How many times they say resilience and resilient
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How many times they say resilience and resilient
4. Outlook
We expect FY2024 to be a more challenging year due to high interest rates impacting borrowerdemand and credit quality. We are also seeing greater competition for deposits due to major banksrefinancing the COVID-19 funding for lending programme. Initiatives to address this are underway,including Heartland Bank’s new Digital Saver on-call deposit product, targeting lower cost and lesscompetitive parts of the yield curve.The first quarter is typically slower, and this was exacerbated by election uncertainty, whichimpacted Motor Finance in particular, but there are signs of a bounce back post-election andpipelines are strong. Meanwhile, Reverse Mortgages and Asset Finance growth has continued. Astrong commitment to ensuring good customer outcomes, alongside proactive portfolio pricing andmargin management will remain a focus, especially in this challenging environment.
jus as we thought ... feeling the pressure from slowdown and competition , similar to aus company commentaries in the space
Not likely. Chair Greg Tomlinson waxed lyrically about Heartland's dividend record to date BUT then suggested quite a bit of dough needed to expand in Australia so dividends NOT GUARANTEED going forwards!
SNOOPY
P.S. Loved the bit where Tomlinson tried to close the meeting prematurely BEFORE the vote was held for his own re-election to the board! (LOL)
Yes and all sensible commentary from the board - although you omitted the guided growth in NPAT part lol
Nothing guaranteed in life.
HGH got a bit of flack on this board when it announced its FY22 results, raised capital for stockco, but still paid a final dividend. And fair enough - paying a dividend only to request money back?
It's been my view for sometime that if Challenger was to proceed the business would undertake some form of capital raising - not just for Challenger, but capital to capitalise it to grow the AU book and all the prudential requirements an ADI brings. Clearly the shape and form of any interim dividend should form part of the sources and uses discussion at the Board table. I noticed the comment too but didn't read more into it than that.
Positive meeting.
Thought Greg Tomlinson was a breath of fresh air.
Challenger Bank.A bank without capital ? I think Muse is on the money with a healthy capital raise once its banking licence is approved.
Reassuring they will be concentrating on sectors they know best;Reverse mortgages,stock lending and motor vehicle finance
Guidance of $116 to $122 profit is 20.9% to 27.2% increase on their current $95.9mil.
Should we take from that - that further Cap Raises might be off the table, instead internal retained growth ?
Or may be they are required to retain more with heightening interest rates at stubborn levels on top of growth demands .. every dollar retained has low if any financing cost, but at a price to the stakeholder.
Cap Raises have in past depressed the SP and held it back..
What will a Div Yield marginally above rates paid on term deposits with a lid on dividends do to
the SP ? there has to be some risk margin for buying a slab of the Bank rather than throwing
it in on deposit.. bound to inspire some thoughts by those relying on the income - on whether
they are being penalised for inflationary / higher rates times ..
did anyone ask them how they are going to make money with challenger bank when nobody else could ?
I thought the whole point was it's simply cheaper to buy challenger than it is to apply for a licence?
Good question & would love to be a fly on the wall
Temporarily holding back on an interim (and/or final) FY24 dividend wouldn't go down well with its retail shareholders, but would probably be looked well upon by its insto holders. Net net retail dominates the register, so I'd expect the company will be very mindful of continuing its long-term payout rate of 60%. But they'd have to at least consider what they do about the FY24 interim dividend. I certainly believe they will continue with their dividends, as they have already established and acquired their main two australian books, being reverse mortgages and stockco, and we all know building the book is the capital intensive part. I just think they need a capital raise if they are going to do AU properly - raising deposits will raise the capital required in the AU business, and they will want plenty of capital to lend as well. The economics in terms of what an ADI does to its AU NIM and NPAT are very meaningful so its worth the stretch regardless of any short/medium term volatility in SP, in my view. It'd be my preference if they did a decent raise and just got on with it and so that the Aussie business was fully capitalised and capable of self funding while the group could still pay a 60% payout.
I don't think its necessarily cheaper, but it is a whole lot faster. You can't underestimate how difficult it is to get an ADI in Australia. They do have a book so I suppose I could go and work out what the goodwill was (purchase price over and above net book value) and that is effectively the purchase price of the ADI.
But the capital requirements aren't from Challenger - its from what it uses challenger to do in order to improve the financial metrics from the rest of heartland's australian operations. Both the RV and stock businesses are wholesale funded. Moving to deposits ought to meaningfully improve their NIM and net profit. But a move from wholesale to retail deposits requires heartland to conform to the australian capital adequacy rules so it will need to hold more capital on the balance sheet as a buffer than it currently does with its warehouse and note issuance funding. That doesn't necessarily happen all at once - they aren't going to acquire Challenger and then the next day raise a billion or whatever in deposits to refinance its wholesale business - it takes time to build. But the cumulative incremental capital required to hold on balance sheet is meaningful even if it stretches out over years. Jeff strikes me as a man who just wants to get things done so that's formed part of my view.
If we look at Divs by year
2021 (Int + Fin) = 11.0 cps + Imp credits
2022 (Int + Fin) = 11.0 cps + Imp credits
2023 (Int + Fin) = 11.5 cps + Imp credits
Where have Deposit interest rates gone in that time ?
It stands to reason that as deposit rates start to approach Div yield, then there must be some SP downward
pressure, in absence of news to counter that..
Well its SP has certainly gone down from the lofty over the top heights of late 2021/early 2022 when interest rates were scrapping the barrel.
I have the last 3 published reports from the 4 analysts that cover HGH. The average DPS from those are 12c, 13, 14c for FY24-26 - all assume normal operating conditions and no Challenger acquisition or financial benefit from it. The gross yield based on a 162 spot price is 10.3% to 12% respectively.
One is right to look at the long term gap between prospective gross yield and matching duration term deposit/or bond, but I get the sense the gap remains healthy and in line with historical averages (or better)