Heartland full-year profit rises 34%, led by household lending, 2016 guidance affirmed

Heartland New Zealand [NZX: HNZ], the Auckland-based lender, posted a 34% gain in full-year profit on growth in income from retail and consumer lending, and affirmed its guidance for further earnings growth in 2016.

Net profit rose to $48.2 million, or 10c a share, in the 12 months ended June 30, from $36 million, or 9c, a year earlier, the lender said in a statement. Revenue from ordinary activities rose 18% to $144.8 million.

Heartland is targeting expansion through niche markets, while at the same time reducing home mortgage lending, rebalancing its lending book to products where it says it can achieve market leadership and better returns. It acquired the reverse mortgage business from Australia's Seniors Money last year and invested in peer-to-peer lender Harmoney Corp. It also acquired a stake in online marketer Ora HQ to target the small and medium sized business market, and agreed to acquire the Automobile Association's half stake in its Marac Insurance joint venture.

Net operating income from the company's households retail and consumer lending unit jumped to $75.7 million, from about $58.6 million a year earlier, as household receivables climbed about $68 million to $1.58 billion.

That included a surge in income from its reverse mortgage business, which lets older people borrow against the equity in their home, to $20.3 million from $4.1 million. Net receivables from reverse mortgages rose by $20.7 million to $755.6 million, although much of this growth reflected foreign exchange gains. The company's residential mortgage net receivables dropped by $43.3 million to $78.6 million.

Net operating income from the business lending division rose to about $42 million from $36.8 million, which Heartland said was driven by an 18% gain in net receivables to $792 million. Lending through the Harmoney platform contributed $32.8 million to that growth, it said.

Rural lending recorded a 5% gain in net operating income to $24 million as rural net receivables climbed 19% to $488 million. Heartland said its exposure to dairy farming amounted to 7.6% of its total lending book. It anticipates a higher level of impairments in rural lending in 2016, partly reflecting an increase in dairy farmer losses in the face of a low milk payout.

Heartland reduced its legacy, non-core property assets by 34% to $27 million, it said. Impairments rose to $12.1 million from $5.9 million.

The company will pay a final dividend of 4.5c a share on October 2, with a record date of September 18, making 7.5c for the year, up from 6c in 2014.

It affirmed profit guidance for 2016 of $51 million to $55 million, before any allowance for capital management initiatives.

The shares rose 0.9% to $1.13 and have gained 20% in the past 12 months. The stock is rated a 'buy' based on the consensus of three analysts polled by Reuters.

(BusinessDesk)