Tier 1 & Tier 2 Lending Covenants HY2013
Quote:
Originally Posted by
Snoopy
Once again there is no mention of Tier 1 or Tier 2 in the Heartland FY2012 report.
The 'best case' scenario is that all loans are Tier 1. $1,939.29m of loans are outstanding. 20% of that figure is:
0.2 x $1,939.29m = $387.9m
Heartland has total equity of $374.8m which is insufficient no matter what the tier classification of the loans.
Result: FAIL TEST
However the numbers are moving in the right direction. Heartland are certainly doing the right thing by retaining their earnings and not paying out a dividend.
Ironically the small reduction in the size of their loan book is helping too.
However the fact that the overall business is downsizing does mean less customer activity. Those shareholders looking for a step change in earnings are likely to be disappointed IMO.
An update here of my post on 30-08-2012
Once again there is no mention of Tier 1 or Tier 2 in the Heartland HY2013 report.
The 'best case' scenario is that all loans are Tier 1. $1,935.1m of loans are outstanding. 20% of that figure is:
0.2 x $1,935.1m = $387.0m
Heartland has total equity of $381.1m which is within cooee of the amount of capital they need if all loans were classified as Tier 1. Good stuff.
The balance of loans is shifting too:
"The business receivables book contracted by $9.7m to $530.5m"
"The rural receivables book grew from $478.6m to $480.6m"
"The retail & consumer receivables book contracted by $9.0m to $945.8m"
Overall then, the core business is contracting which gives a lie to some of the irrationally exhuberant views on where the Heartland business is going. However I see this as positive. Heartland needs to contract while their equity position is so marginal. Getting smaller will help stabilize the business, even though share price growth will likely be constrained over the medium term as a result.
"Total non-core property assets reduced by 11% during the Current Reporting Period - from $160.2m at 30 June 2012 to $143.2m at 31 December 2012. These non-core property assets are made up of net receivables of $87.9m and investment properties of $55.3m. RECL manages the ex-MARAC non-core property assets."
Great except that calling a large basket of your business 'non-core' and sticking it under the pillow doesn't make it go away. There is rather a nasty sting contained in the interim report, regarding these property loans:
"The higher impairment expense came from the non-core property book given that the RECL Agreement was regarded as fully utilised as at 30 June 2012, meaning that Heartland now has to bear any further losses in the legacy non-core property book."
IOW the cushioning effect of all previous capital raising has now run its course. Unless the value of the non-core properties improve, Heartland could be looking at some more significant proprty loan writedowns. Not good.
There is sufficient evidence here to suggest that there are significant "Tier 2 loans" within the company that means that lack of capital is a very real concern going forwards. I will continue to wait for the next HNZ cash issue before climbing on board.
Result: Tier1 and Tier 2 Lending Covenant Test Marginal
SNOOPY
Underlying Gearing Ratio HY2013
Quote:
Originally Posted by
Snoopy
The underlying debt of the company according to the full year 2012 statement of financial position is: $33,802,000m.
To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:
$2,348.69m - ($2,078.28m +$55.50m + $24.22) = $190.09m
We are then asked to remove the intangible assets from the equation as well:
$190.09m - $23.00m = $167.09m
Now we have the information needed to calculate the underlying company debt net of all their lending activities:
$33.8m/$167.09m= 20.2% < 90%
Result: PASS TEST
I note that the relative debt has increased since the half year reporting date. However it is still well within acceptable levels. I would expect the debt position to worsen during the year because of all the deferred branch transformation expenditure that was shunted into the FY2013 year. It will pay to keep an eye on this figure.
SNOOPY
The underlying debt of the company according to the half year 2013 statement of financial position is: $33,894,000m.
To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:
$2,350.10m - ($2,044.79m +$55.32m + $24.41) = $225.58m
We are then asked to remove the intangible assets from the equation as well:
$225.58m - $22.99m = $202.59m
Now we have the information needed to calculate the underlying company debt net of all their lending activities:
$33.894m/$202.59m= 16.7% < 90%
Result: PASS TEST
The relative debt has decreased since the half year reporting date, and is well within acceptable levels. The debt position has not worsened during the year despite all the deferred branch transformation expenditure that was shunted into the FY2013 year. Good stuff. Will this trend be maintained as Heartland trys to lift their profile via increased advertising? It will be interesting to see if the underlying debt position of the company remains under control.
SNOOPY