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A Broker's PreView - Heartland Moving to the Beat


Overview: Heartland Bank has not put a foot wrong lately, upgrading earnings forecasts on numerous occasions. Their 3rd quarter result was their most recent, with the company noting that Net Profit after Tax for the year will be “at the upper end” of the previously advised $46-$48 million range. The run of positive results saw the share price hit all time highs of $1.42 in February; however since then we have seen a 20 percent drop in the share price, touching $1.14 earlier in the week.

Pros: At current prices the Heartland has a gross dividend yield in the range of 8 percent; fairly attractive in this low interest rate environment. These low interest rates have no doubt helped Heartland’s cause as borrowing is encouraged, and savers are forced to scratch around for reasonable returns.

Heartland have traditionally offered investors higher deposit rates than their banking peers, although, according to their half year result presentation, this margin has dropped from over 70 basis points (bp) in December 2011 to under 10bp in December 2014 (i.e. going from a 0.70 percent premium to just 0.10 percent). This lower premium suggests higher trust from depositors, as we have also seen retail deposits increase over this period.

The margin over their peers has contracted as Heartland has ticked off many regulatory and capital adequacy barriers. This includes gaining their banking license (with conditions), having these conditions lifted, and maintaining capital well in excess of regulatory minimums.

Cons: The capital adequacy ratios required by the Reserve Bank are part of a wave of new regulations introduced around the world in the wake of the Global Financial Crisis. These are designed to limit the chances of banks defaulting by requiring them to keep certain levels of equity and reserves.

Heartland sits well in excess of these at the moment, although as we have seen in the past, this is no guarantee of safety. One aspect that could work in Heartland’s favour is their limited exposure to international credit markets. Many larger banks rely on these markets for cheap short term funding, whereas Heartland receives most of their funding from local term & cash deposits, meaning Heartland should be less affected if international credit markets seize up.

In addition, Heartland has a 10 percent shareholding in peer to peer lending company Harmoney, as well investing and looking to grow their Home Equity Release (or reverse mortgage) business which they purchased last year. Both have a degree of execution risk attached.

Price performance: Long time holder Quadrant sold 8.75 percent of the company at $1.30 in May. Concerted selling since then has seen the share price trade down to $1.18 this week.

Investment outlook: With growing earnings and an attractive dividend Heartland is still looking reasonably attractive, particularly given the low interest rate environment. The company has not put a foot wrong recently, so is gaining respect in the market, which is now being reflected in the appreciating share price.

*A Broker's View is written by Grant Davies, Investment Advisor at Hamilton Hindin Greene Limited. This article represents general information provided by Hamilton Hindin Greene, who may hold an interest in the security. It does not constitute investment advice. Disclosure documents are available by request and free of charge through

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