HGH - Heartland Group Holdings

[flyinglizard]

Screenshot 2024-08-29 222855.jpg

just one day....it may go down below $1 soon.

[Balance]

Screenshot 2024-08-29 222855.jpg

just one day....it may go down below $1 soon.

That would be nice.

[Greekwatchdog]

For Bars Review
Heartland Group Holdings (HGH) reported a weak FY24 result, which was characterised by compressed net interest margins (NIM) and higher impairments. Importantly, progress has been made on key strategic initiatives, with the completion of the Challenger Bank acquisition, having its Australian authorised deposit-taker license granted, and completing work on its core banking system upgrade in NZ. The operating backdrop remains challenging, particularly for the motor and business lending portfolios, which is expected to continue into FY25. Despite this, HGH has reiterated its FY28 target of NZ$200m NPAT and 12%–14% return on equity. We need proof of both an improving macro backdrop and operational efficiencies to get more comfort around targets. NEUTRAL.


What's changed?
Earnings: Lowered FY25 on ongoing near-term uncertainty, and assume a longer period to recover earnings
Target price: Trimmed -9cps (-7.2%) to NZ$1.16.
Messy result with receivables growth offset by impairments
HGH reported a characteristically messy FY24 result, with underlying NPAT of NZ$103m (down -7% on the prior year) despite +7% receivable growth versus FY23. The two major contributors were: (1) underlying NIM falling -36 bps on the prior year to 3.64%, and (2) a +NZ$7.2m increase in impairment expenses, with underlying impairment ratios increasing +12 bps to 0.44%. This was marginally offset by a +NZ$3.4m increase in other operating income, and underlying operating expenses falling -NZ$1.3m.


Recurring one-offs
One-off items have become the modus operandi for HGH in recent years, and FY24 was no exception. In fact, the NZ$28m spread between reported and underlying NPAT in FY24 was more than double the prior year, with reported NPAT back at FY20 levels. While there is some merit to removing one-offs from earnings to get a view on the underlying profitability of the business, the growing level of one-offs reported does muddy earnings transparency. HGH expects one-off items to continue in FY25, albeit at a much lower level.


No FY25 guidance provided, but volatility expected to continue
No quantitative FY25 earnings guidance was provided, with HGH citing the volatile economic conditions. HGH did provide guidance for NIM to rise +16 bps to 3.81% (FBe FY25: 3.74%), with expansion supported by lower cost of funds as interest rates fall, while benefitting from its fixed loan books in particular. Cost to income (CTI) guidance of 45.2% was provided for Heartland Bank, and 45.4% for Heartland Bank Australia (FBe FY25 Group CTI: 47.1%). HGH remains committed to its FY28 targets of NZ$200m of NPAT, based on +10% receivables CAGR, NIM >4%, CTI <35%, and impairment expense ratios <0.3%. Our FY28 forecast is NZ$170m.


Summary forecast changes
The soft FY24 result and ongoing uncertain near-term conditions has resulted in a -7% reduction of our FY25 Underlying NPAT forecast to NZ$102m. Slower receivables growth, a low NIM assumption and higher assumed impairments are the three main factors lowering our profit expectations. We do expect economic conditions to improve. After a transition year, as HGH beds down its Australian business, the benefits of its strategy will be seen in FY26 and beyond.


HGH FY24 dividend represented a payout ratio of 55% of Underlying NPAT. Its dividend guidance is that it will pay at least 50%. We have targeted an ongoing payout ratio of ~55% for the next three financial years, which when combined with a lower earnings outlook reduces our dividend path -1.5cps per annum.


FY24 result summary
HGH has reported FY24 NPAT of NZ$75m, which was -NZ$21m below FY23. Underlying NPAT, the number HGH guides to and focusses on was NZ$103m, vs our forecast of NZ$108m and its guidance range of NZ$108m–NZ$112m, which was reiterated at its April 2024 equity raise. Loan receivables were up +6.4%, driven by +20% growth in both reverse mortgage books, but was offset by lower business (-3%) and AU livestock finance (-27%) receivables. Underlying opex was down -NZ$1.3m, with the cost to income ratio falling -10 bps to 41.9%. Reported impairment expense ratio rose +30 bps (+NZ$23m) to 0.66% or 0.44% on an underlying basis, adjusting for the NZ$16m provision related to legacy lending in December 2023.

[bull....]

For Bars Review
Heartland Group Holdings (HGH) reported a weak FY24 result, which was characterised by compressed net interest margins (NIM) and higher impairments. Importantly, progress has been made on key strategic initiatives, with the completion of the Challenger Bank acquisition, having its Australian authorised deposit-taker license granted, and completing work on its core banking system upgrade in NZ. The operating backdrop remains challenging, particularly for the motor and business lending portfolios, which is expected to continue into FY25. Despite this, HGH has reiterated its FY28 target of NZ$200m NPAT and 12%–14% return on equity. We need proof of both an improving macro backdrop and operational efficiencies to get more comfort around targets. NEUTRAL.


What's changed?
Earnings: Lowered FY25 on ongoing near-term uncertainty, and assume a longer period to recover earnings
Target price: Trimmed -9cps (-7.2%) to NZ$1.16.
Messy result with receivables growth offset by impairments
HGH reported a characteristically messy FY24 result, with underlying NPAT of NZ$103m (down -7% on the prior year) despite +7% receivable growth versus FY23. The two major contributors were: (1) underlying NIM falling -36 bps on the prior year to 3.64%, and (2) a +NZ$7.2m increase in impairment expenses, with underlying impairment ratios increasing +12 bps to 0.44%. This was marginally offset by a +NZ$3.4m increase in other operating income, and underlying operating expenses falling -NZ$1.3m.


Recurring one-offs
One-off items have become the modus operandi for HGH in recent years, and FY24 was no exception. In fact, the NZ$28m spread between reported and underlying NPAT in FY24 was more than double the prior year, with reported NPAT back at FY20 levels. While there is some merit to removing one-offs from earnings to get a view on the underlying profitability of the business, the growing level of one-offs reported does muddy earnings transparency. HGH expects one-off items to continue in FY25, albeit at a much lower level.


No FY25 guidance provided, but volatility expected to continue
No quantitative FY25 earnings guidance was provided, with HGH citing the volatile economic conditions. HGH did provide guidance for NIM to rise +16 bps to 3.81% (FBe FY25: 3.74%), with expansion supported by lower cost of funds as interest rates fall, while benefitting from its fixed loan books in particular. Cost to income (CTI) guidance of 45.2% was provided for Heartland Bank, and 45.4% for Heartland Bank Australia (FBe FY25 Group CTI: 47.1%). HGH remains committed to its FY28 targets of NZ$200m of NPAT, based on +10% receivables CAGR, NIM >4%, CTI <35%, and impairment expense ratios <0.3%. Our FY28 forecast is NZ$170m.


Summary forecast changes
The soft FY24 result and ongoing uncertain near-term conditions has resulted in a -7% reduction of our FY25 Underlying NPAT forecast to NZ$102m. Slower receivables growth, a low NIM assumption and higher assumed impairments are the three main factors lowering our profit expectations. We do expect economic conditions to improve. After a transition year, as HGH beds down its Australian business, the benefits of its strategy will be seen in FY26 and beyond.


HGH FY24 dividend represented a payout ratio of 55% of Underlying NPAT. Its dividend guidance is that it will pay at least 50%. We have targeted an ongoing payout ratio of ~55% for the next three financial years, which when combined with a lower earnings outlook reduces our dividend path -1.5cps per annum.


FY24 result summary
HGH has reported FY24 NPAT of NZ$75m, which was -NZ$21m below FY23. Underlying NPAT, the number HGH guides to and focusses on was NZ$103m, vs our forecast of NZ$108m and its guidance range of NZ$108m–NZ$112m, which was reiterated at its April 2024 equity raise. Loan receivables were up +6.4%, driven by +20% growth in both reverse mortgage books, but was offset by lower business (-3%) and AU livestock finance (-27%) receivables. Underlying opex was down -NZ$1.3m, with the cost to income ratio falling -10 bps to 41.9%. Reported impairment expense ratio rose +30 bps (+NZ$23m) to 0.66% or 0.44% on an underlying basis, adjusting for the NZ$16m provision related to legacy lending in December 2023.

cool ties in with my thinking ... reduce the div 1c probably 2 on macro factors

[percy]

I note Forbar see HGH's eps gathering 27.77% momentum from 10.8cps in 2025 to 13.8 cps in 2026 ,and a further 17.39% growth to 16.2cps in 2027.
Therefore HGH have laid solid foundations for future growth.
I trust they will concentrate their capital on higher margin lending to avoid further capital raises,which have in the past destroyed so much shareholder wealth.

...EPS...........2024....................2025..... ......................2026........................ ...2027
Craigs.cps.........9.........................11... ............................13.................... ...........16
growth. ............ .....22.22%.......................18.18.%......... .............23%..
Forbar cps ....11......................10.8.................. ..........13.8............................16.2.
growth.......................-[1.82%].....................27.78%....................... ..17.39%..

[LaserEyeKiwi]

For Bars Review
Heartland Group Holdings (HGH) reported a weak FY24 result, which was characterised by compressed net interest margins (NIM) and higher impairments. Importantly, progress has been made on key strategic initiatives, with the completion of the Challenger Bank acquisition, having its Australian authorised deposit-taker license granted, and completing work on its core banking system upgrade in NZ. The operating backdrop remains challenging, particularly for the motor and business lending portfolios, which is expected to continue into FY25. Despite this, HGH has reiterated its FY28 target of NZ$200m NPAT and 12%–14% return on equity. We need proof of both an improving macro backdrop and operational efficiencies to get more comfort around targets. NEUTRAL.


What's changed?
Earnings: Lowered FY25 on ongoing near-term uncertainty, and assume a longer period to recover earnings
Target price: Trimmed -9cps (-7.2%) to NZ$1.16.
Messy result with receivables growth offset by impairments
HGH reported a characteristically messy FY24 result, with underlying NPAT of NZ$103m (down -7% on the prior year) despite +7% receivable growth versus FY23. The two major contributors were: (1) underlying NIM falling -36 bps on the prior year to 3.64%, and (2) a +NZ$7.2m increase in impairment expenses, with underlying impairment ratios increasing +12 bps to 0.44%. This was marginally offset by a +NZ$3.4m increase in other operating income, and underlying operating expenses falling -NZ$1.3m.


Recurring one-offs
One-off items have become the modus operandi for HGH in recent years, and FY24 was no exception. In fact, the NZ$28m spread between reported and underlying NPAT in FY24 was more than double the prior year, with reported NPAT back at FY20 levels. While there is some merit to removing one-offs from earnings to get a view on the underlying profitability of the business, the growing level of one-offs reported does muddy earnings transparency. HGH expects one-off items to continue in FY25, albeit at a much lower level.


No FY25 guidance provided, but volatility expected to continue
No quantitative FY25 earnings guidance was provided, with HGH citing the volatile economic conditions. HGH did provide guidance for NIM to rise +16 bps to 3.81% (FBe FY25: 3.74%), with expansion supported by lower cost of funds as interest rates fall, while benefitting from its fixed loan books in particular. Cost to income (CTI) guidance of 45.2% was provided for Heartland Bank, and 45.4% for Heartland Bank Australia (FBe FY25 Group CTI: 47.1%). HGH remains committed to its FY28 targets of NZ$200m of NPAT, based on +10% receivables CAGR, NIM >4%, CTI <35%, and impairment expense ratios <0.3%. Our FY28 forecast is NZ$170m.


Summary forecast changes
The soft FY24 result and ongoing uncertain near-term conditions has resulted in a -7% reduction of our FY25 Underlying NPAT forecast to NZ$102m. Slower receivables growth, a low NIM assumption and higher assumed impairments are the three main factors lowering our profit expectations. We do expect economic conditions to improve. After a transition year, as HGH beds down its Australian business, the benefits of its strategy will be seen in FY26 and beyond.


HGH FY24 dividend represented a payout ratio of 55% of Underlying NPAT. Its dividend guidance is that it will pay at least 50%. We have targeted an ongoing payout ratio of ~55% for the next three financial years, which when combined with a lower earnings outlook reduces our dividend path -1.5cps per annum.


FY24 result summary
HGH has reported FY24 NPAT of NZ$75m, which was -NZ$21m below FY23. Underlying NPAT, the number HGH guides to and focusses on was NZ$103m, vs our forecast of NZ$108m and its guidance range of NZ$108m–NZ$112m, which was reiterated at its April 2024 equity raise. Loan receivables were up +6.4%, driven by +20% growth in both reverse mortgage books, but was offset by lower business (-3%) and AU livestock finance (-27%) receivables. Underlying opex was down -NZ$1.3m, with the cost to income ratio falling -10 bps to 41.9%. Reported impairment expense ratio rose +30 bps (+NZ$23m) to 0.66% or 0.44% on an underlying basis, adjusting for the NZ$16m provision related to legacy lending in December 2023.

I note Forbar see HGH's eps gathering 27.77% momentum from 10.8cps in 2025 to 13.8 cps in 2026 ,and a further 17.39% growth to 16.2cps in 2027.

Therefore HGH have laid solid foundations for future growth.
I trust they will concentrate their capital on higher margin lending to avoid further capital raises,which have in the past destroyed so much shareholder wealth.

...EPS...........2024....................2025..... ......................2026........................ ...2027
Craigs.cps.........9.........................11... ............................13.................... ...........16
growth. ............ .....22.22%.......................18.18.%......... .............23%..
Forbar cps ....11......................10.8.................. ..........13.8............................16.2.
growth.......................-[1.82%].....................27.78%....................... ..17.39%..

If they truly believe that HGH will have $170m iNPAT for 2028, and also reach 16.2 eps in 2027, they are doing a massive disservice to their clients by placing a “neutral” rating on it and a shrimpy 12 month price target of $1.16c.