Hang on you have to make some SD adjustments to make it work. See ANZ thread.
Printable View
Looking at the 'investorwords' example, in all cases the growth in the company's dividends is less than the company's cost of equity capital. So your overoptimistic inputs Winner, with a discount rate less than the divdend growth rate, are apparently, not allowed.
SNOOPY
Snoopy I am sure it will not surprise you that I think they can grow dividends in line with EPS growth. Consensus analyst forecast on 4traders is for meaningful growth in EPS for the next 3 years and I am happy with their figures.
May I suggest you rework the dividend valuation model using average brokers consensus EPS growth figures for the next 3 years.
snoopy hound dog
1/ Adjust growth to zero.
LOL this hound feels like biting a chunk out of the other hound after reading that then the Tiger could give him a good clawing and send him back to his kennel in disgrace :D
Honestly to suggest this company can't grow dividends going forward is in my opinion a seriously flawed viewpoint. Far more likely that housing will continue to maintain close to its real current value and UDC will continue to do what its always done. Doomsday thinking way overdone Snooper.
For some reason whilst reading this Snoopy post I was reminded of this mildly enjoyable song:
https://www.youtube.com/watch?v=urglg3WimHA
Stay till the end.
Best Wishes
Paper Tiger
In the 2 and bit years I have held HBL, the increase in dividend has been a fairly steady 1c per share per year, and looking forward at the increase in eps, I expect this to continue. On that basis I am expecting the interim divi to be 4 cps, and increase of 0.5 cps over last year's interim divi.
The choice of a discount rate will make a large difference to the end result. The preferred 'discount rate', in the referenced 'investopedia' model, seems to eqaute to the company's 'cost of equity capital'. Note that if the dividend growth rate is assumed to be zero (as I will be assuming), then the investopedia formula collapses to the same formula that I have been using before I looked up that reference.
Dividend per Share / Yield = Share Price (an algebraeic manipulation of: Dividend per Share / Share Price = Yield )
So another way of looking at this situation is to consider the 'cost of equity capital' to be measured by the yield an investor might accept.
If we assume 'zero dividend growth' over a 'business cycle', then the yield that I would accept, depends on the quality of the underlying business. For companies in the finance sector, I would split finance businesses into three categories. I present an example from each of my categories below:
Category Example Acceptable Yield Tier 1 Finance Industry Company ANZ Bank 6.5% Tier 2 Finance Industry Company Heartland Bank 7.5% Tier 3 Finance Industry Company Geneva Finance 8.5%
Now there are most sophisticated techniques, such as ther capital sset pricing model, that can be used to get the 'cost of capital' for a company. But personally I prefer this simpler steadier approach. I am saying here that Heartland is in the middle of the finance company spectrum. Not as 'safe' as one of the big banks. But a cut above what might be considered today 'fringe lenders'. After the great finance company clean out, I am considering any company that calls itself a finance company a 'fringe lender' these days!
SNOOPY
......think its going to be a long one. At least I'm doing something useful ATM.
cleaning tge bathroom.
Note that the financial year starts on 1st July of the previous calendar year and ends on 30th June.
Year Dividends Paid 'per share' Significant Event During Year' FY2013 1.5cps(sp) + 2.0cps 17th December 2012: Heartland becomes a bank FY2014 2.5cps + 2.5cps 1st April 2014: Seniors 'Reverse Mortgage' Business Acquired FY2015 3.5cps + 3.0cps 10th September 2014: invests in Harmony P2P startup 28th October 2014: Credit rating upgraded from BBB- to BBB (Fitch Ratings) FY2016 4.5cps + 3.5cps FY2017(f) 5.0cps + 3.5cps(f) Average FY2015 to FY2017 inclusive 7.66cps
(f) indicates forecast result.
I have chosen to use the last three years of operation as indicative, as these years include the full contribution of the Reverse Mortgage Portfolio, a critical component of Heartland going forwards.
SNOOPY
No, but it doesn't work well for high growth shares. And it doesn't work at all if no dividend is paid.
Yep, 18.5% is probably a realistic assessment of the combined risk of the good upside (covered extensively in this thread) and the bad downside (only covered in one post, my 8616) of Heartland going forwards.Quote:
Working backwards from a 155 share price and using my 13% growth rate the implied discount rate is 18.5%
SNOOPY
Plugging in a representative yield, one that represents the ups and downs of the banking cycle of Heartland in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation
(Representative Dividend per Share) / (Acceptable Yield) = Share Price (an algebraeic manipulation of: Dividend per Share / Share Price = Yield )
7.66c / 0.72 x 0.075 = $1.42
A reminder here that NTA was 91cps at balance date. This means my fair valuation is at a good premium to asset value, a credit to management from the rag tag of assets that they started with.
This $1.42 valuation is measured at the average point in the business cycle. One might argue that we are now riding high in the business cycle and that this $1.42 valuation is consequently too low given today's circumstances. I wouldn't argue with that. But, ever the bargain hound, neither would I look at buying any shares myself until that share price drifts down to that $1.42 level. Don't say that Snoopy didn't warn you!
SNOOPY
You forgot to gross up the divvy
https://www.irononsticker.com/images...igress%202.jpg
Best Wishes
Paper Tiger
I like the model Snoopdog, but using a gross Div of 9.8 and my own acceptable yield of 6.25, I get a share price of $1.56
I think currently the market agrees with me :t_up:
HBL is as solid as they come. Things are looking good at least in the short term.
Does anyone know how much HBL borrows offshore compared to onshore? Rising interest rates overseas may sqeeuze their margins a bit.
It is always good to be able to cross check these valuations with another method.
The price paid for UDC was a 60% premium to net asset backing. The HLB asset backing was 91c
1.6 x $0.91 = $1.46
Of course this would include a premium for control. If that premium was between 10% and 20%, this would imply a daily trading valuation for HLB of $1.22 to $1.33.
I should add to the above that Snoopy always likes to buy below fair value. For a bond like asset I look for a discount of 20%. So I would be looking to pick up HBL shares in the early $1.20s.Quote:
This $1.42 valuation is measured at the average point in the business cycle. One might argue that we are now riding high in the business cycle and that this $1.42 valuation is consequently too low given today's circumstances. I wouldn't argue with that. But, ever the bargain hound, neither would I look at buying any shares myself until that share price drifts down to that $1.42 level. Don't say that Snoopy didn't warn you!
SNOOPY
discl: do not hold HBL
You have had five and half years to buy into HBL.From 45 cents upwards.
You have believed your own poorly thought out posts , and missed the boat.
Your investment model has let you down,time and time again,while HBL shareholders have enjoyed the benefits from sound research, which works.
May be time for you to read "The Zulu Principle" by Jim Slater.Google it, and be prepared to learn how to invest profitably .You would have avoided from losing your capital with ARI,and made a healthy with HBL.
"Better to pay a fair price for a good company,than a good price for a fair company."
Roger, for my modelling I have used historical EPS figures. I said I was using a 'no growth' outlook. But I did not consider the increasing number of shares on issue every year. So even though I am assuming no EPS growth, I am not assuming no growth.
Financial Year No. Shares on issue EOFY Increase on Previous Year 2013 388.704m 0% 2014 463.266m +13% 2015 469.980m +6.7% 2016 476.469m +1.4% 2017 500m (f) +4.9%
(f) Forecast based on $20m shares issued at $1.46 (already placed) and $10m shares issued at $1.46 (signalled share purcahse plan) plus some DRP shares.
Over the five year period under consideration, the average number of shares on issue is:
388.704m x (1+g)^5 = 500m => g = 5.15%
This means that I was assuming in my model, earnings growth in dollar terms of 5.15% per year, through good times and bad. I think that is a more than fair assumption for earnings growth going forwards too.
Previously I was trying to figure out how I would tweak my 'no growth' assumption to incorporate some modest growth. Now that I have figured out that I have effectively alkready done just that, no more tweaking of my model will be required. I think my $1.42 valuation base for HBL is very fair.
Heartland closed at $1.56 on Friday. If we strip out from that a 3.5c upcoming dividend (the same as last year), then the underlying share price is $1.525. That is 7.4% overvalued by my calculations. Sounds about right given the rest of the market, on average., is probably overvalued too!
SNOOPY
9.8c / $1.56 = 6.25% ?
I have never been a big fan of bonds. But years ago when Westfield was listed in NZ, I remember taking out a medium term ( 2 year IIRC ) bond and getting something like 8.5% and feeling very pleased with myself. I was pleased because 'big bank' deposit rates had declined to something between 6% and 7% at the time. This was all before the GFC of course, and the collapse of all those higher interest options like MARAC that was subsequently rescued and recycled into Heartland Bank. Back in the day if someone had offered me a MARAC bond at 6.25% I would have said (or did say) 'not a chance'.
Fast forward to today and ask me if I would like a descendent of that bond that pays 6.25%, let's just say I would be nervous about the 'risk reward' ratio. Granted interest rates are generally lower now, and maybe your 6.25% expectation that aligns with Mr Market is realistic Xerof? But buying a second tier finance 'bond' with such a low coupon rate does not sit well with this puppy.
Still this is not to say that you are wrong. Everyone is entitled to their own view of risk verses reward Xerof.
SNOOPY
That last line reminds me of a Buffettism.
"Better to buy a wonderful company at a fair price, than a fair company at a wonderful price."
The question is what makes a wonderful company, or even a good company? I would argue 'a good company' is not a rag tag of assets with MARAC being stuck together with the Canterbury Building Society to bail it out, with George Kerr organizing a capital raising to make it viable. If anything 45c sounds like a wonderful price for a fair company at best.
You argue the Jim Slater approach. But this is all about building up industry specialisation knowledge with particular focus on small cap companies that fly under the radar. Granted Heartland ticked the small cap box in FY2013. But how did it stack up against other finance company investments? Most alternatives had gone bust during the GFC, but that does automatically make the survivors a good investment. I couldn't answer any comparative question at that time, because my knowledge of the banking and finance industry was insufficient. So your solution was that I should have dived into Heartland shares at the deep end? Since that time I have spent many hours building this specialist banking knowledge up. I think Jim Slater would be proud of me!
And how does Heartland stack up today? I would argue not particularly well with my own principal banking investment ANZ. This is what investing according to the Zulu principle is all about. Building up specialist knowkedge, independent of management spin, and applying it in a comparative sense.
SNOOPY
Wrong as always on this thread.
According to our friends at Yahoo finance.Share prices
..................1 year....................2 year...................5 year.
ANZ...........29.85%.............minus 15.96%............36.84%
HBL............39.29%...................12.23%.... ...........231.91.
You keep your under performer,and I will keep my high achiever..
So $10,000 miss placed in ANZ 5 years ago would be worth $13,684.00
Same amount invested in HBL would be worth $23,191.00.
The past has passed us by.
The value is in the future and while I expect real EPS growth, I do expect 'moderate' (~5%) EPS growth over the next few years.
I hope for better and have allowed for worse (an attack by dinosaurs in spaceships and similar).
Best Wishes
Paper Tiger
bought them all the way up and will keep buying .They do what they say and do not overhype. Love them and have alot
Still holding from the beginning
Sold down on the way up.. Much to my regret.. Still hold a few ..
Snoop dog, I was merely extracting the urine. I fudged my numbers to equate to Fridays closing price
Percy, see your mate Chris Lee this week mentioned the vexed question of how to fund property development seeing banking lines are being withdrawn.
Time for Heartland to step up - market void not being serviced by the big boys, niche, not too labour intensive and all that ......and had some experience in this sector
NZ needs subdivisions and apartment blocks - what an opportunity for Heartland. Betcha Jeff salivating thinking of what could be,
Where's there a buck to be made Heartland should go
Just looked back at my spreadsheets and see that the majority of my holding HBL (HNZ at the time & some CBS before that) was bought in September 2011 at prices ranging from 48c-56c. My calculations show a 301% capital gain on my shares since then. Think I have received about 28c divies. So I think you are under estimating it mate :-)
Cmon percy - its Sunday and I'm on your side and get grumpy with the inference i'm just as bad as Snoopy. I have HBL and Snoops doesn't to start with.
I was just correcting your maths in an earlier post
$10,000 in Heartland 5 years ago now worth $33,191 and not $23,191 as you said. Same calculation for ANZ is $13,684
I meant ANZ looks the better investment from today. Never said the same five years ago. Not much point in investing looking backwards from what I can see.
I notice you left out dividends (yet again). Of course it doesn't matter from a Heartland perspective, because more capital has been poured into that business structure than has come out as dividends over the last five years.
SNOOPY
Dividends.
My post # 425 on ANZ thread.
Dividend growth since 2014.
ANZ....Minus 4.5%..............
HBL.......Up....71.66%.
EPS growth,ROE growth,dividend growth means HBL has had outstanding share price growth,which you have missed.
Strong organic growth has seen HBL use up their excess capital.New capital will see further growth,while ANZ has had to sell of bits to shore up their balance sheet,which means they have little or no eps growth,so there certainly will be no increased dividends.
I reckon H1 profit will be $28.8m (they did do $14.2m in the first quarter) ..... and Jeff will say FY will be at top end of previous guidance
FY really should be over $60m but they'll manage to keep it to that $60m plus or minus a fraction - remember they always deliver on want they said they will do. Wouldn't want to go overboard would they
I thought as much. But what you did:
1/ Find a yield you are happy with.
2/ Multiply (1) by a gross dividend in cents that you choose
to obtain
3/ The share price
is a legitimate way to use the Dividend Capitalisation Valuation method. The yield that you choose is a judgement call. The dividend you use could be historical, forecast or some kind of multi-year average. So the dividend is a judgement call as well. And that means the whole valuation method is a judgement call. But there is nothing wrong with that, provided you sincerely believe that your own judgements are representative.
SNOOPY
I have a bit more to say about my $1.42 valuation. This will be obvious if you understand what 'business cycle average' means. But time to state the obvious.
Assuming my valuation is correct, the chances of Heartland trading at that value on any particular day is very small. If $1.42 is the average, then about half the time the share should be trading above that average and half the time the share should be trading below that average (as a general rule of thumb). Whether it trades above or below depends, where potential shareholders see Heartland going in the next couple of years in relation to the business cycle. A business cycle is not something with a smooth upward and downward progression. So it is not unusual to have lumpy share price movements over time that reflect this.
Just because I wouldn't buy Heartland today at $1.55, that doesn' t mean that I would sell it if I already owned it. For a start, Heartland is a good dividend payer. Sticking Heartland money in a 2% cash account is not a great alternative strategy. And although I regard Heartland as overvalued at present, it is not noticibly more overvalued than the rest of the market. My strategy, if I held Heartland, would be to keep holding. It would only be if the overvaluation became excessive that I would consider selling down. I would add on the upcoming dividend (3.5cps it was last year) to the fair value share price ($1.42 + 20%) and look at lightening my holding if Heartland became 20% overvalued from that figure.
That corresponds to a price of ($1.42 x 1.2) + $0.035 = $1.74
That's the figure I would be selling down from.
SNOOPY
Definitely makes sense having a sell price 20% higher than whatever the current share price is. :confused:
Though I would not complicate it by adding in the theoretical next dividend.
Best Wishes
Paper Tiger
So you wouldn't consider selling till it at $1.74, yet you think it is overvalued at $1.55?
So how overvalued does a share have to be until you decide to sell it?
Two answers to that.
1/ I study HBL as a 'value benchmark' for the finance sector shares I do own: ANZ and WBC. So knowing where the value of HBL is in the market, relative to the other two, is useful to me.
2/ The 'Capitalisation of Dividends Valuation' that I did produced:
2a/ an 'average value' AND
2b/ a 'buy value' (as a non-owner that is of interest to me) AND
2c/ a 'sell value'
all as outputs of a single analysis.
IOW, it wasn't really any extra work to produce the 'sell value', which might be of interest to those that do hold. So I printed it.
SNOOPY
IOW = Institut für Ostseeforschung Warnemünde
IOW = Isle Of Wight
In other words it can mean many things
Best Wishes
Paper Tiger
Actually I said I would be selling down from $1.74 (cum dividend) because the share would be 20% above my fair valuation. I didn't say I wouldn't consider selling at a lesser price.
I might sell at a price less than $1.74, but above $1.42 (my fair value price) if I found something better to invest in. The problem is, in this market, really good investment opportunities are hard to come by. Selling something above fair value, only to buy something else above fair value, doesn't necessarily make me better off.
However if something is very clearly overvalued to a significant degree, and I would argue Heartland at $1.74 would fit that category, then I would consider reducing my holding and putting that money in a 2% call account until another opportunity arose somewhere else in the market.
SNOOPY
Wow that last page was a painful read.
The SP has been extremely stable for the last 6 months, even through the elections saga. People obviously see fair value in this share around its current value.
Looking forward to the results, they're delivering nicely at the moment and out of most banks in New Zealand have the most room for growth and profit expansion over the next 5 years.
Think they would have been firmer but for the share placement lingering expecting announcement with result this week
HBL have taken a 25% SHAREHOLDING IN ONLINE LENDER FUELLED.
Looks like a great move ;adding another financial area/arm ,and great linkage to Xero ; Smart Heart,moving with the times. imagine a great takeup here.
Heartland Bank Limited (Heartland) (NZX: HBL) advises that it has taken a 25% shareholding in Fuelled Limited, an online small-to-medium business (SME) lender (www.fuelled.co.nz). The shareholding has been provided alongside a committed debt facility enabling Fuelled to accelerate its Australasian growth plans.
Fuelled is a New Zealand-based business whose simple on-demand service enables SMEs to receive an immediate cash advance on their outstanding invoices, rather than waiting up to 90 days for their customers to pay. Fuelled is the first of its kind in New Zealand and has been selected by Xero as its first alternative lender in Xero’s recently launched Financial Web. This tight integration with Xero enables Fuelled’s advanced credit assessment engine to make real time credit and financing decisions. The Fuelled customer experience is fully online and the entire process takes just a few minutes.
Still can't do simple banking transactions on a mobile phone ...great digital strategy
Had the same concern when I heared at their last AGM about this online credit approval. However - it is not as bad as it sounds. Yes, they do give you online approval, but this is subject to sufficient evidence ... and if they do approve a credit, than there is a human checking the evidence prior to them paying out the credit facility.
I guess what they save this way is the need for humans to check evidence for credits they would anyway not approve. Makes sense to me.
Yes...most frustrating isn't it. They will get there tho.
I am advised that when they switch to their new system Samsung phones will work well with their internet banking platform. Apple phones will also work.
And that that will be in March. So not long to go. Hardly leading edge tho, is it. I find the BNZ mobile site really nice to use, especially like that it can use my fingerprint for authentication. Fingers crossed there isn't to much slippage.
Cheers, RTM
I guess it is a fact of life a good number of businesses have to wait far too long to be paid.
In the book trade if you did not pay by the 20th of the following month suppliers stopped supply.
Today the "majors" take 60 days to pay.So suppliers have to carry an extra month's debt.
Having only a quick look at www.fuelled.co.nz it appears the cost to suppliers carrying the extra month'd debt is substantial.
Yet in my modest business I get paid by schools so quickly,thanks to the internet, I can pay my suppliers on invoice.
Half Year Results are out!
https://www.nzx.com/files/attachments/253359.pdf
I'll summarize it in 2 words for you all to save you the time reading: Excellent Result
For what it's worth, ahead of Forsyth forecasts as well
I also hear they are getting quite a few UDC customers...
I'm expecting a strong 2nd half, with profit above $60m for the year
You can't argue with a good solid result like that.
14% profit growth through strong organic growth across all divisions is a very sound increase on last year.
Net interest margin remains very high at 4.44% compared to 4.52% in pcp
Very nice touch for shareholders to be able to subscribe for new shares under the share purchase plan at the same price as the institutions did in December ($1.46), notwithstanding SP growth since then and an extra nice touch that the size of the SPP pool has been expanded from $10m to $20m again matching the terms of the institutional placement.
To be honest I am slightly disappointed that the interim dividend of 3.5 cps wasn't increased in line with profit growth. 4 cps would have been nice and would have reflected the 14% growth in EPS but who can be bothered quibbling over half a cent per share in dividend considering the solid organic growth the company is achieving.
Agreed...would have been nice to have had a wee bit more on the dividend side of things. Maybe that will come with the final.
What is nice is that our new shares which will not cost more than $1.46 will be eligible for the 3.5c dividend.
Unfortunately I think I am going to have to sell some that I have at some stage....as they are getting to be to big a proportion of my portfolio.
I guess this is a good problem.
Cheers all
RTM
Regarding the SPP, and I'm only wanting to hear fellow investors opinions,but would you not be a bit ticked off if you had say 500,000 shares and you could still only apply for $15,000 worth compared to myself with only 30,000 and effectively(if I obtained the full $15,00 worth) increasing my shareholding by a third at a very good price. That would drop my average purchase price nicely.But for someone with a much larger holding, only a smidgeon.
Don't forget that institutional investors got already a free pick ...ahead of anybody else. I am sure they are quite happy with us getting some crumbs as well. I don't think anybody should expect to get the full $15k allocation ... even after the increase of the pool there will be very heavy scaling.
If HBL thinks it can have a good return on increased capital, why pay any dividend?
I am sort of more with you Forest although I don' t think they should stop paying a dividend. But I think it is very prudent of them NOT to increase the dividend while active with capital raisings through institutional placement and SPP.
At first reading, this sounds like a very solid results.
Kizame, you should direct your question to Percy and see how he feels as he's close to your example given :-)
My thoughts are that if someone was holding 500,000 shares they would probably already have heard from their broker regarding the institutional placement last December.
Let me answer that rhetorical question with another, why do you think they have the dividend reinvestment scheme ?
I for one would not own them then Forest. I have no desire to live off capital gains. I want to live off the dividends from my stocks.
I don't want the drama of having to sell and rebuy something else....or at least....I want to minimise that going forward.
What I am looking for in my share portfolio are stocks that will appreciate nicely over time, and pay a reasonable steady dividend. At the moment Heartland is meeting those requirements very nicely.
Has anyone else got an email from HBL offering the SPP - I noticed it said documentation has been sent electronically but I haven't received anything. Want to make sure I don't miss out!
Yes pleasing to have the SPP price set,and that shares issued will receive the dividend.
For me it looks as though my best course of attention is to apply for the SPP for both my wife and myself,and take the cash option for the dividend.This is because I will need to dip into our rainy day funds to take part in the SPP.
The result shows Heartland's strategy is on course.All through the result, it is pleasing to see the huge growth they are already achieving with DIGITAL LOAN ORIGINATION;"Open for business"up 142%.I-finance up 26%,Harmoney up 69%.
Interesting to note 25% of Australian REL origination is on line,and taking "open for business" to Australia makes sense.
Taking a cautious approach with their support of Spotcap, and paying $1mil for 25% holding of Fuelled ,and providing them with a $2mi debt facility,will be appreciated by shareholders.
Getting the ROE up to 11.6% is a very good achievement.
Overall Heartland can be proud of this result,as it continues to prove they achieve what they say they will do.
Shareholders can look forward to the future as Heartland Bank remains "well positioned"
How much would you expect to get when subscribing for the $15k?