I've been pondering getting into this one. One thing I am questioning is why there is such a large price difference between the asx and the nzx listing? Its around 1.76 NZD on the asx and 1.84 NZD on the nzx... Am I missing something?
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I've been pondering getting into this one. One thing I am questioning is why there is such a large price difference between the asx and the nzx listing? Its around 1.76 NZD on the asx and 1.84 NZD on the nzx... Am I missing something?
Aye there will be times when the prices diverge when the stock is illiquid. The spread on the FX is always a bit sharp and never near as cheap as it looks using the spot rates.
For some stocks liquidity often transfers to one exchange so depending on parcel size and aspirations for future liquidity is a consideration.
Harmoney floated at 4.4 times income (based on pro-forma FY20 revenues of $86.8m)
After a down year in FY21 they are on track for FY22 revenues >$92m (not much growth since FY20 is it)
If still valued at IPO multiples share price would be over $4 today
Gives one some hope for big wins eh
So Harmoney currently trading at about 2 times income
Heartland call themselves a fintech - they trading at 4.4 times income
even more hope in big gains from holding HMY --- 5 bucks next year
What will it take to see SP increasing? I thought yesterdays announcement was pretty damn good but it barely made a dent. I wonder if the Harmoney name/brand hurts them a little bit as most people probably associate that name with P2P lending and it's failure to catch on.
Sounds like the same issue but for different reasons. Although I'd guess most users on this forum may not be the type to use the services of HMY so perhaps a good thing that the ads don't appeal. We probably need a broker to put out the word that HMY is a top pick - worked for HGH recently!
Assuming the business can get to $1 billion in average receivables by 30 June 2025 and it can scale the way management have guided (producing $45m in cash EBITDA) it should produce around $30m in NPAT in that financial year. You can take your pick on the appropriate historic or prospective PE multiple to apply, but at least you have an NPAT figure to work with, which will help the market sharpen its views on value. Investors dont have a current or near term npat to work with and the SP has consolidated at the 1.85 level so perhaps investors are waiting for a confirmed uptrend to buy into. The SHAZ are still upset HMY abanonded the p2p model and over the post IPO performance, and Aussie has fintech fatigue, which in the absence of near term earnings makes pricing or rerating this thing difficult. None the less, time and NPAT should solve those issues.
I wonder if the "Cash NPAT" is a bit of a red herring....? They take out share based compensation, borrower rebates & depreciation. I can't get the numbers to work to get to $30m cash NPAT in FY25. Running a "traditional" P&L on the back of a fag packet, I get the following:
Attachment 13422
Assumed NIM at 7% is maintained and NIM is based on average of loan book at start of FY and end of FY, $1b loan book at FY25, opex reduces by FY21 IPO costs $3m for FY22, thereafter is +$1m p.a., tax at 29% being half NZ and half Oz
"Indirect opex" per the press release is not all of the opex when I peruse their last AR.
This gives NPAT $14m in FY25. To get to cash NPAT we add back say $10m being shares compensation $4m, depreciation $1m & borrower rebates $4m (plus inflation to get to $10m) that gives an after tax impact of ~$7m and "cash NPAT" of $19m.
What have I missed?
Edit: the SP is a "forecast" based on a price of $1.80 and adding 10% compounding p.a. for the time value of money plus a guesstimated risk premium. Is indicative only. FY21 numbers are per the AR.
Just had a thought given NIM is traditionally calculated off average of the loan book at the start and of the year per my BOFP forecast....if I extend this out one more year where there is $1b loan book at the start of the year, then we can see cash NPAT of $30m 1 year later in FY26.
Attachment 13423
What an amazing result released the other day. I was in Wellywood for work over the last couple of days so had to rely on trusty old sharetrader to dissect the half year results. Very much enjoyed reading everyone's posts, including the posts wondering why on earth Mr Market hasnt pushed this bad boy over 2 bucks by now. Oh well, just have to be patient.
If it wasn't for omicron HMY would have updated their FY22 guidance, because I cant see how they wont easily beat it. I am thinking the loan book will be $600m by next quarter! And be close to $650m by FY22. Revenue will be over $97m
I base this mostly on continued aussie book growth. I see the aus book growing like this:
Q1 au$20m (actual)
Q2 au$30m (actual)
Q3 au$35m (estimate)
Q4 au$42m (estimate)
Aus book ends FY22 at au$262m.
NZ book growth slower at:
Q1 nz$-2m (actual)
Q2 nz$7m (actual)
Q3 nz$5m (estimate)
Q4 nz$7m (estimate)
NZ book ends FY22 at nz$375m.
As long as there are no lockdowns it should get there.
Its going to be exciting watching the aus numbers. As a percentage of market it is tiny, should at least be 5x the NZ book, i.e. $1.8b. Such a long run-way of growth ahead of it.
90 days arrears down again. The system works. Book is growing rapidly and arrears falling. Excellent.
What do you make of the total AU originations
Dec 21 90.5
Jun 21 60.2
Dec 20 20.5
In both % terms and absolute terms, the rate of origination growth declined Jun 21 to Dec 21 (~30) compared to Dec 20 to Jun 21 (~40). It will be interesting to see if they can prevent further declines in this growth rate. I'm still quite on the fence about this one, just concerned that failure to grow the loan book whilst keeping costs low and nim high would render this stock very worthless. Souring economic fortunes certainly will make it harder for them to achieve their goals.
If we make some guesses about the average loan term it is probably possible to estimate the maximum loan book sustainable given a certain origination rate. Maybe I'll give it a try another day, sounds like an excel escapade.
Q1 Aus originations were lite for some reason. So HY22 only $90.5m in new originations. However Aus quarterly originations have a CAGR of 27.5%. Last qrt grew 28%. Once the 3r's kick in which should really be felt FY23 the numbers will be even better.
The avg loan term was 57 months FY18, 56 months FY19, 57 months FY20. I dont have FY21 (maybe it wasnt in the AR) but looks steady at 56-57 months. If i was to have a guess at how long the loan actually runs for i would say 42-44 months before it is paid in full via early repayment.
About 22% of the book is repaid every quarter. I.e. $125m last qrt. HMY wrote $165m in originations to grow the book $40m last qrt. Consumer lending/ asset finance lending you write sh!t loads of new business all the time and sh!t loads of the book drops off all the time- just through loan amortization and early repayment. The one thing I know from experience is there is a never ending conveyor belt of consumers wanting finance.... we are many many many years away from the point were we hope HMY just grows the book in line or slightly above inflation like the big banks..
If you are thinking about getting on board as an investor for me the first decision you need to make is if you believe in their direct to consumer model with their stellare software that integrates with google. I am a believer and think it is scalable globally (or wherever google dominate). It is a big market out there and lots of competition but so far HMY is doing good. I did read this morning that one of the big US banks flagged 8% increase in expenses because they were spending an extra $12bill to take on all the fintechs. $12b is a lot of firepower, they should do themselves a favor and just buy HMY for $400m. shareholders would sadly accept for a quick buck ay
I can answer that. Not nearly enough liquor consumed in your cheer over the festive season is where you have fallen down. Your analysis looks to be based on an old fashioned concept called rationality. With plenty of alcohol such thinking can be put aside. If cash NPAT does not add up, of course it makes sense to draw up an alternative measure of profit, excluding certain costs until it delivers the profit figure you want.
Also you need to give up smoking. if you didn't have that trusty fag packet to write on, you wouldn't have been able to write down such figures as you have. No wonder smoking is so damaging to wealth, as well as health!
So if revenue doubles to a billion dollar loan book by 2025, in three and a half years time and NIMs are maintained, that means at $1.90 we are sitting on a future PE in three years time of 14 (traditionally a PE 14 means strong growth is already priced in going well beyond 2025). What could possibly go wrong?
1/ Government regulations forcing lenders to tighten up on their lending criteria.
2/ Existing lenders not just rolling over and giving up their business to Harmoney
3/ Rising interest rates making loans less affordable and desirable.
4/ Someone else writing competitive on line approval loan service software (didn't Heartland pre-date Harmoney in doing this?), and executing their own technically superior fantasy plan before Heartland does,
5/ Shareholder expectation crashing back to reality.
IOW quite a bit
Wasn't that the line from 'the Monkees' financial consulting service back in the sixties? I am glad to see at least some here hold to more traditional investing values.
Back in the day once a company's market valuation matched annual revenue, I put that company on my watch list to sell. IOW I regarded it a very expensive. Granted software as a service changes this paradigm a bit: because you can give unlimited service from a fixed cost base. And in the Fintech world, it does help if your traditional competitors seek to destroy their traditional advantage of having a branch on the ground you can visit and a person in that branch who knows something about personal service. I do find it interesting that so many listed SOS companies are genuine world beaters in their own niche though. In fact if you look at all of the SOS listed companies at the time of listing they are all world beaters that cannot possible fail - a 100% forecast hype record - wow, just wow! I guess if you make the forecast optimistic enough then any share price can be justified too.
As a shareholder in Heartland, I am very happy for Jeff to manage my indirect holding in Harmoney on my behalf. When is the escrow period for Heartland held Harmoney shares up again?
SNOOPY
discl: hold HGH
Hey Snoopy --- the Aussie banks use a Cash Profit as their headline profit
Wonder if Harmoney calculate Cash Profit the same way
Always a bit confused what that Aussie Cash Profit is anyway
Hey Snoops - what's the hidde message in your signature
I looked into this a while ago I think HMY is more expansive.
In my own operating model I dont normalise for employee share issue expenses or rebates going forward but I do have specific line items as I like to merry everything up where possible. I'd be shocked & disappointed if employee share issues continued anywhere near FY21 - given it was IPO time not unexpected to see additional remuneration associated with that. It will be most helpful after HMY transitions to a full warehouse model & closes out legacy funding as the proforma adjustments do not make for fun reading when you pick up their financial statements and I agree as hate having to read proforma next to NPAT. to many adjectives preceding earnings always undesirable.
Snoopy you reckon HMY deserve to trade same revenue multiple as HGH? i.e. 4? Especially considering its rapid growth in revenue.? Currently trading 2x. Not good enough. I bet Jeff wont be parting with any HMY shares until its at least 4x revenue. Maybe even 6x... Jeffs a smart man ay. He bought some more HMY last year for the bank
Thanks Snoopy, although that fag packet is pretty old now and has multiple scribblings on it since I gave up 20 years, 9 months and 7 days ago.
I was coming to the same conclusion; there need to be no headwinds or tripping on hurdles on the way to growing the loan book to $1b in that timeframe, although with enough efforts they could get there quicker if they want to "buy" customers. IMO they would need a loan book over $1b to justify the SP based on what some might call "traditional" methods. My fear with new methods is we have seen those previously.....as per winner's signature.
Also, there is no "time value of money" built into todays SP with an FY25 PE of ~14. That's worth about 11-16% based on 3.5 years inflation at 3-4% p.a., assuming that a 3.5 year look forward PE ratio of 14 is a roughly correct way of valuing HMY (it could be higher or lower and depends on future growth from that point). Even if inflation was built into the current SP, that puts the share price (starting from $1.90ish today) at $2.10-$2.20 in FY25 which divided into my traditional EPS forecast of 13.9c for FY25 gives a PE ratio 15-16 at that time, which still implies future growth.
To FM's point, if some of the employee share remuneration costs were a one off in FY21, that would definitely help the view I compiled (by having higher NPAT sooner), although it would make no difference to "cash NPAT" per their methodology given it is a non-cash expense. Do we know anything about their employee share scheme?
Disclosure: not currently holding, am an interested observer seeking undervalued shares
Managed to snip this from the FY21AR: "Under the terms of the historical share-based compensation plan, at IPO, vesting of options was accelerated. This resulted in all unrecognised expense in relation to outstanding options being recognised as an expense in the period. The expense for option related share-based payments is therefore at an elevated level in 2021 and included in the remuneration and other benefits values reported above."
Yeah I think after rereading some of my old notes I think you have to make a few adjustments ferg to your FY21 cost assumptions if you are going to role that forward as your base:
* Share issue expense: clearly a one off large expense as noted in the AR, and typically seen during IPO's or seen the year a trade or private equity player invests into a company. That's $3.5m, less say $700k (prior year as a proxy for maintainable), for net adjustment to your FY21 cost base of $2.8m;
* IPO expenses of $4.1m, clearly should be adjusted out as non recurring on a roll forward basis
* borrower establishment fee rebate: these relate to the fees charged to borrowers of p2p loans, which is now a legacy & discontinued operation. There was a bit of fanfare about this over the previous years as HMY enterted into a settlement agreement with comcom to return them. The settlement was for $7m - $3m of which was recognised in FY20, and $4m in FY21. Clearly unsatisfactory for the business and the shareholders at the time, but I would consider these to be non recurring and thus it's a fair normalisation
As winner69 alluded to its, for banks, convention to reference cash npat. That's an industry standard for them - but probably as it suits their cause a bit particularly in downyears as they have big swings in non cash provisions & hedges. But it swings in round abouts as they often release unused provisions which will see NPAT higher than cash npat. I'm fine with & prefer good old NPAT.
My spreadsheet wasn't my operational model output I simply used the $45m EBITDA they talked to in their investor day presentation. But you'll recall in my spreadsheet I clearly deducted depreciation & amortisation as anyone would from EBITDA when calculating my NPAT. My figure there a npat figure, not a cash npat in the way harmoney calculate, despite me having 'cash npat' in the spreedsheet.
Probably too much detail, but when I was adjusting the FY21 proforma P&L to try to normalise it as a recurring base to forecast from you have to make the following adjustments FY21 the P&L line items:
* $4m IPO expenses: $3.6m belong in G&A, $0.4m in verification & servicing
* $3.5m employee share issue (lets make it $2.8m to reflect $700k ongoing): personnel expenses
* borrower establishment: these actually relate to proforma interest income as establishment fees are amortised over the expected life under the loan under NZIFRS9, therefore is settling a normalised base year you'd increase interest income by the same amount (being $4m, increasing interest income from $78.6m to $82.6m). If you are pegging FY21 interest income to a loan book size to derive an opening or average interest rate % and use that to roll forward, you'd need to use $82.6m to reflect that as an operating adjustment, and not simply deduct the $4m from overheads. If that seems an awfully specific answer, thats because it is, and the one I was more or less provided when I asked harmoney about it when I started looking at the company.
So when looking at the $45m ebitda management talk to at an average $1 billion book, I think its more or less fair starting point to drill down to npat. For my simple spreadsheet I took off $3.5m depreciation and amortisation - which is 3.3x more D&A than HMY incurred in FY21. I think thats an aggressive forecast and they wont incur that, but I used it as a bit of catchall for other items. Like what's an appropriate share issue expense (say $700k pa), and movement in expected credit loss provision (was $456k in FY21). So my $29m NPAT is a NPAT figure, not a cash npat figure, and while a similar back of the fag packet number, about right.
Cheers, FM
When I originally read your post w69 my immediate reaction was those sophisticated fund managers bought at ~3.70 and its now what 1.89. But that got me to thinking & it reminded myself why I am here as a recent shareholder over the last 6 months. I just went back and looked at the Shareholder information - 92% of the shares are held by 48 people. As as best as I can tell from looking at the SSNs. from IPO to now none have sold down, and in fact the insiders and major institutions have increased their holdings post IPO.
I recall that sharsies was well oversubscribed and there was significant scaling. Given the complete lack of liquidity, its fair to assume most the decline in SP has been on account of the small retail base losing interest in the company. Of those investors, its safe to say there isn't much knowledge of what the company actually does how its changed or makes its money, a lack of awareness of the operational leverage inherent in HMY's model, the fundamental differences between HMY's model and its Australian comps, the difficult to decipher financials (which overtime will rectify themselves), the discontinuation of p2p, bad press around comcom, mistimed IPO and reinforcing cycle it has created. And all that is understandable, and reflects the risk of a company undertaking an IPO too early.
But the majors and insiders have all stayed, and increased their holdings over that time, and there is a clear set of catalysts and pathway forward to addressing these constraints over the next few years.
So I do think think this business has value well in excess of its share price. There is a lot of execution risk as there is in any early stage business
Moose ….there was some inso selling post IPO ….and some disgruntled investors
Mugs and IPO fatigue mentioned
Harmoney's post IPO share slump prompts investor call for price inquiry
https://www.nzherald.co.nz/business/...GLLZGLADBMNJ4/
From that article love how Lead brokers came out shortly after IPO with good values …Jarden $3.50 and Ord Minnett. $3.90.Jarden did much the same with MFB;)
Marketscreener suggests they lowered them …. Now $3.31 and $3.46
Keeping the faith ….still believing the story …. that’s good.
They only raised $95m so unlikely any new investor held 5% and no new SSN were filed ….we’ll probably never know if peeved insto’s did sell or not …… disgruntled investor who made the fuss probably one of those ‘sophisticated’ ones.
Whatever HMY down nearly 50% …opportunity eh.
Seems we will have to wait until the next set of pretty charts big numbers is produced to get that much needed boost in HMY share price
Not a lot of volume eh, has gone down far less than other holdings. Stock picks comp is telling me HMY doing just fine :)
I have been following HMYs competitors christmas qrt announcements and on the back of them I have even higher conviction in HMY.
Will post some analysis once i have time to update, unless someone wants to beat me to it
HMY so cheap but boy oh boy the SP is in a rut. Not sure what more they need to report to get it moving. Patience required and lots of it in this environment.
The efficient market theory is wrong!! The markets are irrational!!!
haha oh dear. NZX not much better - dropped 2.2% on only $522 of turnover.
Like watching paint dry. That's not a bad thing. You have to ask yourself how important short term SP is or what it really reflects. On one hand you have a $1.2bn marketcap company like briscoes with its SP going up and down a few percent off tiny volumes. Was that highpoint really what the company was worth? Do short term gyrations in a low liquidity stock really indicate anything other than what you might be able to get out at at a given point of time? If you are an investor, with conviction, ignore the daily movements with the exception if you believe it opens up buying opportunities or if you think you have lost the plot completely. I don't listen too much to what a few single share purchases are telling me.
If the company can continue to grow its book, maintain or grow its net interest margin, and scale against its fixed cost base - then earnings should start flowing this year and ramp up quickly in consecutive years. When you see a definable net profit figure, and growth, that will bring interest in investors, and a rerating. Sort of like what happened with Rakon. The company needs momentum in earnings and a small bit of time to do that and if all that is said about the company pans out you'll see the SP pop. The company needs to regain the markets interest and faith, and thats fair enough.
I have great interest in this company because I think it can achieve serious NPAT in 2-3 years time. I wouldn't be interested if that picture expended to 5-10 years. I look at companies like serko or pacific edge trading on far higher marketcaps with earnings far further out than harmoney. Harmoney is about as far afield early stage as I get.
I was amazed they got the float off at the price they did. Great for raising money while preventing dilution at a high premoney valuation but guaranteeing a poor aftermarket. Never list a business too early. That said - for recent investors - I'd say the daily SP is a unique opportunity. I struggle to find any other NZX listed company where you can see a realistic pathway to trebling in value in 3 years. While not without risk and clearly in a down trend - having achieved NPAT breakeven its now time for earnings momentum to carry the day. Fortunately - that isn't years off - and should be reflected in earnings announcements this year and into the future.
Well they have - their initial investment was successful for them and they completed on market purchases of 1.7 million additional shares about half a year ago. That took them from 8.4% to 10.1%. They aren't a trading house however, and their core business of lending is capital intensive, so together with an already successful first investment and non core follow on, would raise some eyebrows if they kept plowing into it
We just need to get to FY22 when they will have a $650m loan book and do ~$100m revenue (yes above guidance, i am expecting an upgrade next quarter). the transition away from p2p loan book will be 90% complete and the actual financials will look close to the pro-forma financials. Possibly a lot of investors on the sidelines not interested until this point.
I think the reason for buying some last year was just some financial engineering …..ie to manage how much they had to write down their holding ……affects the P&L if you get my gist.
In doing so they went over 10% which could be some strategic importance one day but I doubt that was the motivator.
Like anyone does, they were offered a parcel of reasonable size at a price below their own view of fair value, and took the opportunity.
Interesting chart eh jimdog
Funny that after I mentioned that HMY behaving like HUM you show that it is
Both have amazing fundamentals …..but not liked by market
Maybe the problem is their names ….Harmoney and Humm pretty nondescript names eh ,,,,perception goes a long way to create excitment.
Maybe it’s a permanent thing ….just asker trader_jackson how long Flexigroup/Humm has been unloved
Was it humm that bought that fintech for 20x revenue to stay alive? Or was it latitude?
HMY 20x revenue one day?
ASX: Latitude (LFS) have a proposal to purchase HUM's Humm Consumer Finance
https://www2.asx.com.au/markets/company/hum
https://www2.asx.com.au/markets/company/lfs
the SP of both has gone backwards since this was announced in early January 2022
I think HMY is unloved for a bit of that but also because the loan book is growing very slowly and the market cannot see past it.
Plenti, MoneyMe and Wisr all growing their books above 20% on avg every qrt for the last 4 qrts.
HMY was until recently growing its book only 3% every qrt, but pleasing to see that ramp up to 8% last qrt.
Its the NZ book that is lagging (for reasons unknown to me).
NZ loan book went NO WHERE from FY21 Q2 to FY22 Q2.
Compare that to the Aus long book that just booked 83% pcp growth.
However it is still growing slower than their Aussie peers but HMY growth is increasing qrt on qrt while the others growth is decreasing qrt on qrt.
Two reasons why I chose HMY over the others:
1) Much of HMYs peers growth has come from buying business. I.e. they lowered their rates to the brokers/ car dealers who then pushed business their way. They all generate less revenue from their loan books aside from MoneyMe who is on par with a ratio of 16% revenue/loan book.
2) HMY is the only 100% direct to consumer lender. They dont go through brokers or car dealers who want to clip the ticket. So yes HMY book is growing slower. But it is growing and it makes more and their customers are theirs for life (3Rs kick in at no extra marketing cost). Vs the others that customers will go back to the introducer (broker or car dealer).
rawz
If you go here https://www.rbnz.govt.nz/statistics/c5 it looks like personal consumer lending has been rather flat for the last 5 months and is less than what it was in Dec2020 and not much more than Dec2019
Seems that non-bank lenders are getting a bigger share over time (v banks)
aybe explains your disappointment in Harmoney lack of growth in NZ
Thanks W69
Looks like HMY NZ market share is 2.7% of all consumer lending and 6% of non bank lending.
A lot of room to grow and not sure why HMY hasnt won market share?
Maybe just holding back funds to lend to our mates across the ditch
I see the CCCFA changes as benefiting HMY. Not good for the banks.
HMY have bank scraping tools to do the work vs banks relying on a personal banker.
We do know HMY turned the lending tap off when covid first hit. I think this has had a big impact on the 3r's. I dont know how much. Possibly the lack of growth is down to this and other small factors. Excuses right?..
Next qrt better build on the 2% growth seen last qrt or maybe W69 is right and the data scientists are not doing their job...
Apparently a lot of punters have a lot of cash because they couldnt spend during lockdowns and could do the overseas travel thing …….so overall need to borrow a bit subdued
Less weddings, less used cars, less holidays.. less money needed aye.
All good. HMY maintained their book in very trying times!! OMG the lending is going to go through the roof once Cindy lets us loose. Imagine the NZ book growing the pace of the Aus book!! Wow.
I still reckon they should have grown market share in NZ thou.
Is Harmoney one of these horrible lenders who ask for / insist on you giving them your password to your bank account .... much to the horror of security experts and others. I wouldn't be doing that
Another $150m warehouse facility from one of the big 4s to add to the mix. Must be still growing the book fast
The Aus loan book grew $30m last qrt.
Probably see it do $35m Q3 and $42m Q4.
A sprinkle of growth from NZ and they will end the year with $650m loan book ahead of their guidance of $600m. Hope to see updated guidance next qrt.
And they will do $100m rev. And trading on $178m market cap.
1.78X revenue multiple.
Revenue will be up 26.5% yoy
Crazy stuff.
Has any one tried to borrow money from Harmoney to buy Harmoney shares,?
Looks like we could be heading to the low of the year $1.38 despite me buying all the way down from $2.00, grrrrh !
You know its going to go up. But when. And what's the low point. I thought 1.50 was a steal and I wouldn't see anything close to it again. But today someone sold their holding on low volume of buyers. Institutions will need to see value before this goes up. 😊
OK, I made a mistake here suggesting that HMY was 'very expensive' trading at 1xRevenue when, as Rawz has pointed out, it is already trading at 2x revenue. Meanwhile the likes of Heartland, trading at $2.45 today, are trading on an historic revenue ratio of:
($2.45 x 589.843m) / $327.935m = 4.4 times
I put my error down to putting all the financial shares that I hold in the "That will do for now" box, while I went off and researched some of my other investments, and I temporarily forgot about some quirks of analysing finance companies and banks.
I see from iceman's post on the HGH thread (post 14,831), that the Heartland 'Net Interest Margin' was 4.35% over FY2021. Now I know that 'Net Interest Margin' (NIM) is not the right thing to truly judge the profitability of a finance company. To do that you have to subtract the non-interest related running expenses as well. But in the case where a finance company is relatively new and growing (like Harmoney), the establishment costs are likely not representative of the longer term non interest running costs of the company. Thus the quoted profit of a rapidly growing company is likely under-reported, relative to where the profit on similar revenue going forwards is likely to end up. In this instance comparing NIMs between established and growing finance companies has some merit.
Returning to Harmoney, I use Ferg's quoted future estimated NIM of 7.0% (post 313)
The Harmoney group loan book was $501m at EOFY2021 while Heartland gross receivables at the same end of year date was an order of magnitude higher at $5 billion.
I find it a strange quirk of finance companies that they don't include the full value of what they sell (in this case the capital value of the loan book) anywhere on the balance sheet. It is clear that with a higher NIM, a given amount of capital lent through Harmoney will attract more in net interest payments than that same amount of capital lent through Heartland. Albeit you might argue that the Harmoney loan is at higher risk of not getting your loan capital ultimately repaid.
Using the gross value of the loan book as 'revenue' produces rather different market value to 'revenue' ratios:
Heartland: ($2.45 x 589.843m) / $5,000m = 0.2890 times
Harmony: ($1.73 x 100.913m) / $501m = 0.3485 times
These were the kind of calculations I was thinking about when I mused that paying "1x Revenue" for a company was too high. In Heartland terms that would mean paying a price of $2.45/0.2890= $8.48 was too high (it would be a very dutiful disciple of Heartland that would disagree with that). In terms of Harmoney, using the same logic, a price of $1.73/0.3485 = $4.96 would be too high. Given the share was floated at $A3.50 or $NZ (3.50/0.93)= $NZ3.76, some here might consider $NZ4.96 a reasonable price target today.
But on my measure of 'revenue', $4.96 would be looking extremely 'toppy'. I guess the real accountants out there will scowl and dismiss my analysis as corrupt. But I am sticking with it.
SNOOPY
Thanks to Rawz, as acting CEO of the Harmoney fan boy & girl club (its a rather small club) I can declare we are prepared to accept a $1 dollar discount off the 4.96 tp (lets call it $4.00) and would be delighted with that as an acceptable target price over the next year or two. hell mate we are sitting here at a buck 70 anything north would be dandy! that said -
beware the WRATH of the SHAZ. When I was looking into HMY I searched for harmoney on the Sharesies share club page. There is some deep resentment from the p2p lenders who used harmoney before HMY rightly moved to a warehouse model and booted individuals. I haven't bothered to see if it was handled well or poorly - it doesn't matter - as the people were very grouchy and shared their grievences loudly and widely amongst the shaz. Couple that with an IPO that was years too early and dollars too high and thats a toxic combination for any retail aftermarket. No matter the run rate, no matter the scalability and the early days of growing npat, will the smaller end of the retail market take notice of harmoney. But if it can keep growing its book, and do so profitably, scaling and rapidly growing its npat, bigger individual retail investors will creep back in. but eventually it will take an insto or two hovering up cheap shares to confirm an uptrend and the broader retail market will return.
The company just needs to deliver EARNINGS. So I hope management are sensible - don't chase unprofitable growth - and show and deliver what the platform can do. Long gone are the days where people just want topline growth and with Harmoney's baggage they absolutely need to deliver those earnings over the next few years.
If they can we have a multibagger on our hands. If they can't - the club will need a new CEO, if there is anyone left
According to management they’ve already achieved NPAT profitability
https://www.nzx.com/announcements/386137
You might take issue with cash npat? Its a fair question, though I did follow up on those adjustments in some detail a few pages ago
$4... just imagine. The club would be popping the Champagne!! One day..
Yes cash npat achieved with a $550m loan book. HMY SP goes down 10% since announcement.
Plenti finally announce cash npat achieved with a $1.1b loan book. PLT SP goes up 10% since announcement.
Wrong.. just wrong.
Also Plenti say they will generate $97m revenue off its $1.1b book.
Harmoney will generate $100m revenue off its $650m book (rawz FY22 est).
Plenti valued at au$209m
Harmoney valued at au$161m
HMY clearly has the better business model and generates more.. its like 2+2= fish
I think Fiorland moose nailed it when he said its the sentiment thats causing the depression of HMY.
Insiders and instos arent selling that I can tell. Just retail that keeps the price down.
I have a massive overweight position in SKT (embarassingly so!) and this was purely based on reading the tea leaves that the business model had turned a corner but the sentiment at retail was overwhelmingly negative.
That has paid off so far, and has been driven by sophisticated investors recognising the same thing and mopping up retail at times.
I’m not going to go so far as saying harmoney is SKY but you can see some interesting correlations
content/finance aggregator
old model transitioning to a new
regulatory hurdles
poorly timed cap raise/IPO
entering new markets (broadband,streaming / aus)
New markets are entered utilising scale
It takes a while for the retail market to recognise that a model has transitioned to a more profitable/growth future.
Anybody reading the tea leaves from their announcements can see this model is transitioning/growing much faster than the market realises.
This depressed price is actually good news as far as I’m concerned!
I aim to build a similar sized overweight position in HMY over the next year or so.
Happy With VP spot 😂
7 figure!?! Omg you might be taking that president position from FM at the next election lol
I have just inspected the 'Plenti' HY2022 presentation, and make the following observations:
1/ Plenti are heavily promoting motor vehicle finance. As Percy has told us, consumers need to keep up their motor vehicle payments above all others: No car, no job. A high quality place for a second tier financer to have their loan book.
2/ Plenti are tapping into government subsidies for renewable energy.
e.g. Continued delivery of the both the S.A. Home Battery Scheme and NSW Empowering Homes Program pilot– We have paid over $70m of subsidies to S.A. households, in addition to our lending, supporting installation of over 175MW of energy storage.
3/ Plenti are set to combine their experience in 1 and 2 to become the leading funder of Electric vehicles, a market that is only just starting in Australia.
4/ The Plenti arm that most closely resembles Harmoney is 'consumer finance'. Slide 18 shows the 90 day default rate of 0.26%, verses 0.47% for Harmoney.
Harmoney generates more profit on $100m worth of loans that Plenti, but clearly they are taking grater risks doing that. Is it any wonder that the market gives a higher relative rating to Plenti in times of uncertainty?
SNOOPY
Page 31 of the presentation for Plenti
1H21 1H22
Payments to suppliers and employees (13.3) (33.5)
Their overall costs of lending seem to greatly increase with scale....
Commentary: "Payments to suppliers exceeds P&L expenses primarilydue to cash broker commission which are a alsotreated under the EIR method"
Leading to net cash outflow for the half
Net operating cash flow 2.2 (4.3)
So yes automotive & renewables are a big area of the business, but that part seems to have some commissions that appear to be paid out up front that aren't included in the P&L!
This area of the business is also susceptible to increased competition which can lead to increased commissions.....
Also page 23 from the presentation
• Significant growth in originationsrelative to employee costs, ourmajor cost line
They are trumpeting the fact that employees haven't grown sizably in relation to their originations, but I'd hazard a guess that's because they are relying more on broker network for their loan originations.
Also, it appears they are still engaging in p2p lending?
All in all, I'll take Harmoney's lean/direct approach I think.