Robust performance sets an optimistic tone for the next financial year
Australian Finance Group (AFG) has reported a strong rebound in the second half of its financial year, following a challenging first half marked by intense competition and high funding costs.
The robust performance was driven by significant growth in its distribution division and a recovery in its manufacturing division.
The distribution division saw record broker recruitment, with its network now exceeding 4,000 brokers for the first time. The residential loan book also hit a record high of $200 billion, contributing to a 20% year-on-year increase in earnings to $54 million before tax. Overall, the group’s combined trail book size reached $214 billion.
“We have had a record year in recruitment of brokers to the group,” said David Bailey (pictured above), chief executive at AFG. “The value AFG delivers to our brokers drives that growth.
“The continued solid performance of our investments in the Fintelligence and BrokerEngine businesses contributed a gross profit increase of 12% year on year. Fintelligence settlements were up 22% and our total leasing and asset finance settlements surpassed $3 billion.
“We are on the brink of completing the integration of the BrokerEngine platform into our technology suite. Our investment has enabled us to scale this technology, improving efficiency in broker operations and allowing them to provide seamless, compliant services to their clients. It’s rewarding to see our strategic vision for this investment coming to fruition delivering a best-in-market platform for our brokers and further scalability for AFG.”
AFG’s manufacturing division – comprising its securitised lending business, AFG Securities, and revenue from its equity investment in commercial and residential lender Think Tank Group (Thinktank) – was impacted in the first half by high funding costs and a competitive environment favouring major lenders.
This led to a 53% decline in earnings to $15 million. AFG’s investment in Thinktank was also affected by market conditions, with its contribution to profit decreasing by $4 million to $2 million.
However, the division returned to growth in the second half, with AFG Securities’ loan book increasing by 8% to $4.4 billion. The final quarter of FY24 saw over $1 billion in new lodgements, which are expected to settle in FY25.
“Our NIM in FY24 has understandably been affected by intense competition and historically high warehouse prices,” Bailey said. “Funding costs are now starting to improve; however, we will elect to reinvest these improvements into customer pricing to remain competitive and expand our loan book. This strategy will yield benefits in future periods as our NIM begins to recover.
“The Thinktank loan book grew to $5.8 billion, and we have confidence the business will also benefit from a more favourable lending environment in FY25.”
Looking ahead, AFG is optimistic about growth opportunities in FY25, with favourable market conditions expected to persist.
“2024 marks AFG’s 30th year in business and as we celebrate this milestone, we close FY24 with a $200 billion residential loan book that is the result of more than 20 years of consecutive growth,” Bailey said. “By leveraging that scale through delivering a diverse range of higher margin products and services, AFG has grown earnings at an average of 9% per annum since FY18.
“We head into FY25 with optimism. AFG’s broker recruitment remains strong which will underpin growth in settlements and create a larger market in which to generate further earnings, and the major components of our technology spend is largely complete and benefits of this spend will generate new revenue in FY25.
“The major banks’ structural funding advantage has reduced, and funding markets are returning to a more normal footing. This will favour the non-bank sector and our manufacturing business.”
AFG has declared a final fully franked dividend of four cents per share, bringing the full-year dividend to eight cents per share, with a dividend yield of 6%. The dividend will be paid on Oct. 11.
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