Dividend Capitalised Valuation: The Data: FY2020 perspective (Iteration 2)
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 + 0cps |
|
Average FY2016 to FY2020 inclusive |
8.20cps |
|
We are more than six months out from any expected final dividend. But I am going to make the bold prediction that there will not be one. What does this do to the Dividend Capitalised valuation of HGH? First see what the five year dividend average is.
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.
SNOOPY
Dividend Capitalised Valuation: The Calculation: FY2020 perspective (Iteration 2)
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.
Events have certainly moved on since my FY2019.5 year calculation. I have to ask the question, given the economic shock, should I still be happy with a 7.5% yield from a second tier financial institution? My initial thought was no. But then I realised that coming out of this, interest on bank term deposits are likely to be materially lower than the all time lows we have been experiencing of late. We might even be faced with a generation who do not know what interest is, because no bank pays it anymore! So I have decided my 7.5% figure is still appropriate. 7.5% does reflect a higher risk in an even lower interest rate environment going forwards!
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 )
8.2c / (0.72 x 0.075) = $1.52
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 (+43%) to net tangible asset value.
This $1.52 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 $1.22 to $1.82. $0.95, where the share is trading today, is 37.5% below fair value. My target accumulation price (10% below fair value) is now $1.37. But is any of this realistic in the current investment climate?
SNOOPY
P.S. This iteration assumes no 4.5c March 2020 dividend which is not what happened. Refer back to Iteration 1 (post 13004) for a better valuation.