I'm just happy to hold long term along with Air, PGW and GNE as these are a set of lovely blue arrows amongst a sea of Red:cool:
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I'm just happy to hold long term along with Air, PGW and GNE as these are a set of lovely blue arrows amongst a sea of Red:cool:
Winner, I have never seen you so shaken. Are you going to sell? After all, clearly the company profit expectations are short of the mark for you. I wonder how many punters like you are hanging out for that divi before they sell? Imagine what the ex-div price will be! #panicsell
The bad debt position of Heartland's problem property assets has evolved. I have prepared a graphic to show what has happened over the years, and how that relates to capital risk
Attachment 6228
Now to explain.
Each year (FY2012, FY2013 and FY2014) is represented by three columns. The column to the left (total height) represents Heartlands shareholder funds at the end of each financial year. The LH column is made up of three colours. The first section, in wavy blue pyjamas, is the minimum amount of capital Heartland needs to satisfy Reserve Bank requirements. The mauve and yellow sections on top of that represent the safety margin. This is the amount of capital in excess of reserve bank requirements. The yellow section, which on the original version of this graph I drew was part of the mauve section, represents net profits earned during the financial year, less dividends paid. The yellow part therefore represents retained earnings from normal operations.
The second column (orange) represents 'doubtful debts' as taken from the company's breakdown of asset quality. The third column (red) I have labelled 'difficult debts' and this one incorporates the 'doubtful debts' as well. I calculated this by starting with the doubtful debts and adding on the next categpry of debt (not quite bad enough to be doubtful).
The effect of all the doubful debts going bad can be seen by subtracting the height of column 2 from column 1. You can see that for all three years that if all of the doubtful debts went bad, it wouldn't affect Heartland that much. The capital buffer above minimum reserve bank standards is still largely intact. However, if all the 'difficult debts' went bad, then that is where things could get interesting.
SNOOPY
Like the Mainland Cheese advertisement Good Things Take time.
Giving the HEL product a big marketing push in Aussie certainly won't be cheap and progress won't be instantaneous. In my view one needs to look past the modest 2015 EPS growth, look at those banking margins and think longer term.
That and I think we could see a profit upgrade later this financial year. Very limited downside and circa 10.6% gross dividend return.
Am thinking long term mate, or at least as long as they perform as they should do.
Almost certain a profit upgrade sometime this year. I wouldn't be surprised if they actually feel a little embarrassed at the moment with forecasting a pitiful $6m increase for this year.
Come ASM time end of October Jeff will say $44m-$47m and you can give him a standing ovation, knowing full well he is really saying $49m-$51m
Unless the old financial engineering tricks kick in or a big acquisition clouds the issue it will be hard to stick with even $45m after the half year anyway
If they are doubtful debts per the accounts, then they are already factored into equity. The bar should therefore go upwards from the top of the equity bar, not downwards. That is, if all the doubtful debts were miraculously paid tomorrow, profit would go up and would be added to equity; if they were written off to the exactly level as the provision, there would be no equity effect. Its only if an amount greater than the provision, your dodgy debts column, would there be an impact on equity.
Regardless, the graph looks impressive.
Yes, and you can see that the big step change in risk occurred between EOFY2013 and EOFY2014. Part of the reason for the decreased risk position is that the company has got larger with the HER portfolio. The bad loan property portfolio has shrunk in its own right of course. But it has shrunk much more in relative terms because the loan portfolio overall has grown. As you sain Noodles 'fantastic progress'.
There are a couple of cautionary notes to observe though. Look at the capital safety margin for FY2014. It has got much smaller than a year ago. Part of the reason for that is that in FY2013, the minimum capital requirement was 12% of outstanding loans. In FY2014 that requirement went up to 14.5%. (this comment of mine is incorrect, should still be 12% as Heartland exempted from 2.5% buffer requirement of other banks) Yet even if you remove that hurdle height change, (now done in diagram) the margin is still smaller. So this needs watching.
Another concern of mine is that the worst posssible scenario that Heartland can imagine with their HER portfolio is that 1% of it might go bad. The absolute worst case! I wonder what management would do if , shudder, 2% went bad? Anyway, all the data I have used I have pulled directly from the appropriate Heartland reports. I haven't imposed any higher safety margin hurdles of my own, even if part of me says that I should!
SNOOPY
Harvey, the equity figure I have used is taken from the end of year balance sheet (for FY2014 $452.622m less intangible assets of $47.421m). This is calculated from the difference between total assets and total liabilities.
Total assets include finance liabilities of $2,607.393m. Go to note 20 and you will see that an allowance for impairment of $16.361m and a deduction associated with the HER loans have already been taken off. I think you are right and I should add these on again. However, these deductions do not necessarily relate to what I have called 'doubtful debts'.
If you go to table 39c my 'doubtful debts' is the sum of the 'Behavioural Portfolio' loans in the 'Recovery' and 'Non-performing/Repossession' added to the 'Grade 8' 'At Risk of Loss' ,'Doubtful' and Substandard' categories. Once this sum is obtained I take off the 'Provision for Collectively Impaired Assets'. To not do so would mean that I would be counting the worst of the loans twice
Correct if my 'Doubtful Debts' = 'Provisions' but as I have explained this is not the case.Quote:
That is, if all the doubtful debts were miraculously paid tomorrow, profit would go up and would be added to equity; if they were written off to the exactly level as the provision, there would be no equity effect. Its only if an amount greater than the provision, your dodgy debts column, would there be an impact on equity.
I will correct the graph as per your suggestion when I get time. Thanks for that. But I don't think the essential message of the graph will be affected.Quote:
Regardless, the graph looks impressive.
SNOOPY
Below is a chart HNZ proud off. Interest margin being one of the key drivers of net operating income
Looks good eh. All from lower cost of funds and working towards a more optimum lending mix
Question then - can we assume that FY15 will be higher then the 4.44% reported in FY14? and if yes by how much?
If anyone in Auckland wants to hit the bid at 94 and sell, please PM me. I have off market transfer forms and am happy to save both of us the brokerage.