HGH - Heartland Group Holdings

[Balance]

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Hmm

The shortfall to guidance was largely due to the late increase of $10.1 million of provisions, primarily in Heartland Bank’s Asset Finance, Motor Finance and Rural portfolios (without which Heartland would have seen a result within guidance).

Any comments @ Snoopy? Got called out as scurrilous and ill researched for this comment earlier... (which I didnt disagree with lol)
Provisions go up in economic downturns though eh?

Impaired asset expense $46.4m.

Data provided to RBNZ back in early August (to June 2024) showed 42.3m (which excluded Australia).

https://bankdashboard.rbnz.govt.nz/orgs/HEART-BK

Well within expectations for anyone who follows the stock.

[Rawz]

im not surprised about the extra $10m provision for asset finance/motor and rural.
wonder if its enough????

they are also adding back a $11.5m provision for subset of legacy lending?? is that right to do?... if you dont add it back their underlying target is well missed...

[Rawz]

Gosh it really is a hard read lol..

Definitely bottom of the cycle stuff. Need to look through it and into the future $200m unpat glory days to come

[X-men]

Any results will not satisfy the market..because .. people are currently tied up their money on the term deposit...

[LaserEyeKiwi]

Got an order in to my broker this morning to increase my holdings by 33% - hopefully price stays down long enough today for my trade to be placed.

Underlying growth continues to be extremely good, digging into fine print NIM already improving at end of reporting period.

This is one for the long term holders who aren’t after a quick trade - you are buying at the bottom of the cycle and will reap the long term rewards if you engage diamond hands (to borrow a phrase from Gen Z)

[X-men]

I agree with u

[bull....]

xman you seem to be invested in a few dud's. least the div pay for the lap-dance eh

[X-men]

Fkng eh....love the dividend now....the term deposit is going down...another 6months ... people are flocking to buy dividend shares

[bull....]

might be reduced div next yr on that result under 1 again soon ?

[Snoopy]

Looked into HGH the other day. $1.6 billion in car loans scared me off. They are increasing market share of these loans aggressively into a declining market.

No indication of if they are loaning these to sub prime (second hand clunkers) market or to prime (new flash ones) borrowers.... Could easy see the delinquency rate picking up over the next couple of years in the downturn...

I think this thing goes lower from here.

I think you need to look a bit more carefully. From AR2023 p33:
"Heartland launched an "iOwn"guaranteed future value product across the Peugeot, Citroen and Opel range of vehicles"

From p17 AR2022
"Key partners ...Kia (through Kia Finance and offering Kia Konfidence) (and) Jaguar Land Rover."

Also from p17 AR2022
"Key partners , including branded white label partnerships contributed $293m of total new motor business in FY2012"

From AR2022 p97 and p98 motor vehicle loan assets increased from $1,288m to $1,382m an increase of $94m. If the key partners loans increased by nearly $200m more than that (and they did, so obviously about $200m of older loans rolled off over the same period), this would indicate that a very large amount of the new Heartland motor business, could be as high as 100%, was funding new cars.

Consequently I would suggest that your comment that there is no indication where these motor loans are coming from, and a lot of the motor loans are to sub prime lenders is scurrilous, ill researched and just plain wrong. Of course there is nothing to stop new car buyers defaulting on their loans in a really bad downturn. But so far, a lot more people are keeping their jobs than might be expected in a significant recession. And if a new car buyer does default, the chances are a good quality asset can be repossessed to pay that loan balance off.

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Hmm


The shortfall to guidance was largely due to the late increase of $10.1 million of provisions, primarily in Heartland Bank’s Asset Finance, Motor Finance and Rural portfolios (without which Heartland would have seen a result within guidance).

Any comments @ Snoopy? Got called out as scurrilous and ill researched for this comment earlier... (which I didn't disagree with lol)
Provisions go up in economic downturns though eh?

From the results announcement today:

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NZ Banking
Heartland Bank’s non-performing loans ratio deteriorated from 2.56% to 3.66% in FY2024. Most of this deterioration occurred in 1H2024 which saw an increase of 104 bps. 2H2024 saw a relative stabilisation with only a 6 bps increase on 1H2024. The trend in total arrears showed a similar pattern with 1H2024 witnessing a 230 bps deterioration (to a peak of 7.6%) but an improvement of 70 bps in 2H2024 to 6.9%. This deterioration primarily originated from the Motor Finance and Asset Finance portfolios which remain under pressure.

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This indicates that most of the deterioration in the loan portfolio occurred in the first half, and things were pulled back a bit in the second half. This shows to me that Heartland were not slow to recognise the problem and acted accordingly. Nevertheless 6.9% of a substantial motor vehicle portfolio and asset value portfolio being in arrears is not great news. Note 2 the Segmented Asset break down in the financial report shows the motor vehicle loans clearly. But the segmented result is far less clear about where the 'Asset finance' portfolio lies. It is likely it is just part of the 'Business' segment. So that means by far the majority of 'Motor finance and Asset Finance' is likely to be 'Motor Finance'. Therefore I am going to take the arrears rate quoted as applicable to just 'Motor finance'.

Look at note 2 in the financial report and you will see motor vehicle loans total $1,608.282m. 6.9% of that figure is: 0.069 x $1,608.282m= $111m.
The equivalent motor vehicle arrears figure from FY2023 was; 0.053 x $1,563.939m= $83m. So this is a jump of $111m-$83m=$28m in motor vehicle arrears in just one year.
Of course being 'in arrears' does not mean the loan will be written off and being written off does not mean there is no prospect of any dollar recovery. But $28m is nevertheless a large percentage of declared profit of $74.5m, even though that $28m has been separately provisioned for, prior to the $74.5m of profit being declared.

I have just had a look at slide 13 of the FY2024 results presentation, and the 'specific provision' for any non-performing asset loans is $22.5m, up just $6.2m from the year before. So I guess if the downturn continues to bite, we could see further special provisions for write-downs in 2025. But as an investor, you can't invest when you see every Heartland loan as a 'portent of doom'. Nevertheless 6.9% of all new car buyers not paying their bills on time is a higher percentage than I was expecting. Yet in this situation, you have to trust the experience of Heartland management to get their provisioning right. I wonder how much of that $28m jump in 'new' motor vehicle delinquency is the Duval Roller? Or am I the one being scurrilous now?

SNOOPY