Home Equity Release Portfolio Acquisition
Quote:
Originally Posted by
Snoopy
Management are not silly and they will have made sure the latest acquisition has not upset Heartland Bank's creditworthiness with the Reserve Bank. So perhaps a little reverse engineering of the figures related to the purchase Sentinel New Zealand (Sentinel) and Australian Seniors Finance (ASF) businesses, with combined assets of approximately NZ$760m might give us a good over the shoulder look of what looks OK in the mind of a Reserve Banker.
Most of the relevant information is on page 27 of the February 2014 investor presentation:
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Acquisition price $87m
First full year NPAT from acquisition ~$8‐9m
Integration costs ~$2m (post tax)
HNZ forecast FY14 NPAT $34‐$37m
HNZ forecast FY15 NPAT (after acquisition costs and expenses associated with integration) $42‐44m
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I note that if you add the first full year NPAT of $8m to $9m from the acquisition onto the FY2014 NPAT of $34-$37m you get $42m to $43m. This is very close to the $42m-$44m that Heartland is forecasting for FY2015.
The date for the settlement of the purchase is 1st April 2014. That means that FY2014 will only carry 3 months of earnings from this acquisition. I do note that the Heartland forecast of a profit of $34m to $37m for FY2014 was made as early as 5th June 2013, well before the Home Equity Release Portfolio acquisition. So that means the Home Equity release business will contribute a net nothing to the Heartland FY2014 result (underlying quarterly earnings of $8m/4= $2m, less $2m integration costs, so it all adds up).
OK, so forecast for NPAT for FY2014 is unchanged by acquisition. Incremental earnings of new division fully account for profit growth expected in FY2015. That means net underlying growth in FY2015 for the existing Heartland business, as forecast by Heartland themselves is nothing at all.
SNOOPY
Some random thoughts on this stuff
See Slide 11 of the recent acquisition presentation
Heartland New Zealand Limited, known to its friends and shareholders as HNZ, is not a bank, but it does own one (via a not shown intermediary company).
This new HER stuff will exist outside of the bank and its subsidiaries, at least initially.
HNZ purchased $30M5 of NZ HER Loans in December 2013 (footnote on slide 9 & 14) which should thus be in the Dec 2013 half year accounts for HNZ due to be released soon, but may not be obvious.
It is unlikely that the HER Loans will appear anywhere in the Dec 2013 Disclosure Statement for Heartland Bank, as presumably they are not held by the banking group.
Once HER Loans are brought into the banking group we will find what the Risk Weighting of such assets is and thus what capital backing they need.
The future guidance suggests that this years result will be at the lower end of that $34M to $37M range.
I am not at all sure that I understand the rational for buying the Australian bit.
Best Wishes
Paper Tiger