Originally Posted by
Roger
Based on how I've seen finance companies manage their problem debts I'd suggest we won't see any meaningful effect on their profit for FY16. In a nutshell, most banks and finance companies bend over backwards to try and help customers weather a storm so if dairy stay's subdued expect them to be working with their clients to reschedule payments, interest only, restructure, maybe downsize the herd or sell part of the farm, payment holidays all that sort of thing. With so much new dairy production in other countries coming on stream there's a very real possibility as mentioned before that it becomes the Kiwi version of the Australian banks iron ore problem, although well worth noting that all the Australian banks have a massive exposure to dairy in N.Z. too. If it stays at current level's FY17 and beyond is where the rubber is going to meet the road and reality bites on whether simply supporting customers through a tunnel without any light at the end thereof, continues to be appropriate.
This new (I will call it Holden lending), where they lend with deferred payment terms starting in early 2016 can't go bad in FY16 because even if customers default early in the loan they'll be trying to work with them that year so they might be okay for some modest EPS growth in FY16...(I think the brokers consensus is about 10.4 cps from memory) but its the "quality" of this new no deposit and unsecured lending which has me spooked and feels like groundhog day pre-GFC finance company activity all over again.
I am sure they will tout their loan growth at the next ASM and in their annual report in due course. In my view the market is right to have significantly marked down the banks on both sides of the Tasman. Clearly Fitch see real risks and other do too and the PE's of the banks have come back a bit reflecting their increasing risk. I think the stock was better value at $1.32 on 1 February when I commented it was basically fully priced back then. There's been a lot of water under the bridge since then and unfortunately its all been going in the wrong direction.
HNZ looks fully priced now at $1.20 with all the headwinds that have built in the economy in recent months. Really a dividend yield story for now in my opinion.