Record first-half gross profit driven by diversified income
One of the nation’s largest broker aggregators, Australian Finance Group Limited, has announced a strong start to the 2023 financial year, generating a record first-half gross profit of $62 million.
Sharing its first-half FY23 results with the market on Friday, AFG said the benefit of its diversification strategy was evident.
AFG’s own lending book grew 22% on last year, while its strategic investments performed well, contributing $5.9m or 19% of its FY23 first-half profit before tax.
Despite an overall weaker market for residential mortgage settlements compared to the prior period, AFG reported a solid result, with underlying net profit after tax and before amortisation of $25.6m, broadly in line with last year.
The company said credit growth remained positive, and in line with historical levels, with AFG well positioned to continue to grow.
Key first-half FY23 results for AFG
The highlights of the first-half FY23 results include:
- Underlying NPATA of $25.6m
- Reported NPAT of $21.9m, down from $30m last year
- Record first half gross profit and operating cashflow of $62m and $26.9m, respectively
- Fully franked interim dividend of 6.6c per share, an 8% annualised yield
- AFG Securities loan book $4.9bn, up 22%, with a NIM of 145bps and no loan losses
- Return on Equity of 25%, with $200m in liquid assets and high performing investments
Diversified income streams pay off
“AFG had a strong first half, with a gross profit of $62 million,” said AFG CEO David Bailey (pictured above).
“Our proven strategy to diversify income streams has allowed the business to weather the turbulent residential market conditions driven by policy intervention and the structural funding disadvantage for non-major lenders. Against that back drop we have grown our combined residential and commercial loan book by 9% to $199.8 billion.”
AFG Home Loans a top performer
Bailey said one of the highlights for the first-half was the position of AFG Home Loans as the sixth largest lender for home loan lodgements within the AFG network.
“It remains the only non-bank in the top 10 for residential mortgages, reflecting the strength of our products and service, and the trust of our brokers,” he said. “The annuity style earnings from both our trail book and AFG Securities has underpinned our result.”
The stability of those earnings provided the foundation for AFG’s cash flow performance, with a cash realisation ratio of above 100% for the half.
“Our track record of strong cash generation and the capital light business model gives us the confidence to pay a fully franked dividend of 6.6c per share,” Bailey said.
Residential settlements soften
Looking at the market performance overall, he said credit growth in the Australian residential mortgage market had slowed from a cyclical high due to interest rate rises, but it remained positive and in line with historical levels.
This had led to a moderation of settlement activity for AFG, with $28.6bn of residential settlements for the half, compared to $30.8bn in the first half of FY22 ($28.6bn in H2 FY22).
“Our core aggregation business has enjoyed strong broker recruitment, with our value proposition and support for our network clearly setting us apart in a competitive market,” Bailey said.
“Although we have seen a 7.1% decrease in settlements, the level of market activity remains elevated, driven by the high levels of cash back and intensive competition for customers, with interest rate increases hitting Australian household budgets.”
Bailey said the support provided by brokers to their customers had never been more important and with Best Interests Duty enshrined in law for brokers, “they are best placed to help borrowers navigate the changing market conditions”.
The AFG Securities loan book was up 22% to $4.9bn, supporting total revenue growth of 12%.
“In the past six months, as the market has been flooded with cashback offers, the AFG Securities loan book has maintained a disciplined approach to margin management and credit quality. We have competed with variable products,” Bailey said.
