Dividend Capitalised Valuation: The Data: FY2020 perspective
Quote:
Originally Posted by
Snoopy
Year |
Dividends Paid 'per share' |
Significant Event During Year' |
FY2013 |
1.5cps(sp) + 2.0cps |
17th December 2012: Heartland becomes a bank |
FY2014 |
2.5cps + 2.5cps |
1st April 2014: Seniors 'Reverse Mortgage' Business Acquired |
|
|
FY2015 |
3.5cps + 3.0cps |
10th September 2014: invests in Harmony P2P startup |
|
|
28th October 2014: Credit rating upgraded from BBB- to BBB (Fitch Ratings) |
FY2016 |
4.5cps + 3.5cps |
FY2017 |
5.0cps + 3.5cps |
FY2018 |
5.5cps + 3.5cps |
FY2019 |
5.5cps + 3.5cps |
1st November 2018: Heartland Group Holdings restructure set up |
FY2020 |
6.5cps + ?.?cps |
|
Average FY2015.5 to FY2019.5 inclusive |
8.80cps |
|
I have chosen to use the last ten half years of operation as indicative, as this period includes the full contribution of the Reverse Mortgage Portfolio, a critical component of Heartland going forwards.
Year |
Dividends Paid 'per share' |
Significant Event During Year' |
FY2013 |
1.5cps(sp) + 2.0cps |
17th December 2012: Heartland becomes a bank |
FY2014 |
2.5cps + 2.5cps |
1st April 2014: Seniors 'Reverse Mortgage' Business Acquired |
|
|
FY2015 |
3.5cps + 3.0cps |
10th September 2014: invests in Harmony P2P startup |
|
|
28th October 2014: Credit rating upgraded from BBB- to BBB (Fitch Ratings) |
FY2016 |
4.5cps + 3.5cps |
FY2017 |
5.0cps + 3.5cps |
FY2018 |
5.5cps + 3.5cps |
FY2019 |
5.5cps + 3.5cps |
1st November 2018: Heartland Group Holdings restructure set up |
FY2020 |
6.5cps + 4.5cps |
|
Average FY2016 to FY2020 inclusive |
9.00cps |
|
I have chosen to use the last ten half years of operation as indicative, as this period includes the full contribution of the Reverse Mortgage Portfolio, a critical component of Heartland going forwards. It also reflects the fact that after several years of growth, FY2015 is no longer a 'business cycle representative' dividend payment year.
SNOOPY
Dividend Capitalised Valuation: The Calculation: FY2020 perspective
Quote:
Originally Posted by
Snoopy
Plugging in a representative yield of 7.5%, one that IMO represents an appropriate risk for the ups and downs of the banking cycle of Heartland in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation
(Representative Dividend per Share) / (Acceptable Gross Yield) = Share Price (an algebraic manipulation of: Dividend per Share / Share Price = Yield )
8.8c / (0.72 x 0.075) = $1.63
A reminder here that NTA was
($675.668m - $72.679m) / 569.338m = $1.06 cps
at the full year FY2019 balance date. This means my 'fair valuation' is at a good premium (+54%) to net tangible asset value.
This $1.63 valuation is measured at the average point in the business cycle. My rule of thumb is that over the business cycle the actual share price will fluctuate between 80% and 120% of capitalised dividend fair value. This gives a target range of $1.30 to $1.96. $1.59, where the share is trading today, looks a few cents below fair value. My target accumulation price (10% below fair value) is now $1.47.
Plugging in a representative yield of 7.5%, one that IMO represents an appropriate risk for the ups and downs of the banking cycle of Heartland in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation.
(Representative Dividend per Share) / (Acceptable Gross Yield) = Share Price (an algebraic manipulation of: Dividend per Share / Share Price = Yield )
9.0c / (0.72 x 0.075) = $1.67
A reminder here that NTA was
($687.600m - $72.159m) / 577.468m = $1.07 cps
at the half year FY2020 balance date. This means my 'fair valuation' is at a good premium (+56%) to net tangible asset value.
This $1.67 valuation is measured at the average point in the business cycle. My rule of thumb is that over the business cycle the actual share price will fluctuate between 80% and 120% of capitalised dividend fair value. This gives a target share price range for HGH of $1.34 to $2.00. $1.90, where the share is trading today, looks a ten cents or so above fair value. My target accumulation price (10% below fair value) is now $1.50. And yes I could add the upcoming 4.5c interim dividend onto that fair value.
SNOOPY
Dairy loan problems revisited
Quote:
Originally Posted by
winner69
In that Heartland announcement They said that 6% of loans are dairy related.
but i am puzzled as to why they added these sentences, especially the 2nd one - "The average loan to value ratio (LVR) for Heartland’s dairy exposures is 61%. However, it is important to note that LVRs are only one of the indicators of loan quality"
Do we interpret that as Heartland themselves think the 61% is a high/risky number but its all OK because other things are alright. If so why even mention all this as everybody was excited at being told the exposure was low.
One thing I have learned over many years announcements have to be read carefully to really try to understand what is being said.
Just adding to Rogers note - even if 5% of these dairy loans go bad that's a decent chunk of the $50m profit gone.
I still hold until the annual accounts. I believe there is more risk with heartland than a while ago and will manage accordingly.
If anybody is interested have a look at sector analysis in recent accounts and track impairment expense under rural for the last 3 to 4 quarters.
Quote:
Originally Posted by
Hectorplains
How did you extrapolate from 5% total rural loan impairment that 10% of dairy loans are impaired, W69?
Quote:
Originally Posted by
winner69
Rural loans are ~$500m (they report rural two different ways but its about that) and have said a while ago dairy loans are ~$240m. So if dairy is all/most of the problem thats where I get the 10% from.
Impairment doesn't mean bad - in Heartland terms it is overdue and manageable (?)
(Might be completely wrong with my assumptions, that's why i used lot of ifs)
The above quotes relate to the FY2015 financial year. Dairy loans at Heartland currently 'off the radar' but I think we still have an issue.
What got me thinking was the report on dairy farm sales in the South Island on the RNZ rural program this morning. In Southland over the past year, the price of dairy farms has dropped from $45,000/ha to $35,000/ha over the last year. Actual numbers of properties sold are down 60% from a year ago.
In Canterbury there is no equivalent measure because there are no dairy farm sales at all. That is right - none. The explanation for this was that the typical Canterbury dairy farm is nominally much more valuable overall, around $10m. The overseas buyers that have that sort of money to invest are now locked out of the market, and local buyers don't have that kind of money available. Concomitant with this, the Australian controlled banks have tightened up their loan requirements. Buyers now require 60-70% equity, up from 45-55% last year.
60-70% equity is now well above the average (100% - 61%= 49%) figure that Heartland quoted five years ago. I know Heartland have reduced their dairy exposure from five years ago. But if the easy cases have been dealt with, that means the more difficult cases still on the Heartland books are unlikely to attract alternative financing. The current 'no sales' and 'no financing available' looks like setting the scene for a dairy farm price crash to me.
Heartland has since gone on other risky loan directions so that the remaining dairy farm loans form a smaller proportion of the overall risky loans. It hasn't made the risky dairy loan problem go away though. It only means it is a smaller piece of a larger troublesome loan market. I think the dairy farm loan comeuppance at Heartland is coming....
SNOOPY