You gotta be very brave person to short this stock at current price level with strong earning guidance and other positive news that keeps flowing through...
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You gotta be very brave person to short this stock at current price level with strong earning guidance and other positive news that keeps flowing through...
Long time reader first time writer, have been a long time share holder and been a client with Heartland Group back before amalgamation of Ashburton Loan and Building Society and Ashburton Permanant Banks .
Believe this is quite an achievement going through one of the biggest global crisis they say more than 100 years. Intend to buy more.
How long is that Beau - I mean for those of us who dont know HGH history time line?
And congrats on popping your post cherry.
Just to be the naysayer here, some would say we havent got through it yet. Especially banks. We dont know for sure but I still expect some tough times , its unlikely to be all beer and skittles and all the banks have made some large provisions, it just whether those impairments are large enough or too large is the crux of the issue.
I did state going through not gone through , not all beer and skittles but occasional beer
Loan and Building Society Days 1997 got a mortgage for motel complex found them extremely good to deal with .
I have recently been alerted to this threat to the Heartland 'golden goose' of REL mortgages in Australia.
https://householdcapital.com.au/corporate/our-story/
The article below is from April 2020.
https://householdcapital.com.au/medi...ket-expertise/
"Earlier this year, Legal & General, one of the largest providers of equity release products in the UK, took an (20%) equity stake in Household Capital Pty Ltd., citing Australia as a market with lots of potential."
From
https://www.moneymanagement.com.au/n...sehold-capital
"This latest round of fundraising brought the total amount raised by Household Capital since 2017 to $25 million."
If I read this correctly, there is only $25m of Household Capital shareholder equity backing the entire reverse mortgage loan book.
So it doesn't sound like Legal & General had to outlay much cash to grab that 20% shareholding.
20% x $25m = $5m (only)
Nevertheless, in addition to the equity stake, Legal & General are providing funding capital to Household Capital Ltd. This builds on the $100m debt facility established with (also equity holder) ME bank (An Aussie bank 100% owned by 26 industry super funds) in 2019 (referenced below).
https://www.adviservoice.com.au/2019...ding-facility/
From
https://www.finder.com.au/household-...verse-mortgage
The current variable interest rate for a 'Household capital' loan is 5.15%, with a minimum loan amount of $50,000 and a maximum of $1,000,000. There is a 1.5% loan capital application fee on top of this which is added to the balance of your loan.
Sample calculation: Borrow $100,000 for four years.
Interest Due Year 1 $5,227.25 Interest Due Year 2 $5,496.45 Interest Due Year 3 $5,779.52 Interest Due Year 4 $6,077.17 Capital Charge $1,150.00 Total All Charges $23,730.39
From
https://www.finder.com.au/home-loans...eniors-finance
The equivalent borrowing rate at Heartland Seniors Australia is 5.8%, but Heartland have no application fee.
Sample calculation: Borrow $100,000 for four years.
Interest Due Year 1 $5,800.00 Interest Due Year 2 $6,136.40 Interest Due Year 3 $6,492.31 Interest Due Year 4 $6,868.87 Total All Charges $25,297.58
The underlying capital backing the Heartland Seniors reverse mortgage portfolio at EOFY2020 was:
$699.980m - $597.037m = $102.943m (c.f. $25m figure above)
This shows that with the share capital on the books currently allocated to Heartland Australia, our Heartland is fundamentally four times larger than this new 'Household Capital' challenger brand. But being a 'new brand on the block', it is not a surprise that a reverse mortgage taken out with 'Household Capital' will be somewhat less costly than the equivalent Heartland product (over four years at least).
(Note for comparison that Heartland's Reverse Mortgage variable interest rate in New Zealand is currently 6.2%)
Household Capital Pty Ltd. was established in 2016, and launched in 2017 as a specialist retirement funding provider.
Given all this, I don't see a significant cannibalisation threat from Household Capital Pty Ltd to Heartland's Seniors Australian business. These two are the only two active players of any size in the Australian REL market today. I see room for both brands to grow.
SNOOPY
It is good news, particularly the stable outlook. For those not invested, a ratings company maintaining existing ratings is not going to change your view that a bank/finance company warrants a cheaper price in a recession. A lot of big investors were stung by high rated lending backed investment products not being genuinely worth their ratings during the GFC. I'm guessing that these potential investors aren't going to be convinced by rating companies, hence no wave of new buyers pushing up the price.
It probably means there's just a longer acquisition window as lead indicators like this don't move the price which waits for reconfirmation of the value through released results.
The possibility of a third outbreak may have contributed to a bit of caution.
Just in case any depositors are worried about negative returns from their Heartland term deposits, I should point out that my table above does not show the full picture and was a 'tongue in cheek' reply.
Typically 'high risk banks' are required to back any loans they write. But that requires holding typically only 15% of their loaned out capital. So if term deposit rates did drop to -2% (not impossible but probably unlikely), or maybe 0% (more realistic - a NIM of 2% on deposited funds), then this would shrink Heartland's NIM down from 3.99% to 1.99% (apparently, or would it?). So on that basis it would be impossible to make any money if you were loaning out the money at the same rate you were borrowing it at. But that deposit NIM would only apply to 15% of the loan. The remaining 85% of the loan would not have to be funded by depositors.
That means from a 'profit perspective' Heartland's overall net interest margin that was 4% would decrease to:
(0.15 x 1.99) + (0.85 x 3.99) = 3.5% (actual effective NIM from a reduction in Heartland deposit rates by 2%)
At least, I think that is right. I am trying to show a non-proportional effect that reducing interest rates has on bank loan profits (and how Heartland can still make a profit with loan mortgage rates at 1.99%). This is made possible by retaining the existing 3.99% margin on the non bank backed part of the loan that is facilitated by the Reserve Bank of NZ being supportive of such lending. But no doubt I will be corrected if I have this wrong!
SNOOPY
discl: Not a banker
I have fond memories of MARAC finance too - when i started my first shop 12 years ago (Nov 2008 GFC!) - the banks wouldn't touch me, not even an OD - Marac loaned me $33k to get going ..... Then 2 years later they offered me a distressed store that they had security over - we did a deal - the other parties got to walk away without ugly bankruptcy process. Banks still wouldnt touch me four years in.
13 years later we are thriving. Thanks MARAC/HGH
Basically I think HGH does banking differently. Which is awesome in this environment....