Priced about right. If I held I would take the DRP
Half year will be interesting
Printable View
Yeah, I noticed this "doubling of the profits in 5 years" as well - Jeff clearly seems to be much more optimistic than the usual analysts. Jeesh - this would be a CAGR of 15%!
Just to compare:
HGH's backwards earnings CAGR (10 years) is 8.3%. Hmm - is he really going to double that?
Analysts predicted a forward earnings CAGR (3 years) of 4.7% - they better go back to their drawing boards, can't have analysts being less optimistic than Jeff, can we?
But then - I noticed he was talking just about an "ambition" to double the earnings (not a forecast), wasn't he? and even better - wasn't this doubling meant for the underlying earnings?
Looks like Jeff has left himself plenty of escape routes to keep satisfying his ambition ...
Shame the media don’t understand underlying / normalisation / jigggery pokery …unlike punters
Heartland profit stalls as margins shrink, lending slows
https://www.rnz.co.nz/news/business/...30+August+2023
"In this environment, Heartland's asset quality has performed within expectations. Heartland has worked hard to support its customers, particularly those facing temporary difficulties due to the current economic environment," the company said in a presentation.
Going for the tittle 'Least hated bank" maybe?
Some of you guys are making this shareholder squirm a bit. Only Percy is sticking to the faith.
I am sure I remember my old dad telling me when I was just a pup that if you take a chicken wishbone, then dry it out, make a wish then 'break the bone' with a friend (with each of you holding one end), then whoever keeps hold of the apex of the bone when it snaps - then their wish will come true. Provided that is, you do not tell anyone what your individual wish was until after the exercise is over.
If Wishbone is now defunct, this puts a dent in that legend. Actually I did read that Saturday Post article from a couple of weeks back. It said Wishbone wasn't dead, - just 'resting' under a receivership blanket. Waiting for a white knight to give her a kiss and wake her up again. Well I still believe in dreams. And with Jeff as the fairy godfather, how can this not come true?
It is true I did jest as the milk price fell of a cliff that Jeff would be onto it, and would serve up milk shakes at the AGM, in solidarity with his sharemilker customers. But now some of you seem to be suggesting that Jeff will be serving up pork pies as well. Really? I mean this is Jeff we are talking about here. The last time I quizzed him about risk he had that broad contemplative smile and said 'everything was in harmoney' or words to that effect. My advice to shareholders is to take their own sandwiches to the AGM. Don't rely on being served a pork pie!
SNOOPY
Interesting to contrast RNZ's article with the Business Desk's article on the same topic.
Heartland focused on securing Australian licence
Heartland Group Holdings is focused on securing its Australian licence to be an authorised deposit-taking institution as it draws tantalising close to the $100 million profitability mark.
So who sets the correct tone about Heartland and what the future for it will be?? RNZ or Business Desk? A general news media site or the specialist business media one?
By the way, isn't RNZ known to be somewhat more Left than Chairman Mao? I don't know as I never access it.
https://businessdesk.co.nz/article/f...ralian-licence
The article may be behind their paywall.
C'mon now snoops, Percy isn't the only one keeping positive - I wouldn't call it faith as we are well informed. I am pleased with the result, Jeff and his team have done well considering their ambitions remain high and the markets are challenging!
Craigs like HGH too,moving them to "overweight".
They see the dividend raising to 12 cps in 2024.,....12.5cps in 2025 and ,.......13.2 cps in 2026.
FY23 was the year that the reality of writing reverse mortgages hit operating cash flow severely.
So-called 'changes in operating assets and liabilities' puts them back into positive. A nice banking accounting trick.
But compare net operating cash flow before changes in operating assets and liabilities to FY22 and the pressure the reverse mortgage business is putting on the company is obvious.
Luckily, they got a share issue away for $193m.
For those interested NTA at June was $1.09 per share …… was $1.16 two years ago
Just as well market doesn’t use NTA as a valuation metric
The most worrying aspect of the Heartland Results comes when I hover my mouse over the front page of the presentation and I get a little pop-up as below.
Attachment 14732
Maybe an AI thing?
Jeff is apparently, "a person in a suit" and Andrew is "a person in a white shirt"
That pop up could be an accessibility feature. Was there a photo or illustration on that page?Sometimes they add these on websites and they are read out loud by the software for people who are blind or have impaired vision. Generally used to describe what is in photos or other graphics.
JAK's onto it. A computer looks at the image to try and figure out what it is for screenreaders etc, hence the disclaimer so that your local blind shareholder knows it's not an official caption. Picture is blue, like ocean, some white circular "trails" made by "fish". A pretty good guess really.
As a suite of things (the final dividend, aspects of the 2H FY23 result, FY24 guidance, and 5 year ambition on cost to income and NPAT growth aspirations) I'm pretty content where Heartland sits and where it's heading. As always you take the good w/ the average and bad, which I'll come back to.
THE GOOD
** Was pleased with the final dividend - it was a line call between 5.5 and 6cps.
** Outstanding growth (+20%) in reverse mortgages and 4.5% growth in non RM receivables on FY22.
** Continued leadership position in raising deposits relative to the rest of the wider NZ banking industry (must try better next time Winner69). 2H result showed no NIM compression despite 1) ongoing lift in deposit and wholesale funding rates; 2) subnote issue in the 2H which was probably 50bps more expensive than had it gotten away before March; and 3) growing proportion towards higher quality & lower NIM earning receivables impacting on mix. I reckon some of the key business units - particularly RMs - saw NIM increase in the 2H relative to the first half when rates spiked quickly and HGH were unwilling or unable to pass it on to its variable rate customers. Outlook on NIM is reasonably stable w/ minor mix influences.
** I keep a detailed credit risk index on the detail and mix of its receivables and it continues to improve in quality
** FY24 guidance at the midpoint implies $119m in underlying earnings or up 8.2% (note underlying EPS may not grow to the same extent given dilution from DRP - new shares issued under the DRP from FY18-FY23 has averaged 7.23m pa...last 2yr ave is 5.7m).
** Consensus amongst the 3 main brokers that cover HGH provide for FY24-FY26 uEPS of 16.4, 17.9, & 19.2. Consensus is about $1m below the midpoint of FY24 guidance. Consensus DPS for the next 3yrs of 12.17, 13.17, 14.07 - all 100% imputed (gross yield for a 33% taxpayer at the 179 close price of 9.44%, 10.2%, 10.9%).
** Continued reduction in cost to income (CTI) with a goal to reducing it to 35%. If achievable, that will play a large part in stabilising and growing ROE over the long term and growing NPAT and dividends. Management and the market would be better to think of overheads as costs to NIM, not income.
** Aspirations to double uNPAT in 5 years. Delighted to have management thinking big - if its achievable or not I don't know but I suspect if it is - a large part of that will come from the Challenger acquisition and growth capital that will be required (more later)
THE AVERAGE
** Messy result. Lots of normalisations - up to investors to come to their own view. A lot to be said for clean results. None the less I can get over some/most of them. No one cried foul last year when management removed the $16.7m gain (from the de-designation of swaps from hedge accounting) from underlying NPAT so it's a bit disingenuous to cast shade on the corresponding accounting loss as that previous transaction unwinds into the P&L. For underlying / operating earnings purposes I'm content to look past M&A costs, non core revaluations on investments like harmoney, and the cost of getting the Australian banking license. The after tax amounts from all those are borne and reflected in the book value. It's the underlying / operating result that most often drives dividends so I give regard to that but come to my own view. But I also am keen that the underlying/operating result is reflective of appropriate provisioning which I discuss below.
** Non performing loans by $ and by % up on FY22 but down from the 1H FY23 result. Skeptically I wonder if that is because they took a few impairments/write offs on the chin in the 2H to clean them down from December 2022.
THE BAD
** The dynamics in the vehicle finance book are a bit bizarre to me. Growing book fast and taking marketshare but earnings going backward at a reasonable clip. Chasing growth too hard or other dynamics at play?
** StockCo continues to underwhelm me. I thought they paid too much at acquisition (a very high P/BV) and repaid the bridging loan used to finance it by undertaking a placement and rights issue which had the net effect of reducing NTA/shr and diluting EPS. Book up something like 2% which really doesn't jibe with the excitement at the time of acquisition. Australian stock numbers are up but from a confluence of factors price and slaughter capacity to process them are down - detail on page 34 of the investment presentation. Hopefully flock numbers and prices revert to mean overtime.
** From a credit impairment perspective (but actual write offs and increased provisions) it was a year of two halves - 1H was outstanding, 2H things caught up and then some. While I think the impairment expenses are about to or below what one would in good faith expect at this point in the cycle there were two things that caught my attention. Management used $5.6m of the $8m economic overlay in FY23. I don't begrudge management for that as provisions are there to be either used or released but I would have thought there would have been a modest top up in the provision.
* The second issue that has my attention is on the provisioning as a % of gross receivables. HGH increased its expected aggregate credit loss provision by $1.3m in FY23 to $53.3m, over gross (pre provision) receivables of $6.8bn. Given the credit worthiness of the RM & mortgage books the best way IMO to look at provisioning is to look at the ECL provision as a % of the total gross book less RMs and home loans (in fact, the ECL entirely relates to the non RM/HL book). Provisioning as a % of those receivables actually shrank from 1H FY23 of 1.35% to 1.31% at the close of the FY23 financial year. Yes the my credit index shows a reduction in credit risk but at this point of the cycle I would have thought provisioning would have at least stayed the same. 4bps on a big number is about $1.1m after tax (and reinforces my view that underlying results would/did come in a touch below the low end of the guidance range for the year just been). So not a massive issue - but I suppose the issue is if management have to increase provisioning next year to account for the economic cycle and how that could impact earnings. Heartland at the conference call guided for a similar credit outcome to the year just been (I guess that means similar total credit expense). Consensus credit expense is about $25m so a tad more than FY23 and I wouldn't be surprised if it comes in a touch more than that and underlying NPAT comes in below the midpoint. and I fully expect FY24 to have messy normalisations - more de-designations as the FY22 gain unwinds, more M&A costs, hopefully reversing out a gain on the harmoney valuation, etc. But as a recent purchaser back in March and to some degree even now at the spot price I'm relaxed as the mkt pricing appears reflective of that risk.
CHALLENGER
* No guidance around this acquisition will get approval. If successful, Heartland will gain an ADI / banking license in Australia which would materially decrease its cost of funds and increase NIM.
* While the initial outlay is modest (A$36m +/- changes in book since conditional signing), I do expect a capital raising will be required to fund the acquisition, additional capital required to meet Australian prudential requirements, and growth capital to fund latent and unmet growth from a capital constrained StockCo.
I last purchased in March 2023 at $1.56 and got a bit of flack for it - seems to have been a good yield and capital appreciator so far. And while I think that remains the case even at current levels, I am cognizant there may be a further capital raising if Heartland is granted permission to acquire Challenger, and mindful of the dynamics that played out when Heartland raised capital to acquire stockco last year.
Nice to see it bounce back to the SPP price from last year. The nature of the Australasian banking market is very different to America's and HGH's position with its RM makes it unique again within NZ. That said its clearly impacted by overseas sentiment. I'd imagine there could be occasional few crises of confidence as America's regional banks aren't out of the woods yet and their commercial property portfolios could haunt them for a while yet.
Just my meandering thoughts. As always, do your own research, and come to your own views.
Great post FM. Thanks a lot for sharing
Thanks FM..
I guess HGH paid too much for StockCo for the same reasons they paid too much for their REL business.Time.
Buying an established business saves years of having to build up a new business.
Same will apply for Challenger Bank.
Gee the readings on Business Desk today re deliquent loans both vehicle and personal loans does not make good reading, is this the tip of the iceberg of worst things to come ?
Agree with your point.
They want to do something with the businesses not just run it as is so a bit of that.
One wee clarification I should make re my post last night - when I talked to my credit index and the credit risk improving I should have used more precise/less sloppy language…the mix of receivables is improving (less personal and business lending, more RMs etc), and that relative risk mix is improving. The macro environment is more risky from an overall perspective and the credit risk environment is higher than last year not withstanding the change in mix.
Great posts FM, thank you! I cannot give you any more rep unfortunately despite deserving it.
Sorry Alokdhir didn't see your post on the next page!
If you're on a pc, in the bottom left hand corner of a post there's two small icons; a sheriff's badge and an Exclamation inside a triangle.
Click on the badge to give someone good or bad reputation, you can include some words to support your choice.
Use the other button to report a post to the admins/moderators.
Done. Very useful, thanks.
Dividend date coming next soon next Tuesday 5th Sep.
I dont think they would raise a capital...they just raised last year ... possible issue bonds?
We’ll be getting DRP shares in the 160s by looks of it
Last divie was at 164 …..maybe about this again
What about Lana .. winner? Is she going to be ok?
HGH lending mix is well diversified.
When times are good people buy and finance cars, trucks, diggers tractors AND don't need to tap into their home equity (reverse mortgage) as much.
When times are tough like now, cars, trucks, diggers etc finance slows down but its offset by reverse mortgage lending that booms as people need to tap into their home equity to live.
Virtual Investor Preso at 12pm today....
https://www.nzx.com/announcements/417769
Interesting piece from Jenny Ruth ….Jenny always worth a read
At least she didn’t use the phrase ‘jiggery pokery’ as she did in a piece on Westpac
https://justthebusinessjennyruth.sub...m_medium=email
By the end of the article I was left pondering… who can you trust?
HGH faith remains, looking forward to the 20th and many more divie’s to come.
El Niño here in a few weeks not good news for the economy ……and Heartland
The 3 C’s are lead indicators of where economy going …….Climate, commodities and currency ….at the moment the outlook for 2 of these is not that good……probably make our current non-recession become a real one early next year
Don’t forget Jeff keeps reminding us that Heartlands fortunes are dependent on how economy going ….and Jeff old enough to remember how bad the El Niño droughts of 1997/98 were.
Actually - El Nino in itself does not need to be bad for NZ economy ... depends on how the local weather plays out and how well the farmers are prepared. They certainly can't complain about lack of notice, and I assume that e.g. the new Canterbury Planes irrigation system (CPW) might get a good test this summer.
Might be even good if local farmers are prepared and global food productions shrinks => better margins :) ;
Here is a more detailled analysis produced for the last big El Nino event:
https://www.rbnz.govt.nz/-/media/449...%20in%20summer.
Poor Leanne. Jeff never told her when she became Heartland 'Bank' Chief Executive that Heartland isn't really a bank. It is just a jumped up finance company that does *all* its banking through Westpac, and the 'bank' bit on the Heartland name was all a marketing exercise. No wonder Heartland isn't on a level playing field with the real banks.
SNOOPY
DRIP shares allotted today at $1.6865 compared with the current on-market price of $1.73, so a marginal benefit for those choosing that option.
ElNino arrived here two days ago,I like👍Holding Heartland thru whatever and out the other side,income and easy to sleep at nite stock for me.
Basel III capital requirements.
Common Equity Tier 1 (CET1) is core capital that a bank holds in its capital structure i.e. retained earnings. The ratio compares a bank’s capital against its risk-weighted assets to determine its ability to withstand financial distress.
The following disclosures were all reported on 30th June 2023
Bank
CET1 % Tier1 % Total %
CBA 12.20 14.50 20.00 ANZ 13.50 15.40 21.10 WBC 11.86 14.02 19.71 NAB 11.90 13.80 20.20 HGH 12.68 12.68 14.71
It should be noted that HGH CET1 has been decreasing compared to both 2022 (13.49%) and 2021 (13.99%).
Infact, since 2020 HGH's CET1 ratio has only increased by 0.01 compared to the big four Australian Listed Banks increasing by 0.60 - 2.40. This is, in my opinion, because they have been paying out too high dividends instead of retaining capital.
The $100 million of bonds issued earlier this year on NZDX "HBL1T2", is classified as Tier2 capital.
The only other NZDX listed bonds "HBL020" is classified as Tier1 capital, however when they mature on 12th April 2024 I believe this will further decrease HGH's Tier1 ratio by $125 million. Any subsequent bond issues will be classified as Tier2, this is because of changes of capital definitions changes defined by the RBNZ document "BPR110" in 2021.
The big four Australian banks already meet the 2028 capital requirements, where as HGH is going to have to retain more capital in the next several years to meet these requirements.
Dividends possibly further threatened...Jenny Ruth works through ssome of the regulatory impacts upcoming:
https://justthebusinessjennyruth.sub...m_medium=email
It is good to see the new RBNZ capital requirements and the pending deposit takers act being discussed - have raised it a few times but never much interest amongst punters.
https://www.spglobal.com/marketintel...redit-65720981
https://www.rbnz.govt.nz/regulation-...io%20of%207%25
@Norwest - for the Aussie banks is it possible you are looking at their Australian parent capital adequacy ratios (IE the Aussie bank operating companies capital adequacy) rather than their NZ domiciled subsidiary capital adequacy for their operations in New Zealand? Your ratios do not appear to line up to the RBNZ dashboard. I only double checked that thought by looking at CBA (operating as ASB here) and CBA's Australian Cet1 ratio was 12.2% - for their Australian operations - which are irrelevant to NZ operations, as they are judged solely on their NZ subsidiary operations.
https://bankdashboard.rbnz.govt.nz/capital-adequacy
The RBNZ dashboard indicates all the banks in your table are well above the minimum levels, and all have some ways to go to meet the new higher requirements by 2028. The big4 banks are D-SIB's and require higher buffers than the other ~20banks. Heartland Bank Ltd (the NZ bank) will require a core capital ratio of 11.5% and a total capital ratio of 16% by 1 July 2028. The later is at ~14.7% so will need to increase by 1.3% over the next 5 years.
What is the various levers to achieving that?
* Retained earnings: maintaining and/or growing NPAT without distributing all in the form of dividends increases retained earnings & equity
* Flexing dividend payout ratio: paying out less increases retained earnings/equity
* Keeping the DRP or improving its economics - there has been a ~15% takeup in the DRP when offered
* Further capital raises: many options including various types of notes or common equity
* falling interest rate cycle: as a great deal of assets are held on a mark to mark basis, as we hit peak interest rates, and hopefully in a year or two see rates fall, those assets on a M2M basis should increase in value providing a tailwind to achieving those ratios
End result likely to be a combination of some of the above - particularly growing NPAT while (hopefully) keeping payout more or less the same, so note issues, and perhaps a tailwind from the interest rate cycle. But you can never rule out anything.
I note the brokers show HBL meeting its capital requirements by the end of the transionary period on a status quo basis. But brokers are brokers.
One thing that always strikes me is how the media and politicians are unable to see how raising capital requirements - making our banks much safer - also likely makes borrowing more expensive. Banks have to hold much more capital, and they attendant charge more for it to help recoup that reinvestment - and their profits go up. Their profits ought to go up, as they now hold billions and billions more assets than they needed to before.
Will leave the deposit takers point for a later post.
Fair enough and thanks for raising.
The RBNZ's new capital adequacy rules are something I have pondered off and on about re my HGH shareholding. I think it's a good the RBNZ have done this, especially in the post GFC era, although we forget why its important and we got a little reminder after watching the mini US banking crisis back in March. But there are side effects.
Increasing the capital a bank is required to hold - and holding all else equal - ought to diminish a banks return on equity and theoretically ought to reduce it's P/BV and PE (and increase the divy yield demanded by investors, thus driving prices down). Banks won't just sit there and raise & retain more capital while not passing on any costs to customers, so it's inevitable that they raise their lending rates to compensate. Whether they can (or should) raise lending rates enough to maintain ROE's remains to be seen, but I would have thought as industry the new framework will hurt ROEs. ROE in my mind is one of the most important indicators for a bank so I've always been a bit cautious how it will impact my investment in HGH. I'm pleased HGH has a lot of long-term initiatives underway to improve ROEs as there needs to be to offset these new RBNZ requirements impact. Reducing HGH's cost to income, optimising Australia's borrowing programme (either thru repo's of StockCo's pre acquisition funding debt, and eventually expanding it to include deposits), and focusing on higher margin income streams all key to this. But they also all remain works in progress.
That's a great article, thanks for sharing. Ruth is an awesome journalist - not many business reporters in her league.
I don't know much about the deposit takers insurance and I think its still a WIP but it's clear somebody's gotta pay for it - banks, bank customers in the form of higher borrowings, or probably both. A good initiative I reckon for the resilience of the banking sector, but at a cost to borrowers & banks.
We got a new logo on Sharesies today, exciting development haha...
yeeha
El Nino a bit of a bugger for StockCo (not my favourite subsidiary of HGH). Things getting hot already in AU w/ farmers selling off / culling livestock earlier than normal, means less funding requirements & interest income for stockco all things equal.
https://www.nzherald.co.nz/the-count...AWGZ7UKJHRJKQ/
Dairy price is going up....HGH will be doing fine
Sickening....it took months to go up to $1.70 range....less than 1 week ...SP drop back to $1.60....gosh.....
yep if you read all the asx bank type stock reports they are all saying nim 's under pressure , competition intense. cant see why NZ would be any different
Heard from senior management of Top retail NZ bank ...he was saying economy and consumers viz a viz bank business are doing much worse then expected at this moment ...was predicting we already in recession and next 6 months prospects pretty dim from bank's point of view .
It has been almost 2 years gloom and doom....yet heartland always delivers.
The economy is now at the button cycle.... definitely reached the button..now the world economy is starting to tick slowly
https://www.rnz.co.nz/news/business/...crease-equifax
Would guess HGH are getting their share.?
hey if we let in another 100k immigrants next yr guess that help again with the loans
looks like stock wants to test those recent lows around 1.51
Fallen almost 12% in 2 weeks, $1.51 has a fair bit of seller weight on it
Could this trade under book value I wonder? As the economy deteriorates more and more.
Doesn’t the aus fringe banks like BOQ trade under book value?
https://www.msn.com/en-nz/news/natio...52b30253&ei=11
Commodity prices have dipped due to an oversupply and softer demand from New Zealand's key market, China.
"Prices of dairy, meat, and forestry products have fallen by 8 to 20 percent compared to a year ago," the report said.
That drop has led Fonterra to adjust its forecast milk price to a mid-point of $7.25 a kilogram of milk solids.
While higher than other payouts in recent years, this season farmers have been fighting rising costs for inputs such as labour, feed and fertiliser and rising debt servicing costs which have doubled in the last two years.
The RBNZ report said the average break-even dairy revenue per kgMS for the 2023/24 season was estimated to be around $8 so at the current forecast some farms would make a loss.
"Banks perceive most of their dairy customers to be reasonably well-placed to weather a short period of low payout. Significant deleveraging in the sector in recent years has contained debt servicing costs and has supported the option for many farmers to go interest-only to alleviate cashflow stress.
"However banks expect defaults among dairy borrowers to rise over the coming year, because there tends to be a time lag between cashflow stress and default," the report said.
It pointed out a prolonged period of low dairy prices or a further reduction in prices were more likely to exhaust the cash buffer of farmers with weaker balance sheets, leading to materially higher default rates.
Federated Farmers president Wayne Langford said the report was not surprising.
"Federated Farmers has been pointing out for a while now that farmers are under huge pressure at the moment, with rising inflation costs, double that of what we're seeing in urban centres, so it's an extremely tough time on farm with product prices coming back as well.
"What was well forecast, was the lowering of the product prices as well. A lot of our expenses come in the first half of the season so when we got early warning we were able to cut back on some of those expenses."
Decent old increase in director fees proposed this year - $1.6m to $2.4m.
Whose going to or joining in the hui this week
Jeez, Challenger Bank Directors going to be well paid eh
And nice the Chair of the newly formed Sustainability Committee is to get $20,000 of the huge increase in Directors Fees
I've voted NO against Directors Fees and NO to re-elect our Greg .......good guy but done his stint and Board needs less old white guys no matter how smart they are.
Has anyone heard any rumblings about the progress of the Australian Banking Licence?
Fy2024 NPAT $116-122m not included Challenger bank
The SP has no reaction....tough market to please alright!!!
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)