Interesting to read through all the HLI post on HC
Its quite surprising how deep of a hole investors can dig into immaterial aspects of a company, but it carries consequences too - namely, you become disillusioned to what really matters. Best to keep it simple.
Future of HLI - non-exsistent as far as i can see. Those banking on rate cuts to support the housing market demand flow should consider this. 1) rates are not diving back down to the 2s or 1s, best case is side-ways for the time being, 2) bank determines the LVR requirement of new loans, if they are not taking 80%+, there will be no book growth for HLI, 3) new home owners are the majority cohort in recent housing demand, the government scheme is there for them (and makes more sense for bank to want borrowers attached to scheme vs LMI provider), coming back to the banks again, 4) banks are conscious of residential mortgage book growth, yellow and black/red bank have purposedly grown below system in the past 12 months - again, another headwind to LMI book growth. There are other things that has come to mind in the past, but don't want to spend too much time trying to recall them.
Look at HLI through the lens of company wind down. Its short term, its about capital returns, and its about the price you pay for those returns.
2022 was a great year for HLI, NTA <1 which means buyback headroom was much bigger, the cancellations from re-fi was a once in a lifetime scenario that brought earnings forward to be paid out as ord. divs (i believe was tracking at 12% yield alone) + special divs, as part of the overall capital return program (tracking at an additive 5%+ yield to ord div). My projected returns in 2022 was like 20% for the bear case scenario haha. You had the combined efforts of valuation support (<1 NTA w/ 10% of SoI being bought by the company), payouts that when goes ex-div, circles back into the buyback story as well, and special div to be the unknown upside).
Today? NTA= or >1, % of buyback is higher, but liquidity is tighter as well (they buy <1 NTA, @ VWAP, and take a % of the daily traded volume (which is drying up). The yield on ord and special div payouts? No longer going to be the big 15%+, refi volume is dry, banks are taking LVR<80% only, australian government is dominant LMI provider now. Assume yield you could get is 10%, you dont have the valuation support as we did in 2022, and delinquencies are starting to flow in (see stress assets in latest bank reports) which takes 12m to transition to repossessions. Albeit, claims payable from HLI is going to be neglibible given housing market has been strong (i.e. house repossessed due to missed loan payments, sold at price higher than outstanding loan value, no claims on HLI). Picture isnt as exciting as 2022's version. Better things to focus on elsewhere.
(20min delay)