Customer Concentration Test FY2016
Quote:
Originally Posted by
snoopy
I am rather overdue for our once a year peak into customer ‘asset distribution’ and ‘asset quality’. Our concentration test is that:
Highest single new customer group exposure (as a percentage of shareholder funds) <10%
Regional Risk
From AR2015 note 18b, the greatest regional area of credit risk in dollar terms is Auckland, with $830.027m worth of assets. This represents:
$830.027m/ $3,250.468m = 26% of all loans
this is slightly up on FY2014. But i don’t rate that concentration of loans in Auckland as being an issue. Particularly so when ‘Auckland’ is such a varied catch all group.
Industry Group Risk
From AR2015 note 18c, the greatest 'business group' risk in dollar terms is agriculture, with $537.286m worth of assets. This represents:
$537.286m/ $3,250.468m = 17% of all loans
this is slightly up on FY2014, when agriculture was
$469.020m/ $2,906.596 = 16% of all loans
Both these figures are quite high and trending in the wrong direction for FY2015. Given that Heartland is nominally a specialist agricultural lender I wouldn't be too concerned. But if agricultural loans go above 20% of the total (or dairy representing about half the agricultural loans above 10%), then I would sound an alarm bell. This situation will need careful watching when the FY2016 result details are released imo.
Industry Group Risk
From AR2016 note 18c, the greatest 'business group' risk in dollar terms is agriculture, with $628.202m worth of assets. This represents an increase of $90.916m over the previous year.
$628.202m/ $3,461.292m = 18% of all loans
Regional Risk
From AR2016 note 18b, the greatest regional area of credit risk in dollar terms is 'Rest of the North Island' , with $888.080m worth of assets. This represents:
$880.080m/ $3,461.392m = 25% of all loans
The 'Rest of North Island' loans (which excludes Auckland and Wellington) have risen 12.5% in numerical terms over the year, outstripping the growth of the previous largest region Auckland which only grew by 2% in gross loan amounts (Auckland still covers 24.5% of all loans) . This is a significant change for all other years where Auckland has been the largest market. Given 'Agriculture' loans have grown by 17% over the year, this 'growth' could reflect the compounding of agricultural interest charges into existing loans. According to AR2016 p7, dairy represent 7% of Heartland's total loan book.
0.07 x $3,461.392m = $242m
At an interest rate of 8%, assuming no interest was actually paid, this would increase the value of the Heartland loan book by:
$242m x 0.08 = $19.3m
Since the actual agricultural loan balance increased by $90.9m, we can assume that more net new agricultural loans were taken out, rather than just rolling over the dairy loan book. This is very much a contrast to traditional market leader ANZ.NZ who kept their total rural loan book static over the similar period. Looked at just in agricultural terms, you could say that Heartland are compounding their own problems for the future. But because the loan book in total has grown, reducing Heartland's relative reliance on Auckland is probably a positive.
The multi-year picture is shown below:
|
2012 |
2013 |
2014 |
2015 |
2016 |
Largest Regional Market |
Auckland (30%) |
Auckland (30%) |
Auckland (25%) |
Auckland (26%) |
Rest of North Island (25%) |
Largest Industry Group Market |
Agriculture (24%) |
Agriculture (21%) |
Agriculture (16%) |
Agriculture (17%) |
Agriculture (18%) |
SNOOPY
EBIT to Interest Expense ratio FY2016
Quote:
Originally Posted by
Snoopy
Updating for the full year result FY2015:
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) = $260.488m - $68.403m= $192.085m
Interest expense is listed as $126.041m.
So (EBIT)/(Interest Expense)= ($192.085)/($126.041)= 1.52 > 1.20
Result: PASS TEST
More progress here. A steady improvement from the FY2014 figure of 1.44
Updating for the full year result FY2016:
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) = $265.475m - $68.872m= $196.603m
Interest expense is listed as $118.815m.
So (EBIT)/(Interest Expense)= ($196.603m)/($118.815)= 1.65 > 1.20
Result: PASS TEST
The historical picture of this ratio is tabulated below. Despite the shakey start, the trend is very pleasing.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
Target |
EBIT/ Interest Expense |
1.15 |
1.22 |
1.44 |
1.52 |
1.65 |
>1.2 |
SNOOPY