RBA Expected to Cut Again | Heartland Group

17 November 2019

Global markets moved between small gains and losses overnight amid mixed economic data and mounting concern over a partial trade deal, as the US market remains at all-time highs. 

Closer to home, a surprise increase in the unemployment rate supported gains on the Australian market yesterday – with the market tipping another interest rate cut by the Reserve Bank of Australia was likely in the next six months. The news saw the Aussie dollar fall further. All else equal lower interest rates mean that the return on holding a currency is lower, and hence its value generally falls.
 

Stock in Focus: Heartland Group (HGH:NZX / HGH:ASX)

HGH shares ended up higher after delivering a reasonably sound result for the 2019 financial year. Unlike the major banks Heartland managed to increase their net receivables (total loan book) by +10.5% from last year, as they continue to provide niche lending products which are not in direct competition with the big 4 Aussie bank’s core business of low-risk mortgages – which has been experiencing headwinds due to tightening credit growth.

Heartland posted a net profit after tax of $73.6m for the 2019 financial year, which was up +9% from last year, largely driven by lending growth in their reverse mortgages, motor and business lending divisions. Lending growth was partially offset by easing net interest margin as a greater proportion of Heartland’s lending is attributed to lower risk reverse mortgage lending, and a number of one-offs associated to accounting policy, corporate restructure costs and break fees. We maintain our HOLD recommendation on the basis that we are aware of the  risks of a slowdown in the NZ economy (which could increase the bank’s bad debts) and regulatory pressure from the royal commission and RBNZ, combined with HGH's higher risk profile (due to the nature of their loans).

We currently have a HOLD rating on HGH.

 

   
Australia & New Zealand Market Movers

​The Australian market​ bounced yesterday (-0.​55​%) with Tech stocks leading gains. Afterpay Touch contined to power higher after announcing plans to expand into new markets, and deals with Mastercard and eBay Australia. GrainCorp shares declined after reporting a full-year statutory net loss after tax of $113 million, down from a $71 million profit in 2017-18. Chief executive Mark Palmquist blamed the loss on the drought and a prolonged probe by the ACCC into the sale of its Australian bulk liquid terminals business.

The New Zealand market​ ​​rebounded on Thursday (+0.59%). Port of Tauranga had a strong session – this week the government said it was considering a recommendation to shift Ports of Auckland’s operations to NorthPort from the upper North Island supply chain study working group. The Tauranga operator owns half of NorthPort, with the balance held by Marsden Maritime Holdings. 

 

3 Things Markets Will be Watching this Week

  1. ​Trade related news-flow is likely to continue to sway investor sentiment.
  2. Global quarterly corporate earnings season enters its final stages.
  3. The Reserve Bank of New Zealand makes an interest rate decision on W​ednesday.
     

 

Have a Great Day,
 

Team

Closer to home, a surprise increase in the unemployment rate supported gains on the Australian market yesterday - with the market tipping another interest rate cut by the Reserve Bank of Australia was likely in the next six months.

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