Heartland posts 1H profit in line with forecast, eyes future acquisitions for growth
Heartland New Zealand [NZX: HNZ], which gained a banking licence just over a year ago, posted first-half profit growth in line with its forecast and said increased rivalry in business and rural lending was "challenging" though household lending growth looked strong.
Christchurch-based Heartland said net profit rose 56 percent to $16.7 million in the six months ended Dec. 31, in line with its $16.5 million forecast. Profit lagged First NZ Capital's $17.5 million estimate. Revenue rose 14 percent to $59.1 million.
Heartland, formed from the merger of Canterbury and Southern Cross building societies and Marac Finance, said the transformation of its balance sheet is on track as it exits non-core property loans, high risk assets and lending which competes with mainstream banks. The company aims to speed up earnings growth through acquisitions, and said today it continues to investigate potential acquisition targets after this month agreeing to pay $87 million for a reverse mortgage business.
The company said it has established a specialist team to target acquisition opportunities and develop new products, as it aims to accelerate earnings growth in areas without mainstream competition. Heartland said it has successfully integrated five businesses and developed new products over the last four years.
Shares in Heartland rose 1.1 percent to 91 cents, and have advanced 5.9 percent this year. The stock is rated an average 'hold' according to analysts polled by Reuters.
"Heartland expects asset growth to remain challenging given increased competition in the business and rural sectors," the company said in a statement. "However growth in 'households' through both motor vehicle and home equity release products looks strong."
Heartland expects its net finance receivables to expand to $2.7 billion in the current financial year ending June 30, from $2.1 billion last year, it said today. It expects to shrink its lending on non-core property assets to $48.6 million from $107.3 million, reduce the number of loans which compete with main banks to $449.4 million from $573.2 million and boost the amount of specialised lending which faces little competition to $2.24 billion from $1.39 billion.
Net operating income from retail and consumer lending rose 24 percent to $30 million in the first half as the unit benefited from lower cost of funds and increased revenues. Heartland reduced its retail and consumable loans and increased its motor vehicle lending during the period in line with its strategy to realign its product mix to areas where it can get a better return.
Income from business lending increased 17 percent to $14.7 million reflecting lower cost of funds and increased rivalry from other lenders.
The company's rural income advanced 5.2 percent to $12.1 million driven by lower cost of funds off-setting reduced revenue on fewer receivables as it exited some loans it acquired from PGG Wrightson which were deemed to be higher risk or competing with major banks.
Heartland reduced its legacy non-core property assets by 19 percent to $87.1 million at Dec. 31 from six months earlier, in line with its expectations.
The company will pay a 2.5 cent dividend on April 4, up from 2 cents a year earlier.