Problem property reduction?
Quote:
Originally Posted by
Snoopy
Just to add to this, the half year result disclosure does not contain all the detail of full year report, as regards the risk analysis on outstanding loans. So I do not expect it to be all that useful in seeing how Heartland is progressing with their problem loans. However, one figure that we can check out will be the 'Investment Properties' as listed on the balance sheet. We know that Heartland are ahead of their own schedule in selling down these problem loans. But have the loans sold down come from here, or have they come from the regular loans outstanding? And have the loans been wound up at a profit or a loss? Those questions at least should be answered.
I wrote the above on 7th February. Now looking at the 31st December balance sheet and in particular the heading 'investment properties'.
December 2012: $55.316m
June 2013: $58.217m
December 2013: $61.481m ( +11.1% on pcp )
That means the value of 'problem' investment properties on the balance sheet is in fact going up, and has been doing so consistently since last June.
That fact is at odds with the declared statement by Heartland:
"Heartland continues to significantly reduce its non-core property holdings"
Total Property Book
30th June 2013 - $122.3m
31 December 2013 - $99.2m
The difference in the declared gross values of the property book is because Heartland's problem property book is split between those 'investment properties' and reduced grade regular loans. The half year report does not give shareholders the detail of what is happening to the latter. But if shifting loans from problem regular loans to 'investment properties' is part of the debt reduction process that is going on, I find that distinctly uninspirational.
Looking at note 12, the provision for individually impaired assets was $5.131m, up from $3.611m in the pcp. This is an indicator that increasing losses are probably being incurred as the problem properties are (supposedly?) being wound down.
SNOOPY
End date for no sarcasm as expired but I can still be nice
Snoopy - I find your interpretation of the half year accounts very imaginative.
Best Wishes
Paper Tiger
Underlying Gearing Ratio HY2014
Quote:
Originally Posted by
Snoopy
The underlying debt of the company according to the full year statement of financial position is: $33.673m+ $2.859m = $36.532m
To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:
$2,504.627m - ($2,010.376m +$58.287m + $165.223m) = $270.741m
We are then asked to remove the intangible assets from the equation as well:
$270.741m - $22.963m = $247.778m
Now we have the information needed to calculate the underlying company debt net of all their lending activities:
$36.532m/$247.778m= 14.7% < 90%
Result: PASS TEST
The position has improved significantly over the last year. Looks like the debt position has not worsened during the year because of all the deferred branch transformation expenditure that was shunted into the FY2013 year as I feared.
An update from the previous reporting period, FY2013.
The underlying debt of the company according to the HY2014 statement of financial position is: $32.612m
To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:
$2,492.090m - ($1,905.850m +$61.481m + $255.427m) = $269.332m
We are then asked to remove the intangible assets from the equation as well:
$269.332m - $22.891m = $246.441m
Now we have the information needed to calculate the underlying company debt net of all their lending activities:
$32.612m/$246.441m= 13.2% < 90%
Result: PASS TEST
This means the position has improved usefully over the latest half year.
SNOOPY
EBIT to Interest Expense ratio HY2014
Quote:
Originally Posted by
Snoopy
Results are out so time to have another look at those Heartland banking covenants.
Updating for the full year result FY2013. The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs
EBIT (high estimate) = $206.349m-$70.347m= $136.002m
Interest expense is listed as $110.895m.
So (EBIT)/(Interest Expense)= ($136.002)/($110.895)= 1.22 > 1.20
Result: PASS TEST, a significant improvement from the FY2012 position.
Results are out for HY2014 so time to update.
Updating for the half year result HY2014. The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs
EBIT (high estimate) = $100.500m-$32.417m= $68.083m
Interest expense is listed as $48.114m.
So (EBIT)/(Interest Expense)= ($68.083)/($48.114)= 1.42 > 1.20
Result: PASS TEST, a significant improvement from the FY2013 position. Perhaps that drop in interest being paid to debenture holders as a result of becoming a bank is starting to come through?
SNOOPY
Heartland's Acceptable Operating Leverage Ratio
Quote:
Originally Posted by
Snoopy
Back to the acquisition.
From page 29 of the February 2014 presentation:
----
43m shares at 90c works out at $38.7m in share value. Add the $48.3m in 'cash' being paid to the seller and I get $87m, the acquisition consideration.
Heartland say they are funding the $28.3m cash component of their purchase over and above the $20m capital raising from existing cash (by definition surplus or the Reserve bank would not allow them to do it) on their balance sheet.
Now go back to page 14 of the February 2014 acquisition presentation. The portfolio size is listed as $NZ340m plus $A380m ($NZ420m at prevailing exchange rates). So the total in $NZ terms is around $760m.
The underlying capital used to support this acquisition is $NZ87m.
So the loan value to underlying capital ratio is $87m/$760m= 11.4%
The above relates to the Reverse Mortgage acquisition. But we can also work backwards and see from a 'reserve bank' pair of eyes (wheels?) deduce what is considered an acceptable operating leverage ratio for the rest of the business.
Apparently, just before the purchase of the reverse mortgages, Heartland had 'surplus' cash of $28.3m on the balance sheet. If we look at the 31st December 2013 HY2014 balance sheet $178.5m in cash was there. So we can deduce that:
$178.5m - $28.3m = $150.2m
of cash is required , as part of a more comprehensive asset package, to fund all the rest of the Heartland business. Put another way, the 'total equity' (again from the balance sheet) needed to fund the rest of the Heartland business is:
$382.5m - $28.3m = $354.2m
The size of the loan book at balance date was $2,077.0m
So the equity to loan book ratio for the rest of the business, as judged acceptable under the watchful eye of Mr Wheeler, is:
$354.2m/$2,077m = 17.0%
SNOOPY