Winner69 what's your early 2023 price target now? What was it before- $2.20 per share?
Have you downgraded or is it no worries for now?
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Winner69 what's your early 2023 price target now? What was it before- $2.20 per share?
Have you downgraded or is it no worries for now?
alokdhir whats your new price target? what was it before 9x earnings $1.45?
Nice one FM. Always thinking about the more technical aspects.
What are they exactly hedging? Is it their cost of funds? Playing the swaps short term vs long term lending? something like that? or way off?
I understand banks/finance company's well enough but ill put my hand up and say i dont exactly understand 100% what this announcement is about, I get the gist of it. And maybe some other readers are in the same boat.
I am not expert enough to have targets mate ...but I do have my target price where it becomes kind of compelling buy based on yield and ie $ 1.53 ( 10% Gross )
As discussed earlier will start adding from 1.53 downwards till my tummy full or it stops going down further ...lol
SP all good. Up 2 cents. Not sure what all the fuss was about
Delving into the technical here and hedge accounting on the outer periphery of complex but was only a matter of time this became topical given the gain they recognised in FY22
Loads of companies hedge various aspects of their business. Exporters hedging through currency contracts, corporates with high debt burdens hedging their interest rate expense (ie fix it), banks doing the same on their borrowing costs. All normal stuff and this an "economic hedge" of what they are trying to achieve. An agri exporter might fix a big chunk of currency exposure based on some BOE estimate of what they expect their foreign currency receipts might be over some future period. And the fx contract on their book may flop about / ie be revalued again and again (threading through the P&L) until it is exercised when it is used.
But for a bank they are often hedging for a specific contract - say the money they borrowed to write a loan - where they know the exact principal and duration. Hedge accounting seeks to do away with that "flopping about" in the FMV of the interest rate contract by pairing both the underlying activity and the hedged contract. It takes out a lot of the volatility. In order for a hedged exposure to qualify for hedge accounting there are a few hurdles the company has to jump through, mainly: the purpose of the hedge and corresponding activity (in this case heartlands borrowing) have to be explicitly documented at the time the hedge is taken out so the accounting between the two can be paired going forward, going forward the hedge needs to work more or less as documented (ie if you did some new fancy exotic hedging that didnt work the way you thought it couldn't continue to be hedge accounted).
Heartland have been hedge accounting for some time. Last year they derecoginised (or in their terms de-designated) some swaps from hedge accounting. I understood from the conference call these related to swaps paired again borrowing to fund their premium saver products. I do not recall why they were de designated. If I had to guess - it would be that the hedging was over too broad a category and not specifically granular to link it to individual activities. But there could be other reasons. I am not sure but its possible HGH could voluntarily even withdraw specific contracts from hedge accounting. More on that below.
The net impact of this was a $16.7m gain - which was effectively a pull forward of the profits that would have been recognised in the normal course of business over the next 3 years. A cynic could wonder if the de-registration that resulted in this gain was implemented to augment statutory npat for FY22, given all that was going on. In that respect useful to remember the de-designation was for a handful of swaps relating to saver products which I can think of a technical reason for why they weren't included. The other thing is for HGH's presentation of their underlying financial results they took the gain out for underlying purposes.
The note this morning I thought was both cryptic and awfully specific around the $6.6m impact of hedge accounting. In the conference call they talked to the FY22 de-designation pulling forward 3 years of interest rate related net impact from those contracts - I wonder if the $6.6m is simply the corresponding amount for year 1. I also wonder if when they released their guidance perhaps they did it on the basis those hedges were still in place. Or rather because certain contracts had been hedge accounted there is an accounting requirement in subsequent periods to show the the income that would have been if they had been left in place, but as a negative adjustment. Or some variation of this accounting adjustment - its way above my pay grade.
It's pretty fuzzy. HGH have tried to keep a technical issue succinct but a few questions left.
and ultimately having to qualify guidance issued only a month or so earlier is never desirable.