The Heartland Group Holdings Limited (ASX: HGH) share price will be on watch this morning following the release of its half year results for the period ending 31 December 2019.
What does Heartland do?
Heartland is a New Zealand registered bank with operations in New Zealand and Australia. Heartland services small- to-medium sized businesses, the rural industry and individuals with a full range of finance, investment, banking and lending solutions. It is listed on the ASX 300 with a current market capitalisation of $866 million.
What did Heartland Group announce?
Heartland achieved a net profit after tax (NPAT) of $39.9 million for first half of FY20, an increase of 20.4% on the prior corresponding period (pcp).
Gross finance receivables came in at $4.6 billion, up $177 million, which was an 8% annualised growth since June 2019. Return on equity was 11.7%, up 165 basis points (bps) and net interest margin of 4.72% was flat on the 6 months to 30 June 2019 (2H2019) and 5 bps down compared on pcp.
Heartland's cost-to-income ratio (CTI) was 46.0%, up 3.5% on pcp. After allowing for changes in the accounting treatment and one-off impacts, the underlying CTI was 43.3, up 4.3% as a result of significant investments.
A 32% ($4.3 million) lower impairment expense reflected significant efforts to enhance collections processes and discipline.
Heartland declared a fully imputed 2020 interim dividend of 4.5 cents per share (cps), an increase of 1.0 cps from 1H2019. The resulting gross dividend yield was 8.3%
Heartland commented that significant progress had been made on implementing Heartland's workplan to address improvements across conduct and culture. It also reported that 47% of employees were aged 35 years and under and 35 interns joined Heartland Bank's Manawa Ako internship program.
FY20 outlook and guidance
Heartland commented that asset growth from Heartland's core lending activities is expected to continue in the second half of FY2020, particularly in Australia and New Zealand reverse mortgages and small business lending.
Investment will continue, specifically in marketing, to continue building awareness of reverse mortgages (in Australia and New Zealand) and its product O4B, as well as in new areas of opportunity.
Heartland anticipated that some of these costs to be one-off and will contribute to growth beyond FY2020.
It expects further diversification of funding, particularly in Australia, to support growth. Looking ahead to the rest of FY2020, Heartland said that it will continue its focus on evaluating its overall environment, social and governance (ESG) strategy and the ways in which it can continue to reduce its environmental impact.
Heartland further commented that the underlying balance sheet growth supports a result in line with the original NPAT forecast in the range of $77 million to $80 million.
