Heartland Group Holdings Limited Analysis

Overview

Heartland Group Holdings Limited (NZX:HGH) is a financial services group with operations in New Zealand and Australia.

In New Zealand, Heartland Bank Limited (NZX:HBL) is a registered bank that 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.

Since first listing on the NZX Main Board in February 2011, Heartland has successfully progressed through several strategic phases, establishing itself as a specialist financial services group that is listed on both the NZX Main Board and ASX under a Foreign Exempt Listing.

A corporate restructure of the Heartland group was implemented in October 2018. For announcements prior to 1 November 2018 relating to Heartland shares, please refer to Heartland Bank Limited's listing (NZX:HBL).

Performance

The following information was extracted from Heartland Bank Limited's full year results, released on 29 August 2024:

Heartland announces solid FY2024 result, sets foundation for continued growth

Heartland Group Holdings Limited (Heartland) (NZX/ASX: HGH) has announced a net profit after tax (NPAT) of $74.5 million for the financial year ended 30 June 2024 (FY2024). On an underlying basis, FY2024 NPAT was $102.7 million.

In a challenging economic environment, Heartland achieved solid gross finance receivables (Receivables) growth, up 6.4% on the financial year ended 30 June 2023 (FY2023). While some volatility is expected to continue through the remainder of the 2024 calendar year, the longer-term outlook for Heartland is positive. Having executed significant strategic milestones in FY2024, further growth is anticipated in the financial year ending 30 June 2025 (FY2025) as Heartland continues towards its ambitions for the financial year ending 30 June 2028 (FY2028).

Heartland’s FY2024 result was impacted by the rapidly deteriorating economic conditions in May and June 2024 which saw the emergence of additional provisions primarily in Heartland Bank Limited’s (Heartland Bank’s) Asset Finance, Motor Finance and Rural portfolios. This resulted in a 4.9% shortfall to guidance. This late increase in provisions reflects (amongst other things) enhancements to Heartland Bank’s Motor Finance provisioning model, a more conservative provisioning approach on certain Rural exposures, and the effect of the sustained inflationary environment on some consumer and business borrowers.

Highlights

‒ Solid FY2024 result achieved in a challenging economic environment.

-- One-off or non-cash technical items had a $28.2 million impact on NPAT.

-- 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).

‒ Growth in Receivables of 6.4% ($432.1 million) on FY2023 to $7.2 billion in FY2024.

-- Reverse Mortgages up 20.2% in New Zealand and 19.7% in Australia.

-- Asset Finance up 8.0% in a market with difficult trading conditions.

-- Motor Finance up 3.8% in a market where total new and used car sales by dealers were down by 12.7%.

‒ Significant strategic milestones set the foundation to achieve FY2028 growth ambitions.

-- Completed the acquisition of Challenger Bank Limited (Challenger Bank) and subsequently rebranded the authorised deposit taking institution (ADI) to Heartland Bank Australia Limited (Heartland Bank Australia).

-- Successfully completed a $210 million equity raise to fund the acquisition, with strong investor support.

-- Heartland Bank’s core banking system was successfully upgraded, enabling increased digitalisation and automation.