Heartland lifts first half profit 41% as reverse mortgage unit adds income

LATEST: Heartland plans to turn around lagging reverse mortgage business

Heartland New Zealand [NZX: HNZ], the bank formed from the merger of Marac Finance with Southern Cross and Canterbury building societies, increased first-half profit 41 percent as it focused on niche products and its home equity release business came on stream.

Profit rose to $23.5 million in the six months ended Dec. 31, from $16.7 million a year earlier, the Christchurch-based lender said in a statement. Sales increased 19 percent to $70.3 million. The board declared an interim dividend of 3 cents per share.

Last month the company said it expected first-half profit between $23 million and $24 million.

Heartland is targeting expansion through niche lending markets, particularly in the consumer finance sector. Last year it bought a reverse mortgage business from Seniors Money International for $87 million and took a 10 percent stake in peer-to-peer lender Harmoney Corp for $3.5 million as it seeks to accelerate growth. The lender estimates its stake in Harmoney is now worth $5 million and has lent $17 million through the online platform.

"Harmoney operates a lending model that challenges those being offered by traditional banks," the lender said. "This model is complementary to Heartland's strategy of occupying leading positions in niche markets through specialist products which are different to those operated by mainstream banks."

The lender's households segment increased profit 26 percent to $26.1 million as its net operating income rose to $37.5 million from $26.4 million as its home equity release business lifted earnings.

"The home equity release (HER) business contributed well in terms of earnings although growth in this book was flat, reflecting higher than expected repayment rates," the lender said. "Initiatives are in place and growth is expected in the HER business in the second half of the financial year."

Heartland's business segment lifted profit 6.4 percent to $13.3 million, while its net operating income rose 6.1 percent to $19.5 million. Its rural segment profit was little changed at $9.1 million, while net operating income declined 3 percent to $11.8 million.

Last month the lender raised it guidance for full-year profit to between $46 million and $48 million in the year ending June 30, up from a previous estimate of $42 million to $45 million, and ahead of the $36 million last year.

"Looking forward Heartland expects underlying asset growth to continue for the second half of the financial year, with strong Business, Rural and Consumer volumes projected," the lender said. "Initiatives in place mean that growth is expected in the HER book in the second half of the financial year."

Shares of Heartland last traded at $1.38 and have gained 22 percent since the start of the year. The stock is rated an average of 'hold' based on the consensus of three analysts surveyed by Reuters, with a median price target of $1.28.

(BusinessDesk)