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NZ Peripheral - Heartland Group Holdings

Last Price: $1.41
Market Cap: $797M
Fair Value: $1.61
Sector: Financial Services

Investment Perspective

In New Zealand, Heartland Bank focuses on 'best or only' banking products in three key markets: Household (which includes investment products, consumer lending, reverse mortgages and motor vehicle lending); Business; and Rural. In Australia, Heartland is a specialist provider of reverse mortgage loans and also provides funding to partners in the Small Business and Consumer Lending sectors. Heartland’s medium-term growth outlook continues to appear positive, however does present some downside risks. In particular, a slowing car-market could impact on their motor vehicle loans, which has been one of Heartland’s strong growth areas (net finance receivables grew $31.4m June-Sept 2018), as well as an overall cautious outlook for the banking sector as we await the findings and outcomes of Australia’s royal commission.

Market Update

Heartland Bank recently hosted an investor briefing and released its 2019 first-quarter results. In the presentation, CEO Jess Greenslade emphasised HGH was primarily a core NZ banking operation with two exciting growth levers in Australian and Digital operations. It has confirmed its full year 2019 NPAT (net profit after tax) of $75m-$77m and shown strong growth in its important Reverse Mortgage book. We expect the Reverse Mortgage book to experience continued strong growth in Australia which is essential to the overall growth of the business and can see potential upside in forecasts to Agri and digital initiatives (in both revenue and cost). Business and motor vehicle lending is also growing nicely, however with a slowing car market and business confidence remaining low, these areas could face challenges in the short term.

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