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RHG - RHG Limited

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Re: RHG - Rams Home Loans

It is important to note, as ta2693 does, no one is questioning the quality of the loans written, infact the wholesale market they trade on is devoted to AAA loans.....the question mark is on the cost of funds in these markets and whether these costs preclude RAMS business model..... I actually think management is doing a Qantas on this and is to scared to try to reform the business model to salvage the company and shareholder funds...on this basis, this is a real question of asset value.....how much is the RAMS franchise worth....in this vein, TA2693, would you like to explain how you come to a stop loss of 46 cents.....are the assets good value at 47 cents but too expensive at 46 cents....(you can tell I hate stop lossing)..he
 
Re: RHG - Rams Home Loans

"Who would buy their debt when there is no one willing to lend them the money? and most bank wouldn't touch that loan book of 14bn."


They will if it's cheap enough.

They can afford a lot of defaults at say 60c on the dollar.
 
Re: RHG - Rams Home Loans

ROE said:
Mortgage debt is a dirty word right now ... and the US sub-prime, the worse is yet to come
Click to expand...

Mortgage debt in the USA is a different kettle of fish to mortgage debt in Australia. Most mortgage debt here will be paid. Even most forced sales will recoup most of the loan amount unless we have a severe recession. I doubt if that will happen. The home owners with a mortgage do not consider "mortgage" a dirty word.
 
Re: RHG - Rams Home Loans


That was the attitude in the UK & RoI as well... until recently. Once there is some stagnation/falls in house prices, the poo will hit the propeller here too. That reliance on selling themselves out of trouble will disappear.

Have a look at the Northern cRock fiasco in the UK. That was just a marker for further problems... as is RAMS.

... and it is just the beginning.
 
Re: RHG - Rams Home Loans

Looking at this RHG fiasco got me run through some basic numbers. Now these financial comps are not my favourites so I may have it all wrong or being entirely confused about it but lets say that:

WBC offer gets approved and RHG stays a runoff business with a book of $14bn (or so) mortgages. What is the normal interest spread (ie. interest receivable on the loaned funds less interest payable on the borrowed funds) an average financial company operates on?

Well I have not the fainest idea so say its 0.5% which means that loans in the range of $14bn should make yearly gross profit of (give or take) $70mil. Now say that 50% (playing it safe) of this is some business related expenses, salaries, tax and what have you. That would leave us with a clear after tax profit of $35mil a year.

Now how long does it take for all the mortgages to be paid off? Well who knows. Lets assume that about 10% of all mortgages are paid off yearly so after tax profit will be 10% lower each consecutive year and there will be no more business (mortgages on books) left in year 10.

So that way if my back of the envelope calculation is even remotely correct the potential profits in next 10 years (on the mortgages alone) are about $228mil. If I was to apply amount of RHG issued shares on this than probably value of around 64.2c/share. Now with low ball WBC offer of around 40c/share for the other part (ongoing business franchise), from where I stand I would humbly suggest the total value per one RHG share being around $1 or so.

Now obviously there could still be some more upside to this (ie. the spread on interests is >0.5% and/or the company clears more than 50% of their gross profits and/or less than 10% of all mortgages is paid off every year) in which case the value/share would be still a little higher.

What do you think?
 
Re: RHG - Rams Home Loans


When a Valuer values a loan mortgage book for a broker the loan amortisation of the book is completed over a term of 66 months on a progressively discounted basis. I can see no reason to change this formula for Rams loans.

Others may be able to guess what the expenses might be, but one hopes not as much as you are indicating as when the book runs down in 3+ years there is the potential for a negative result to arise fairly quickly
 
Re: RHG - Rams Home Loans

Great info mate. I have no idea how is it done the proper "Valuer way" you seem to indicate. All what I stated are just my own conclusions.

So could you elaborate a bit? Ie. what would the numbers be approx. if one was to do it using your 66 months method?

Thanks
 
Re: RHG - Rams Home Loans

Well, if a firm like Citibank blows $US6 billion (including $2.6 billion in credit card defaults and $1.6 billion in sub-prime mortgage losses) and UBS decides that it has to tell the world that it is down $US4 billion and 1,500 workers are to go and it is all (mainly?) due to the "credit squeeze" as well as focusing on highly illiquid, long-dated investments, allowing balance sheets to grow rapidly and being too free with funding, why does anyone think that RAM with a $AU14 billion mortgage book has a hope?

Even more gloomier news if you want it is that HBOS has indicated that as home loans in the UK are becoming more expensive and less profitable, it will scrap its annual net lending target (the difference between the amount lent to new customers and the value of business lost when customers pay off loans or move to a new lender) and take month-by-month decisions about the trade-off between volume and margins. Oh dear, bankers speak for rationing loans to only the credit worthy and profitable customers.

The CFO of RAMS may wish to tap dance down George St chanting "Loan book going cheap. Any takers?"
 
Re: RHG - Rams Home Loans


You take the opening estimated monthly profit value and progressively amortise a fixed 1.5% of that amount off that value every month, which means at the end of 66 months there aint nothing left.

Let me know if you need more.
 
Re: RHG - Rams Home Loans


It's a different fish but it smell the same to most investors...so when the sub-prime play out in November 2007 we will see how RAMS fair
and the 300 Mil that RAMS want to raise in recent day announcement, if no one want to buy them, then mortgage debt is a very very dirty word.

Borrow short term debt to fund long term loan is a very bad business model
it just we have it so good for so long people just ignore all these type of risks and want to make quick bucks.

The probability of RAMS going under is very real and like 2 rules of investing.

1. Never lose your money.
2. Don't forget rule number 1.

I'm a bit of a risk taker but not at any price , maybe if it go to 20 cents or something

Remember RAMS has 136M debt on their book so 140M Westpac want to pay for the good business pretty much cancel that debt and spread interest of 14B loan left and absolutely no prospect for grow... Why the hell would you invest in it when there are lot of good stocks that could deliver a lot more than 0% growth a year.
 
Re: RHG - Rams Home Loans

ROE......with regard to your comment re debt.

You could do well to look the balance sheet of Rams.

There cash position matches there outstanding liabilities. Investors long this stock have seen their profits half in 48 hours.....you could do well to learn how to read a balalnce sheet before presenting such incorrect info.

I would ask that you talk to the company tomorrow to clarify that there is NO such debt in relation to the context you present it as ....and return on the board and withdraw your comment.
 
Re: RHG - Rams Home Loans

So I think ROE was citing the debt according to the prospectus...one would think it has not changed substantially......from the guidance management gave the market, the RAM would appear to not be 'going under' but the desperation in the deal with WBC suggests otherwise.......I thus would not be going to management for information right now.......to be honest, the RAMs business model with its 'warehouses' and subsequent two forms of long term debt placement is actually pretty ingenious but for one risk which was outlined in the prospectus, "what if there were significant liquity problems in the US market".....in this vein its pretty silly to set up a loan provider without taking deposits.....but we must remember that the RAM is not the only one to rely on these wholesale markets......
 
Re: RHG - Rams Home Loans


This is out of prospectus.

"Corporate net debt consists of $108.0 million of Corporate debt (included within Debt issued at amortised cost), plus $29.3 million loan from
a related party (refer Sections 10.2.7 and 10.9.1), less $0.7 million of cash and cash equivalents, totalling $136.6 million."

According to that there is 0.7 Mil of cash? Am I wrong saying it's doesn't have 136M debt on its hand?

If you are a moderator and think my post is inappropriate you can remove it
 
Re: RHG - Rams Home Loans

I think there are money to be made from this stock if you prepare to jump in now and accept the risk it could go lower if it cant finance 6.4B short term loan and it has to pay much higher rate and there go part of the profit.

I'm weighting up my risk and reward to see if it worth it, but right now sitting on the sideline to see what's happening in the US next week.
 
Re: RHG - Rams Home Loans

pg 61 of rams prospectus.

RAMS has access to sufficient working capital for the purposes of its stated business objectives for the forecast period

In this case.. rams lied to shareholders??
 
Re: RHG - Rams Home Loans

greenfs said:
You take the opening estimated monthly profit value and progressively amortise a fixed 1.5% of that amount off that value every month, which means at the end of 66 months there aint nothing left.
Click to expand...

With more and more people having more and more debt and with interest-only loans increasing and lengths of loans increasing, I wonder what a realistic figure is? Most people are probably going to take 20-25 years to pay off their loan. Now, they might (if they can) get it refinanced ... but then they will be paying RAMS back, which gives them some needed hard cash.
 
Re: RHG - Rams Home Loans

and higher cost will force people to move their loan to the banks and banks will welcome them with open arms, pay back time for banks I guess for taking away their customers in the last 10 years.

http://www.news.com.au/business/story/0,23636,22534804-462,00.html

Very little room for RAMS to move .. pass on rate hike may force people to default or move to another lender
dont pass on the extra cost, they are losing profit...
 
Re: RHG - Rams Home Loans


It has short term benefits for Rams. They get exit fees (profit) and they get sorely needed cash flow as loans are paid out. Whether it is a plus for the SP is another question. Those that don't leave will have to accept higher interest rates, also good for Rams. The question will be the percentage of defaulters and the loss arising if forced sales do not recover the mortgage in total.
 
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