Quite possibly. In any event I am still holding and intend increasing later this year. :)
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Yove got investors and traders on here. I know which ones i would believe.
No need to panic davflaws - dairy won't Heartland go broke.
If things do get really bad the impact will only be a drag on profits over several years - like reducing earnings growth from a healthy number to a much less modest one. That also becomes a bit of drag on the share price over time.
Will see little if any impact this financial year (read between the lines of Rogers post)
An update from last years equivalent reporting period, HY2015.
The underlying debt of the company according to the HY2016 statement of financial position is:
$43.377m + $1.095m = $44.472m
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:
$3,344.498m - ($2,928.621m +$12.439m + $269.769m) = $133.669m
We are then asked to remove the intangible assets from the equation as well:
$133.669m - $54.314m = $79.355m
Now we have the information needed to calculate the underlying company debt net of all their lending activities:
$44.472m/$79.355m= 56.0% < 90%
This compares unfavourably with the comparatuve half year period figure of 27.7%, but favourably with the more recent 58.4% figure from FY2015 date (30th June 2015)
Result: PASS TEST
Updating for the half year result HY2016. 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) = $134.340m-$37.039m= $97.301m
Interest expense is listed as $62.868m.
So (EBIT)/(Interest Expense)= ($97.301m)/($62.869m)= 1.55 > 1.20
Result: PASS TEST, an improvement from the HY2015 (1.51) position. And also an improvement on the full year position as of 6 months ago FY2015 (1.52)
SNOOPY
Updating this number for the half year HY2016
Equity Ratio = (Total Equity)/(Total Assets)
Using numbers from the Heartland HYR2016
= $485.688m/$3,344.498m = 14.5%
This is a decrease on the HY2015 position (14.6%). But it is also an increase on the FY2015 position of 6 months ago (14.3%). An indication perhaps of a slightly more conservative funding bias, considering company equity supporting company loans?
SNOOPY
Tier 1 or Tier 2 capital adequacy is noted under section 19A (Capital Ratios) in the Heartland HY2016 report.
$2,928.621m of loans are outstanding. 20% of that figure is:
0.2 x $2,928.621m = $585.7m
Heartland has total equity of $485.688m. But from note 19A, only $427.084m is Tier 1 capital. The difference is because intangible assets, deferred tax assets, hedging reserve effects and defined benefit superannuation fund assets on the books must be adjusted for.
On top of the Tier 1 assets, there is a subordinated bond of $1.455m
Nevertheless, however the total tier capital is added together, it is still below the "20% of loan" target no matter what the tier classification of capital buffering any potential problems with the loans.
Result: FAIL TEST
PS I do note that while other posters have protested at my 20% of equity to back up the loan measuring stick in the past, it is not too far away from the 17% which by implication is judged acceptable by management under the watchful eye of Reserve Bank chairman Graeme Wheeler.
Using current period Tier 1 capital and loan book figures:
$427.084m/$2,928.621m = 14.6%
So it seems Heartland's position has deteriorated significantly, compared to when it qualified as a bank.
The reserve bank further qualifies their views that a company of Heartlands credit rating still has a 1 in 30 chance of going broke in any year. I prefer to think in business cycles and 30 years will contain around five of those. So you could restate the Reserve Bank's view as saying that HNZ has a one in five chance of going broke at the bottom of the business cycle. For me that investment risk is too high. So I am sticking to my 20% equity requirement, even if the Reserve Bank will settle for less.
SNOOPY
Under Note 4 of HY2016 the 'impaired asset expense' has increased to $5.610m (HY2016, ended 31st December 2015) up from from $5.102m in the corresponding prior period (HY2015). Bad debts for the full year to 30th June 2015 (FY2015) added to $12.105m. By simple subtraction the bad debt expense for the period 1st January 2015 to 30th June 2015 ( 2HY2015 ) was $12.105m - $5.102m = $7.003m.
This means that what we are seeing is 20% fall in bad debts declared over the six months to December 2015, compared to the immediately preceeding 6 month period.
SNOOPY
http://www.stuff.co.nz/business/7992...r-the-industry
Here we go...
PT. This is from my post of 2772 dated 27-02-2014 titled:
"Heartland's Acceptable Operating Leverage Ratio"
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We can work backwards and see from a 'reserve bank' pair of eyes (wheels?) to deduce what is considered an acceptable operating leverage ratio for the rest of the business (excluding reverse mortgages just purchased).
Apparently, just before the purchase of the reverse mortgages, Heartland had 'surplus' cash of $28.3m -
(Explanatory Note: Total Heartland cash contribution to this deal was $48.3m, made up of the $28.3m 'surplus cash' on the balance sheet at 31st December 2013 plus $20m yet to be raised from shareholders at the time the half yearly report was published.)
- 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%
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The background to those that have forgotten (I had!) goes like this.
Heartland's purchase of the Seniors reverse mortgage business was financed by the issue of new shares and borrowings. "In theory", Heartland could have purchased the business with:
a/ 100% new shares and no more borrowings OR
b/ 100% new borrowings and no new shares issued.
Instead Heartland management struck a balance between these two extremes.
Heartland issued 43m new shares worth around $NZ38.7m and used $NZ28.3m worth of cash to make up the Seniors purchase price of $NZ60m. This cash/share balance was a judgement call made by Heartland management under the watching brief of satisfying reserve bank capital reqiurements, [i]taking into account the much larger existing businesses already under the Heartland umbrella[i/] IOW Heartland management had to be cogniscent of the total business when the Seniors acquisition was made.
Thus the Seniors purchase gave shareholders a snapshot on management's judgement on the amount of capital needed to support the 'regular' Heartland business relative to the size of the loan book.
SNOOPY
Re: Dairy, I remember at debt briefing last year the CFO when asked about the dairy risk compared to car loans said something along the lines of "well we can always shoot the cows", got a decent chuckle out of the audience
Thanks Jantar. I know very little about farming. But I am insured with Farmers Mutual, FMG. We, it is a Mutual, had a problem a couple of years ago with irrigators toppling over. Quite a number in Canterbury. Some of the centre spigot ones are a Kilometer long. There is now the question of 'what is a safe design length for irrigators?' It seems the American maximum design length is 400 metres. However, this design cannot be simply transferred to NZ. It would depend on local conditions here of maximum windage etc. It takes some time to move a centre spigot so it faces 'down wind.' So pivoting them round is normally not an option.
FMG and Lincoln College, University, are trying to get design guidelines for irrigators.
Now, to the punchline. FMG, I think, are still insuring irrigators. But at some point they will only insure 'complying' irrigators that conform to the new design requirements.
Come a big blow, a lot of the irrigators could fall over and not be insured, or not be adequately insured. This will impact on farming, FMG and Heartland. How much have we loaned on irrigators?
My view is Banks need plenty of actual shareholder capital so that if things go a bit wrong we still meet capital requirements.