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Heartland Group: The Stock Has Nearly Doubled From Its Low — But the Turnaround Is Only Halfway Done

A Painful Year, Now Fading in the Rear-View Mirror

Eighteen months ago, Heartland Group was the kind of stock investors were quietly avoiding. A nasty motor-finance impairment charge crushed reported FY2025 earnings (down ~48%), the share price touched $0.70 NZD, and management was dealing with the consequences of having lent too enthusiastically into a weakening NZ economy.

Today the picture is very different. Shares have climbed to around $1.20 NZD — up roughly 54% over the past twelve months — and the most recent half-year result confirmed that the strategic reset is working. The 52-week range tells the story neatly: low of $0.70, high of $1.30.

The question now isn't whether Heartland is recovering. It's how much of the recovery is already in the price.

1H FY2026: The Numbers Behind the Rebound

The half-year result to 31 December 2025 (released 25 February 2026) was the clearest evidence yet that the worst is behind the business:

  • •Reported NPAT: $48.8 million NZD (underlying $46.1 million)
  • •ROE: 7.3% underlying, up 540 basis points year-on-year
  • •Group net interest margin (NIM): 3.92%, up 51 bps
  • •NZ exit NIM at December: 4.11%, targeting >4.20% by year-end
  • •Australian NIM: 3.68%, up 93 bps
  • •Cost-to-income ratio: 54.6%, down 304 bps

The Australian numbers deserve a second look. The 93 bps NIM expansion is large for a bank — the result of the funding transition at Heartland Bank Australia (formerly Challenger Bank, acquired April 2024) from wholesale to retail deposits. Retail deposits now make up 86% of Australian funding, which is both cheaper and stickier.

Reverse Mortgages: The Real Growth Story

Strip out the noise and reverse mortgages are the engine. In the half:

  • •NZ reverse mortgage book: +15.2% annualised
  • •Australian reverse mortgage book: +18.9% annualised, crossing AU$1.98 billion
  • •Australian reverse mortgage market share: 36% → 40% (to March 2025)

Reverse mortgages are a demographic bet. An ageing population with large home-equity balances and limited retirement income creates structural demand, and Heartland has the dominant Australian market share. That's not a story that changes quickly — it's a multi-year compounder.

Motor Finance: Cleaning Up On Schedule

The FY2025 impairment charge was concentrated in the NZ motor-finance book. The turnaround targets set by new CEO Andrew Dixson were specific: zero motor loans more than 180 days past due by June 2026.

As of 30 June 2025, no motor loans sat above 365 DPD. The 180–364 DPD bucket was down from $20 million to $13 million year-on-year. Progress is tracking to plan. If June 2026 delivers a clean book, one of the biggest overhangs on the stock disappears.

Meanwhile, the NZ receivables book shrank by $254 million (-10%) over the half — deliberately — as management ran off non-strategic assets and pulled back from the weakest-credit-quality corners of motor and business lending. Shrinking a loan book looks bad on the top line but is the right move if the alternative is another impairment cycle.

Key Metrics

  • •Share price: ~$1.20 NZD
  • •Market cap: ~$1.12 billion NZD
  • •52-week range: $0.70 – $1.30
  • •P/E (underlying): ~12–13x
  • •P/E (reported TTM): ~32x (depressed by FY25 impairment)
  • •EPS (TTM): ~$0.089 NZD
  • •FY26 underlying NPAT guidance: ≥ $85 million NZD
  • •FY26 underlying ROE guidance: ≥ 7%
  • •Dividend: 3.5 cps interim (1H FY26 declared), trailing yield ~5.4–6.0% fully imputed
  • •Analyst consensus target: $1.28 — ~7% above current price
  • •Consensus recommendation: Hold

That gap between reported P/E (~32x) and underlying P/E (~12x) is the single most important number in the setup. Reported earnings are still carrying the FY25 impairment drag; underlying earnings reflect the run-rate business. Investors willing to look through to the underlying number see a reasonably priced bank. Investors looking only at headline P/E see an expensive one.

What to Watch

  • •Motor arrears clean-up by June 2026: The single most important checkpoint. Delivery unlocks a re-rate; a slip resets the clock.
  • •FY26 underlying NPAT ≥ $85 million: Management guidance. Missing it would be a credibility problem after guidance was reaffirmed at the half-year.
  • •Australian NIM trajectory: The 93 bps expansion was significant. Holding or building on it would validate the deposit-funding thesis.
  • •NZ receivables stabilisation: The intentional run-off is near-term headwind but should give way to growth once the strategic reset is done. Watch for the turn.
  • •RBNZ rate path: Like Turners, Heartland benefits from lower rates — cheaper funding, higher loan demand, lower arrears.

The Bottom Line

Heartland is a textbook second-year-of-turnaround story. The first year is painful (FY25 and the share price crater to $0.70). The second year is where the numbers start to validate the thesis (1H FY26 — NIM expanded on both sides of the Tasman, Australian reverse mortgage share hit 40%, motor arrears shrinking). The recovery is real, but it's not complete, and the stock at $1.20 now sits near the analyst consensus target of $1.28. That means the obvious upside has been captured. The remaining bull case rests on motor clean-up happening on schedule, Australia continuing to compound, and FY26 NPAT landing above $85 million. If all three hit, the reported P/E compresses back to the ~12x underlying figure and the stock re-rates. If any of them slip, the market will want to see proof before paying up further.

*Disclaimer: This article is for educational and informational purposes only. It does not constitute financial advice. Stock data may not be real-time. Always conduct your own research and consult with a qualified financial advisor before making investment decisions.*