https://www.healthline.com/health/an...ety#peppermint
I might try some of this this afternoon.
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https://www.healthline.com/health/an...ety#peppermint
I might try some of this this afternoon.
Have to take my hat off to the team. They really are alternative in lending but do it with a little class...
Access Community Health
Access Community Health is a leading provider of home based healthcare and support. Care for our community | Work together | Do the right thing | Look after each other.
I already got enough of it I think but this Access Comm. Health tie up is yet another gut feel sign that I should get more.
Whereas I had specified base year earnings figures at EOFY2019, I am using figures from six months later for O4B. Why is that? It is because O4B is a very fastly growing part of the HGH business and I think the EOFY2019 figure would have been too conservative as a base figure from which to derive future earnings
Time to update where I thought things were going for O4B in May with what has subsequently (and eventually) been revealed in the annual result.Quote:
Heartland has been earning an ROE of more than 15% on this O4B portfolio.
If O4B sinks, then the annual tax profit loss for Heartland will be about:
0.15 x $158m = $24m
That is likely an overestimate as O4B also offers partially secured loans of up to $250,000 (well beyond the $100,000 limit of the NZ government scheme) and secured and unsecured loans into Australia. Those boundaries are beyond the IRD scheme. I would estimate the actual annualised profit hit to be 80% of my calculated figure, or around $19m. I estimate the IRD loan scheme may have brought forward about three months worth of loan applications that otherwise might have gone through O4B. If the IRD scheme is dropped on 12th June as planned, then the impact flowing into FY2021 may only be a couple of months. That equates to a reduction in FY2021 profit of $19m x 2/12 = $3.2m.
If the remaining 'outside of government scheme boundary' loans profit of $5m were to sink by 10%, then that would knock $0.5m off annual profits going forwards.
Likewise if the residual O4B loan profit balance of $19m- $3.2m = $15.8m were to reduce by 10%, that would wipe $1.6m off annual profits.
Now putting these three effects together, the expected annual profit decreases from the base year of FY2019 are as follows:
FY2021: -$3.2m - $0.5m - $1.6m = -$5.3m
FY2022: - $0.5m - $1.6m = -$2.1m
There were $133m of 'Open For Business' (O4B) loans on the Heartland books at EOFY2019 (p15 AGM Presentation FY2019). That loan balance increased by $25m at the half year point (p9 HY2020 Presentation). But the annual increase had decreased back down to +$22m increment by FY2020 balance date (for a total of $155m). Those who only looked at the year to year increase in O4B balances only saw good news. But take in that half year peak figure from December 2019 and the signs are my much speculated slide has already started. Or was 'the slide' just a three month Covid-19 shock glitch that will all go away?
In the interim to EOFY2020, and using an ROE figure of 15% for O4B loans (p15 AGM Presentation FY2019), we got an incremental NPAT boost for FY2020 of:
0.15 x $22 = $3.3m
A $22m increment to the O4B overall loans balance is equivalent to a $22m/$133m = 16.5% jump in the overall O4B loan book over FY2020. To get back down to FY2019 levels again would require a drop in the loan book size of $22m/$155m = 14.2%. So my 'base line middle case prediction' on the business loan book size for FY2021 is that it will be: 10% + 14.2% = 0.9 x 0.858 = 0.772 = 23% lower at EOFY2021 than it was at EOFY2020.
I was forecasting a proposed 'one off shock' at the end of FY2020 which looks to have happened. My forecast EOFY2021 decline of 10% for the O4B receivables from an EOFY2019 base level, is equivalent to a 23% fall from the EOFY2020 base level. Too harsh?
I see from the IRD website:
https://www.ird.govt.nz/covid-19/bus...cash-flow-loan
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Latest developments
The Small Business Cashflow (loan) Scheme has been extended until the end of 2020. Applications opened on 12 May 2020 and can now be submitted up to and including 31 December 2020.
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So I think I am justified in holding my assumptions about the decline in O4B. No small business owner in their right mind is going to get a business loan from Heartland if they can get one from the IRD at 0%. That means very little new O4B business will be written for the first half of FY2021 at Heartland Bank!
SNOOPY
Rechecking the NZ companies database, a tax return was filed in June 2020. This tax return shows Heartland Bank Limited as a 25% shareholder.
The fuelled website is still dead as of October 2020. I can't find any web reference to joint founder Tapio Sorsa, later than June 2017.Quote:
(Note that Harmoney and other consumer loans are reported on by Heartland separately outside of the header 'Business Intermediated Loans').Quote:
Heartland note in their FY2018 presentation that they have made a gain on the sale of Heartland's 'invoice finance business' of $0.6m. I am not clear if this transaction is related to 'Fuelled' or not.
3/ 'Harmoney' (not a spelling mistake)
Business intermediated loans totalled $425m at EOFY2019. By HY2020, just six months later, they had increased by $69m. But then the rate of increase slowed for an overall increment of $74m for the full financial year. This is nevertheless a very impressive $74m/$425m = $500m or a 17.4% increase of 'business intermediated loans' overall over one year.Quote:
So what does this picture suggest for profitability in FY2021?
I am predicting that when some of the lending through intermediaries starts to shrink, Heartland will renew their interest in writing business relationship loans directly. So I see no further shrinkage in profit from this category between FY2021 and FY2022.
'Business Intermediated' lending is projected to grow in FY2020.
But I think that by FY2021, it will shrink back down 10% below FY2019 levels (down to $425.4m x 0.9 = $383m, a decrease of $42m). My reason for believing this is that there will be lower tradie activity in FY2021, and sensible tradespeople will have transferred to IRD backed ultra low interest loans, at least in NZ. The silver lining of this is that by existing Heartland customers effectively refinancing with the government, many bad debts to Heartland will be avoided. Business Intermediary loans have an ROE of between 11% and 15% (AGM2019 Presentation p15). If we assume the average margin is 13%, this will represent a loss of profit for Heartland in FY2021 of:
$42m x 0.13 = $5.5m
The kind of business loans sought by Heartland tend to be short term. So I am not expecting the general reduction in business loans to have a compounding effect year on year.
The incremental increase in the intermediated loan book, using an indicative ROE of 13% (p15 AGM Presentation FY2019) gives an indicative incremental NPAT contribution for FY2020 of:
$74m x 0.13 = $9.6m
To shrink back down to EOFY2019 levels, intermediated business would have to drop by $74m/$500m = 14.8%. So my forecast decline of 10% from FY2019 levels is equivalent to a decline of: 10% +14.8% = 0.9 x 0.852 = 0.767 or 23% from FY2020 levels.
AFAIK almost all intermediated lending is done through 'Spotcap' and possibly Auckland based 'Partpay' (acquired by Spotcap parent ASX:Z1P in August 2019). The NZ side of this business will be facing the same competition as Heartland's O4B from 'IRD Bank' which they will not be able to compete with. There appears to be no equivalent ATO scheme for Australian businesses in Australia. This could indicate more opportunities in Australia over FY2021. But Australian small business has been hit very hard. So I am reluctant to revise upwards my forecast until evidence of Australian small business bouncing back from Covid-19 comes through. From p42 of AR2020 from the ASX listed Zip Co. Ltd.
"Spotcap saw drawdowns drop off in the final quarter of the year (1st April to 30th June) as the impact of COVID‑19 hit SMEs across Australia and New Zealand. Volumes started to increase towards the end of June across a number of resilient industries and the business is well placed offering both standard and SME Guarantee Scheme backed loans to eligible SMEs."
The above quote I would class as 'green shoots of evidence', as opposed to 'evidence'. Let's see what actually happens.
SNOOPY
The results from FY2020 at last being in the public domain has allowed me to fine tune my Scenario model. I am continuing to use FY2019 as my 'base year' from which the changes outlined in the table below are made.
Three Revenue Forecast Scenarios Pessimistic View Middle View Optimistic View Reverse Mortgage Adjustment (Post 13708) 2.5% Growth => 6.7% + 2.5% = 9.2% compounding of loans 8% Growth => 6.7% + 8% = 14.7% compounding of loans 8% Growth => 6.7% + 10% = 16.7% compounding of loans Motor Vehicle Finance Adjustment (New) (Post 13725) 25% reduction in new three year contracts => 8.333% reduction in annual revenue (FY2021) with an additive a 8.333% reduction in annual revenue (FY2022) 25% reduction in new three year contracts => 8.333% reduction in annual revenue (FY2021) with an additive a 8.333% reduction in annual revenue (FY2022) 25% reduction in new three year contracts => 8.333% reduction in annual revenue (FY2021) with an additive a 8.333% reduction in annual revenue (FY2022) Motor Vehicle Finance Adjustment (Used) (Post 13715) 10% reduction (FY2021) with a further 10% reduction (FY2022) 10% reduction (FY2021) with a further 10% reduction (FY2022) 10% reduction (FY2021) with revenue stabilizing (FY2022) Business Finance (Part 1) O4B Adjustment (Post 13770) 80% of loans wiped out for two months (FY2021). Reduction in remaining loan balances of 15%, not compounding (FY2021 & FY2022) 80% of loans wiped out for two months (FY2021). Reduction in remaining loan balances of 10%, not compounding (FY2021 & FY2022) 80% of loans wiped out for two months (FY2021). Reduction in remaining loan balances of 10%, not compounding (FY2021 & FY2022) Business Finance (Part 2) 'Intermediated' and 'Relationship' Adjustment (Post 13771) Relationship: 16% compounding loss over two years to EOFY2021, then stable
Intermediated: 10% loss from base level (not compounding)Relationship: 16% compounding loss over two years to EOFY2021, then stable
Intermediated: 10% loss from base level (not compounding)Relationship: One off 16% loss from base level to EOFY2021
Intermediated: 10% fall over FY2021, before recovering all of that fall in FY2022Rural Finance Adjustment (Post 13747) Rural Relationship Loans - minus 8%, Livestock Loans - minus 5% Rural Relationship Loans - minus 8%, Livestock Loans - minus 5% Rural Relationship Loans - minus 8%, Livestock Loans - minus 5% Harmoney and Other Consumer Lending Adjustment (Post 13749) Collapse of Harmoney over a two year period Harmoney halved in size from FY2021 Harmoney halved in size from FY2021
SNOOPY
I added recently at $1.20 and more at $1.27 both cum divvy. Even at $1.30 I think they have a lot of potential on a look through Covid recovery basis. Wouldn't mind some more...
Time to look at what my 'revised scenario assumptions' look like in terms of dollars.
Three Profit Forecast Scenarios Pessimistic View Middle View Optimistic View FY2021 FY2022 FY2021 FY2022 FY2021 FY2022 Baseline Reference Profit (FY2019) $74.5m $74.5m $74.5m $74.5m $74.5m $74.5m Reverse Mortgage Adjustment (Post 13708) $33.0m $51.8m $54.1m $87.3m $62.0m $101.0m Motor Vehicle Finance Adjustment (New) (Post 13715) ($6.3m) ($12.6m) ($6.3m) ($12.6m) ($6.3m) ($12.6m) Motor Vehicle Finance Adjustment (Used) (Post 13715) ($11.3m) ($22.6m) ($11.3m) ($22.6m) ($11.3m) ($11.3m) Business Finance (Part 1) O4B Adjustment (Post 13770) ($6.3m) ($3.6m) ($5.3m) ($2.1m) ($5.3m) ($2.1m) Business Finance (Part 2) 'Intermediated' and 'Relationship' Adjustment (13771) ($15.5m) ($15.5m) ($15.5m) ($15.5m) ($10.9m) ($5.4m) Rural Finance Adjustment (13747) ($3.5m) ($3.5m) ($3.5m) ($3.5m) ($3.5m) ($3.5m) Harmoney and Other Consumer Lending Adjustment (13719) ($3.6m) ($7.6m) ($3.6m) ($3.6m) ($3.6m) ($3.6m) Total Forecast NPAT $61.0m $60.9m $83.1m $101.9m $95.6m $137m No. Shares on Issue 581.0m 581.0m 581.0m 581.0m 581.0m 581.0m Earnings Per Share 10.5cps 10.5cps 14.3cps 17.5cps 16.5cps 23.6cps
By far the largest contributor to the profit jump in my 'Scenario 1b' compared with my 'Scenario 1' has been my revised up incremental earnings from the reverse mortgage business. Yes the smaller than expected drop in motor vehicle finance will help too. But what is perhaps more impressive is that this growth has been projected against a significant fall in the profitability of business loans and consumer lending. The decline in all types of rural lending that I have now included has made little difference to the overall picture. My middle case modelling result for FY2021 conforms very closely to Jeff's $83m-$85m forecast for FY2021. So that gives me confidence I am on the right track with my analysis
Trading at $1.33 today, HGH is on a projected PE for FY2021 of 133/14.3 = 9.3. That looks very fair value in what is otherwise a very heated stock market. However, that 'bargain price' is very much leveraged to the reverse mortgage market. And as the pessimistic scenario shows, there is significant downside to my middle case earnings projections if the reverse mortgage market ceases to grow at a rate we have been used to.
SNOOPY
So we had a decrease in divies due to RBNZ restrictions. With such a good guidance for next year will heartland take up the slack and provide bumber divies when restrictions come off?
Definitely....HGH was my first initial investment share that I bought....never disappointing me....I sold during the crash....n slowly bought back...if it was not covid..in feb 2020...the SP would be $2
Market screener slapped $1.54...u can also see thier earning forecast model there
I agree 100%. Bought in big at $1.02 and topped up again at $1.23. Happy to keep accumulating at these prices and I see this being very healthy this time next year.
Just my opinion, but I don't think this is the big credit crunch that was 2008. HGH is well positioned to rise once things start going back to normal.
The RBNZ restrictions are still on, because no-one yet knows how bad the economic effects of Covid-19 will be in NZ. When Auckland goes back to level 1 this time, I see that as the 'end of the beginning' of Covid-19. There are many more future effects of Covid-19 to come. The banks have done OK so far because their customers were on subsidised wages and locked down so many temptations to spend their subsidised money was removed. Thus existing loans, taken out well before Covid-19, continued to be paid down. The effect of Covid-19 that matters is the demand for new loans going forwards. Banks and finance companies are yet to feel this to any great degree.
Traditionally Heartland has always been short of capital. So I wouldn't bet on Heartland having excess capital now, after partially skipping just one dividend because of RBNZ rules. OTOH Covid-19 may have changed the loan landscape so they can't loan out money as before. But if that is what it takes to have excess capital on the books, then you don't want such a scenario to happen, as it means growth going forwards is torpedoed. So best not to hope for a bumper dividend going forwards IMO.
Value_Investor, as the wise old Snow Leopard has said before: Read note 8 of the annual accounts on "Impaired Asset Expense". Lot's of assumptions built into the HGH growth forecasts including 'no more lockdowns', and a 'relatively quick and full recovery by June 2022'. Look at what is happening in other countries and you will see how optimistic these pre-conditions are. I am not saying HGH is not worth investing in at today's prices (I am still in the process of working this out for myself). I am saying you need to invest with a margin of safety, and that includes assuming a 'new Covid-19 normal' applies from now on. But as a "Value_Investor", you already know this, right?
SNOOPY