Market News 22 April 2025

David Colman writes:

Heartland Group’s trading update on the 16 April indicated Heartland remains on track to deliver an underlying net profit after tax (NPAT) of at least $45 million for the financial year ending 30 June 2025.

Highlights for the third quarter to 31 March 2025 included:

- Net interest margin (NIM) up 28 basis points in Q3 (relative to the six-month period ended 31 December 2024 (1H2025)). Margins Improved for both Heartland Bank (New Zealand) and Heartland Bank Australia.

- Operating expenses (OPEX) in Q3 remained stable – both banks are on track to meet OPEX expectations for the six-month period ending 30 June 2025 (2H2025) and cost management programmes are in place with the intention to improve operational efficiency

The New Zealand bank has introduced more prescriptive collections and recoveries policies (announced on 18 February 2025) and this has contributed to asset quality improvement which has begun to appear in Heartland Bank’s Motor Finance portfolio.

Early recovery efforts for the Motor Finance loans written off in February 2025 have exceeded expectations. $1.9m or 49% has been recovered of the $3.9m of expected recoveries. The bank has focused more resources on addressing early stage arrears and this is reducing loans falling into arrears.

Heartland Bank New Zealand’s focus will be on its core lending portfolios (Reverse Mortgages, Rural, Motor Finance, Asset Finance).

Third quarter growth in the New Zealand bank was achieved in gross finance receivables (Receivables) in Reverse Mortgages (+14.7% to $1,192m) and Rural (Livestock Finance) (+12.7% to $266.9m) in New Zealand and Australia.

Falls in Motor Finance (-1.6% to $1,592m), Asset Finance (-20.9% to $659m) and Other lending (-21.3% to $661m) partially reflects the NZ bank’s move away from non-core lending.

Third quarter growth in the Australian Bank receivables included Reverse Mortgages (+19.7% to AU$1,884m) and Livestock Finance (+59.3% to AU$285m).

Heartland Group is working to move beyond the impairment expense announcement released in February when the substantial increase in impairments climbed from $23.9m to $49.6m and was followed by a half year NPAT of just $3.6 million for the half year ending December 2024.

HGH shares recently traded as low as $0.70 and are down approximately 25% year to date.

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Johnny Lee writes:

Fonterra issued a minor update to the market, as it looks to advance the divestiture of Mainland Group. Mainland is the consumer business within Fonterra, owning brands like Anchor, Kapiti and Perfect Italiano.

Fonterra has been exploring both an Initial Public Offering and a private trade sale as options for the asset. Having this ‘’dual track process’’, and the ‘’behind closed doors’’ discussion surrounding the sale, helps maintain tension in pricing, as lead managers and potential buyers are set against each other to secure the sale.

Fonterra’s update was the appointment of Anne Templeman-Jones to the Chair-elect of the Risk and Audit Committee for Mainland Group’s board. This was considered a necessary step for an IPO. 

Clearly, an IPO would be preferable for capital markets in general. A business of this size would comfortably exist as one of our largest listed companies and become a rare opportunity to own major New Zealand retail brands in this sector. Ownership might also soften the blow from consumers when noting the price tag on blocks of cheese.

Fonterra warns that the next step may involve potential buyers seeking regulatory approval to acquire the business.

The sales process seems to be picking up pace amidst the tariff chaos. If the sales process concludes in an IPO, public interest is likely to be high. 

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Tourism Holdings has published an update to the market, proving itself an early casualty of the tariff announcements from the last two weeks.

The designer, builder, renter and seller of RVs - recreational vehicles - warned that market expectations were far too optimistic, and that August’s result would fail to meet these expectations.

The share price fell over 10% immediately following the announcement.

The updated guidance comes as inbound tourism for the US continues to fall sharply. 

Unsurprisingly, tourism interest from Europe, China and Canada has been weak. For Tourism Holdings, bookings from key European markets are down around 40%.

Tourism Holdings is not yet anticipating any need to raise equity and is comfortable - at this stage - with its banking covenants. The company paid a 2.5 cent dividend earlier in the month and had 48 million in cash at year end. 

This weakness in tourism impacts industries well beyond just RV rentals.

Fewer tourists are resulting in depressed demand for oil, hotel bookings are in decline, and even US universities are raising alarm bells about student enrolments.

Tourism Holdings will be one of the few New Zealand companies directly exposed to the US tourism market. However, the update should remind investors that the effect of these tariffs is far-reaching, and the consumer response – retaliatory tariffs, travel bans and boycotts – are still developing.

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The other piece of data that came through last week was quarterly inflation, which came in marginally stronger than the Reserve Bank’s expectation.

The 2.50 percent annual increase was driven higher by rising council rates – up 12.2 percent – and partially offset by lower petrol prices, down 2.80 percent. Oil prices have fallen significantly since March, following the various tariff announcements.

Other significant rises included housing, insurance, jewellery (the gold price is up 40 percent over the last year), dairy products and cigarettes. 

Products in decline included second-hand cars, women’s clothing and vegetables. 

The other piece of notable economic news is that the ANZ Bank is now forecasting the Official Cash Rate to fall to 2.50 percent this year, with cuts throughout the year. Previously, ANZ was aligned with the RBNZ’s forecasts of a 3 percent nadir.

Forecasting is particularly difficult against the backdrop of the behaviour from the United States. One hopes that as it becomes clearer with regards to the future of US-China relations, it will be easier to forecast the trajectory of inflation.

Complicating this further is suggestions that the current Federal Reserve Chair, Jerome Powell, is being pressured to vacate the role in favour of a more dovish – meaning lower interest rates – approach.

For now, investors can only act with the information to hand, which appears to be changing rapidly. Tariffs are currently being paused until July, with the exception of a specific tariff on Chinese imports, with the rate now as high as 245 percent on some goods. The oil price decline is providing some relief for consumers, but short-term uncertainty remains elevated.

Travel

Tauranga – 15 April – Johnny Lee (FULL)

Hamilton – 17 April – Johnny Lee

Lower Hutt – 29 April – Fraser Hunter

Auckland (Ellerslie) – 1 May – Edward Lee (FULL)

Auckland (Albany) – 2 May – Edward Lee

Palmerston North – 6 May – David Colman

Christchurch – 7 May – Johnny Lee

New Plymouth – 9 May – David Colman

Nelson – 12 May – Chris Lee

Blenheim – 13 May – Chris Lee

Please contact us if you would like to make an appointment to see any of our advisers.

Chris Lee & Partners