth this quarter is -2.36% over pcp.
So I stand by my "can't see where the strong growth is" call