This article is from the Australian Property Journal archive
A strong property market has helped Australian Finance Group (AFG) to a 20% increase in full-year profit, while the ASX-listed mortgage broker is optimistic it will again perform strongly at a time of increasing interest rates.
AFG, whose brokers arranged about one in 10 of all Australian residential mortgages, posted a normalised after tax profit of $61.3 million, while statutory profit dipped to $38.8 million after $21.3 million worth of technology and investment impairments, including its $15 million investment in failed neobank Volt, which announced its closure at the June after failing to raise sufficient additional funds to support the business.
AFG CEO David Bailey said the group’s key strategy to diversify for earnings quality and growth through a broader product set has been a key driver of its results, which also included a 30% increase in final dividend to 9.6c per security, for a total dividend of 16.6 cps.
Direct lending settlements up 102% to $2.7 billion and loan book up 41% to $4.8 billion, white label settlements lifted 36% to $2.9 billion and loan book up 8% to $8.5 billion, aggregation settlements grew 36% to $59.4 billion and loan book up 9% to a record $182.2 billion, while commercial settlements were up 67% to $3.9 billion and loan book up 19% to $10.9 billion.
AFG made strategic investments in Thinktank, Fintelligence and BrokerEngine, which also delivered earnings growth. Thinktank’s earnings contribution is up 16% to $6.1 million for the year and Thinktank white label settlement volumes have increased by 84% to $239 million. Asset finance company Fintelligence has delivered $700 million in asset finance settlements and earnings contribution for $3.6 million, while fintech firm BrokerEngine has seen 41% growth in subscribers.
Bailey said that while the Reserve Bank of Australia (RBA) has commenced the process of increasing interest rates to more neutral levels following the expansionary policy settings used in response to the pandemic, interest rates and unemployment levels remain at historically low levels and continue to support demand for mortgage broking and lending services.
“While the expectation may be that lending volumes may moderate in the short term, lender activity is high, with all lenders aggressively chasing market share. The residential mortgage market has historically performed strongly during periods of rising interest rates, and AFG’s volumes have outperformed the overall market.
“Underpinning this, in the current rate cycle, are approximately $36 billion of fixed-rate residential mortgages in the AFG loan book that are due to expire over the next three years. Their refinancing will continue to drive settlements in the market and provides a significant growth opportunity for AFG Securities to continue building its loan book.”
AFG Securities became the second largest contributor to earnings in FY2022, accounting for 26% of gross profit behind aggregation at 46%, and compared to only 4% in FY2015.
Approximately 88% of the AFG Securities loan book had a Loan to Value Ratio (LVR) below 80% at the time of settlement, and Bailey said that combined with our strong credit processes, has “seen our expected credit loss driven provisions remain relatively flat despite the fact that our loan book has grown considerably.”