Analysts say the broking group's shift may unlock new profit streams
Australian Finance Group (AFG), a prominent player in the non-bank lending sector, is experiencing a significant surge in investor interest, according to an analysis from BankingDay. The company’s shares have shown a robust performance, prompting speculation among investors about sustained growth.
Several key economic indicators appear to be fueling this “re-rating” of AFG. Lower interest rates, an improved business climate, and anticipated increases in house prices are collectively bolstering consumer confidence and, consequently, driving up demand for credit. AFG, with its extensive broker network, has been described to be well-positioned to meet this rising demand for home loans.
A notable aspect of AFG’s strategy is its ‘manufacturing’ arm, specifically AFG Home Loans - the company’s proprietary, self-funded line of home loan products. This segment is increasingly seen as a potential primary driver for both revenue growth and profitability in the future.
While the journey to challenge Firstmac as Australia’s largest non-bank financial institution is acknowledged as a long one, the report suggests it is a “doable” ambition, with this pursuit itself expected to generate substantial future profits for AFG.
Beyond these fundamental economic drivers, another theory gaining traction - spurred by the company’s share price gains since April 1 - points to potential corporate activity on the horizon. Although a full takeover bid is considered less likely, the possibility of some mechanism allowing AFG’s founders to reduce or exit their stakes has been floated. This group of original Perth associates collectively holds nearly 20% of AFG’s shares.
Since the beginning of April, AFG’s shares have climbed an impressive 34%, significantly outperforming the All Ordinaries index, which saw a 7% rise over the same period.
This recent investor enthusiasm for AFG echoes its strong position within the Australian mortgage market. Mortgage brokers were reportedly responsible for over 50% of new home loans at the time, amidst a burgeoning housing boom. Perth-based AFG, with its loan book exceeding $100 billion, was noted as a significant force, dwarfing its then-only listed competitor, Mortgage Choice. AFG’s revenue streams stem from its role as a wholesale broker offering around 30 home loan products and its own brand of AFG-branded home loans.
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