Somewhat relative to previous discussion on this thread ! http://www.nzherald.co.nz/business/n...ectid=11789973
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Somewhat relative to previous discussion on this thread ! http://www.nzherald.co.nz/business/n...ectid=11789973
Whilst Snoopy has a nice shiny toolkit for evaluating companies it continually pains me to see him hammering nails into the wall with a screwdriver.
"Snoopy you are supposed to use this hammer" we tell him.
"But then I keep hurting my thumb" he replies "Anyway the nail is in".
We look at the badly bent nail and note that you can not hang your hat on it.
If HBL get past 13% ROE then I will be impressed. That will be one lean lending machine.
Best Wishes
Paper Tiger
A 15% hurdle on 'return on equity' has not in the past been an unsurmountable hurdle for the big Aussie bank 'competition'. Granted I haven't crunched my own normalised numbers for a few years on, for example, ANZ (make a mental note to myself to do this again). The big Aussie banks had been a place for stellar returns, at least until the GFC. Since that time banking regulations have tightened. More equity to back up the loan book has been required. It follows that ROE for the banking industry will have decreased. Commentators are on record as saying that the big Aussie banks are not going to generate the same returns going forwards as they once did.
If a 15% ROE hurdle strikes some as 'unrealistic', this is correlated with the lower growth outlook for banks. Not being able to meet this 15% ROE hurdle is a consequence of the lower profit outlook for banks. This doesn't mean investors should not invest in banks. The dividend yields in particular, in this time of low bank deposit rates, look particularly juicy.
Heartland has had an ROE average of just 9.2% over the last five years. Yes it is improving. But it is still a below average margin for an NZX listed business. And to requote Buffett form an investor perspective:
"Below average is not what we are looking for."
My reading is that this low return on assets leaves Heartland's earnings vulnerable to shock. This is not the same as saying earnings will definitely go down. But sticking your head in the sand won't make the shock potential go away.
SNOOPY
I think there is plenty for Heartland management to be proud of in their achievements since listing. What you have observed Noodles, ties in with my observations on the increasing earnings per share trend (a significant achievement) and increasing underlying profitability, in line with my 'ncreasing margin' observations (well done to management). My point is that these improvements have come off a low base. In absolute terms, taking into account the growth to date which is welcome, the ciurrent absolute position is still 'below average returns on shareholder equity'. IOW there is still some way to go before I see Heartland as even an 'average' business in absolute terms.
My recollection of Heartland history is a little different to this. Heartland started as an investment bucket that contained a number of difficult assets. Heartland was generously recapitalised by PGC amongst other shareholders at the time into a financial entity with a fighting chance. And come out fighting they did. There was no mention at the time that this first recapitalisation of Heartland was inadequate. Yes Heartland is a young company. But I don't think you can associate that statement with Heartland having a deprived start. Nevertheless I think it might be worth looking at ROE excluding the difficult loan book capital ( Heartland call their difficult loans 'investments' (sic) ) and see what difference that makes to the Heartland ROE figures.Quote:
Your 15% baseline is for companies with a long track record. HBL is young and started with low profits and high equity. If you start on a low base, of course it is going to take time to get to 15%.
I should add that a 15% ROE goal is not a statistic to be pursued at the expense of all others. Being undercapitalised and overleveraged are two ways of increasing ROE that I do not recommend!
Interesting chart. But I think your comparison of putting a minnow bank from New Zealand into the US banking Sector as a comparative measuring stick is probably not representative.Quote:
EDIT: Average return on equity for US banks is 9%. Looks like HBL is above average.
https://ycharts.com/indicators/us_re..._for_all_banks
SNOOPY
A game of spot the difference.
Earnings per share,from www.4-traders.com
.................2014........2015.....2016.......2 017......2018.......2019..
ANZ............257.........257........189........2 35........245.........256.
CBA............519..........529.......530........5 58.........573.........592
NAB............215,,,,,,,,,,245.........15.5...... 243........247.........254
WBC...........237...........248........218........ 241........250.........254
Very difficult to spot any difference.Minimal if any growth.
Now should we add HBL's ???
HBL............9.............10...........11...... ....12.........13.1.........13.7.
And that is real eps growth.
EPS growth means HBL will have the capacity to continue to grow and pay increasing dividends.
Financial Year Net Sustainable Profit (A) Shareholder Equity EOFY (B) ROE (A)/(B) Investment Properties (C) ROE adjusted (A)/{(B)-(C)} 2012 $26.606m + 0.72($5.642m + $3.900m) =$30.476m $374.798m 8.1% $55.504m 9.5% 2013 $6.912m + 0.72($22.527m+ $5.101m)= $26.804m $370.542m 7.2% $58.287m 8.6% 2014 $36.039m $452.622m 8.0% $24.888m 8.4% 2015 $48.163m - 0.72(0.588m) = $47.743m $480.125m 9.9% $24.513m 10.5% 2016 $54.164m - 0.72(1.136m) = $53.346m $498.341m 10.7% $8.384m 10.9%
I have already removed windfall profits from the sale of investment properties from the earnings picture. Removing the one off effects of the legacy investment property portfolio from the results show the improvement in ROE is 'not as great'. Is this 'flattening ROE adjusted trend' a sign that projected profit increases going forwards will likewise be 'not as great' as some shareholders hope?
SNOOPY
What would you say if someone offered you an investment with a promised real return of close to 15 per cent? You might say: “How much can I buy?” Alternatively, you might say: “What is the catch?” Sensible people must take the latter view. If you thought that you were being offered a reliable real return at such an exalted level, you would buy as much as you could.
Higher the banks ROE the greater the 'risk' they are taking?
Just to be clear my ROE 15% return target is based on 'shareholder capital'. An investor today can only get that return on investment if they can buy that shareholder capital at a dollar for dollar rate. Unfortunately $1 spent on a bank share does not buy $1 work of 'bank shareholder capital'. So investors today will not get that 15% return on the investment capital they put in today buying bank shares.
Yes quite true, the 'other side of the investment coin.' I would be very suspicious if ROE got too high.Quote:
Higher the banks ROE the greater the 'risk' they are taking?
SNOOPY
Point was that banks making/targeting high ROEs not (always?) a good thing.
If Heartland achieved a ROE of 15% every year and paid no divies it's equity would double every 5 years. In no time they would be a multi billion company. Makes you wonder why they pay divies if returns on equity are so lucrative.
http://www.interest.co.nz/news/85459...ns-creditwatch
UDC to be sub investment grade later this year ?
I think UDC are going to have a real job in front of them to retain debenture funding support from investors with a sub investment grade credit rating. If this happens I would see this development as a real positive for HBL with the likelihood they'll enjoy a significantly enhanced competitive position against the new UDC under Chinese control.
Yes HBL are certainly "well positioned."
Sorry I can not post the link but Brian Gaynor had a lot to say about the demise of UDC, in The Hearald.
Unlike you, he did not join the dots.!!...>>lol.
http://www.nzherald.co.nz/business/n...ectid=11789973 There you go folks that's what Bryan Gaynor had to say yesterday.
Thanks for your post above with EPS number comparisons Percy, good stuff.
I note forecast earnings of 13.7 cps for 2019. All going well we'll see HBL make about 14.5 cps forecast for Fy20 so late 2019, (2.5 years from now) because the market is always forward looking HBL should be trading on about 12.5 - 13.0 times Fy20 earnings so 12.5 - 13.0 x 14.5 = $1.80 - $1.90.
In the meantime what interim and final dividend are you forecasting this year Percy ?
While you're at it percy, when can we expect the SPP to be announced? ( and what will my scale factor be lol)
Mr market has tried it's best to hold the price down until it's announced - should be 1.75 by now, imo
The half year result will be announced on 21st February.I expect details of the dividend,date the dividend will be paid,and price and timing of the SPP.Just guessing,but I would expect very heavy scaling.Be a lot of fun for you to work out drp price, and spp price.!!!..lol.
This post was in reply to Roger's post #8550.
I note analysts are very conservative on earnings more than one year out,so perhaps we could be a bit more aggressive.?
HBL's eps growth,compared to the Aussie Banks is most probably seeing HBL's PE expand.
Also HBL now has "runs on the board" ,which together with their increasing dividend,is also helping the PE to expand.
What we do know is HBL has used up all of its excess capital,and is/has raised more to fund very strong organic growth.NZ is in good shape,which means HBL's digital products delivered online are set to gain market recognition.The appointment of an Australian director signals to me they are confident in further growth in their REL business there,and may perhaps take a product,such as "open for business" to Australia.
We share the same thoughts of the opportunities the demise of UDC will bring to HBL.
My projections of eps and divies have been thrown out the door,as I can see the day HBL hitting $2 being brought forward..!!! Who cares about $1.60,$1.80 $1.90? We will see them all on our way to $2...
Dividends this year? Increasing?!!.lol
Roger,Thanks for posting link to The Herald article.
A man after my own heart.!
Going back to future eps,and eps growth.Last year's growth was a higher than I expected.I really am awaiting HBL's interim, and may get a better handle on future prospects, from their commentary.As we know they do what they say they will do.
ps.I dare not buy anymore.!!lol.
HBL invested $20m in Spotcap oz