Heartland triples profit on bigger loan book, tax benefit

PGG Wrightsons auctioneer Vern Wiggins at at the Hawkes Bay sale yards in Hastings. Photo / Paul Taylor

Heartland New Zealand, the lender formed from the merger of Pyne Gould's Marac Finance with the Canterbury and Southern Cross building societies, tripled annual profit as it reaped the benefit of acquiring PGG Wrightson's loan book and was aided by a tax adjustment.

Net profit climbed to $23.6 million, or 6 cents per share, in the 12 months ended June 30, from $7.1 million, or 5 cents, a year earlier, the Christchurch-based lender said in a statement. Pretax earnings rose to $20.3 million from $11.6 million a year earlier, in line with Heartland's guidance of between $20 million and $22 million.

"Whilst trading conditions remain challenging given economic conditions generally, Heartland expects a continual improvement in underlying performance in the year ahead," the company said.

The lender is engaged with the Reserve Bank as it seeks a banking licence, and is looking at November as a possible date for the decision. The merger of the financiers was predicated on the new entity achieving a licence as lenders enter a new regime that imposes stricter controls on finance companies after the collapse of the sector through the latter half of the 2000s.

The board didn't declare a dividend, and will outline its dividend policy at its annual meeting in November.

The shares were unchanged at 56 cents in trading yesterday, having gained 14 per cent this year. The stock is rated an average 'outperform' based on two analyst recommendations compiled by Reuters, with a median target price of 60 cents.

Heartland's net interest income rose 36 per cent to $83.6 million as the Wrightson book increased its portfolio. Its net operating income advanced 35 per cent to $94.9 million from improved margins and a lower cost of funding.

The lender's $989.4 million retail and consumer book increased profit 9.7 per cent to $31.6 million on a 17 per cent lift in net interest income to $39 million. Its $540.2 million business portfolio more than doubled profit to $13.3 million with a 23 per cent boost to net interest income to $21 million.

The $478.6 million rural book, most of which came from the Wrightson acquisition, reported profit of $12.6 million on net interest income of $19.1 million.

The non-core property unit, which consists of $160.2 million of loans and investment properties managed by Pyne Gould's Real Estate Credit business, reported a loss of $4.4 million on net operating income of $6.4 million.

Heartland's net receivables rose to $2.08 billion as at June 30 from $1.71 billion a year earlier. Borrowings rose to $1.93 billion from $1.79 billion, with locally-sourced deposits at $1.5 billion compared to $1.53 billion in 2011.