Release Date: August 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Australian Finance Group Ltd (ASX:AFG, Financial) celebrated its 30th anniversary, highlighting its long-standing presence and experience in the financial services industry.
- The company has a robust broker network with over 4,000 brokers, contributing to a record high residential loan book of $200 billion.
- AFG Securities book returned to growth, reaching $4.4 billion, indicating a positive trend in their manufacturing segment.
- The company achieved a $54.1 million distribution earnings, up 20%, and a 13% increase in broker subscription.
- AFG has successfully reduced operating expenses by $3 million, showcasing effective cost management.
Negative Points
- Net Profit After Tax (NPAT) was down $8 million to $29 million, reflecting challenges in the manufacturing segment.
- The manufacturing segment's earnings were materially down, with a significant reduction in return on equity to 12%.
- The average Net Interest Margin (NIM) for FY24 was 113 basis points, indicating pressure on profitability.
- The company experienced increased arrears, although still in line with major bank averages, indicating some credit risk.
- White label volumes were down 30% due to partners focusing on their proprietary channels, impacting overall performance.
Q & A Highlights
Q: Can you expand on the hubbing strategy for transitioning older brokers to new brokers?
A: We've spent considerable time researching and examining the market. We have an active pipeline of opportunities and are progressing through various stages of due diligence and formal documentation. We aim to achieve our first couple of investments in the next six months. - David Bailey, CEO
Q: Has pricing become more comfortable for these transitions?
A: Yes, pricing and valuation elements have become more favorable. However, the process is taking longer due to the reliance on brokers for information during due diligence. - David Bailey, CEO
Q: Can you discuss the competition in the prime versus near-prime mortgage market?
A: Our current growth is predominantly in prime mortgages, facilitated by more generous serviceability calculators. Customers who are prime in nature but don't quite meet bank serviceability requirements are turning to us. - David Bailey, CEO
Q: What is the outlook for equity investments, particularly Thinktank?
A: Thinktank has faced similar market conditions as AFG Securities, with higher runoff and NIM challenges. Despite this, their loan book has grown, and there is optimism for future performance. - David Bailey, CEO
Q: What are your expectations for competition in the mortgage market as funding costs improve?
A: Competition has become more rational, especially with the elimination of cashbacks. Banks are seeking volume but are not engaging in aggressive price-cutting as seen in the past two years. - David Bailey, CEO
Q: What can we expect from broker growth over the next 12 months?
A: We are encouraged by recent recruitment of large broking groups and the rollout of new technology platforms. Partner Connect has shown early positive signs with 350 brokers signed up. - David Bailey, CEO
Q: Are there any levers to make white label products more attractive to your network?
A: We have introduced a loyalty program with additional cashback incentives. However, our focus remains on building out the AFG Securities business for long-term earnings benefits. - David Bailey, CEO
Q: Can we expect NIM to stabilize, allowing for volume-based forecasting?
A: We are disciplined about maintaining desired returns on capital. While NIM has been impacted, we believe we are at a point where it should stabilize, allowing for more predictable forecasting. - David Bailey, CEO
Q: Will near-prime borrowers move to major banks if rates come down?
A: Serviceability changes do not drive immediate exits. Our history shows that customers tend to stay if treated well. The dynamic nature of house prices and loan sizes also plays a role. - David Bailey, CEO
Q: Can you disclose revenue per broker to track trends?
A: While we haven't disclosed revenue per broker, we do provide gross profit per broker. Our strategy focuses on integrated margins and providing a portfolio of growth options for brokers. - Luca Pietropiccolo, CFO
Q: What is the target growth rate or book size for AFG Securities?
A: We aim for around 10% of all our flow into an AFG product, with 50-55% of white label flow linked to AFG Securities. This is a medium-term aspiration, but we remain flexible based on market conditions. - David Bailey, CEO
Q: How would a potential rate hike affect sentiment and growth in the mortgage market?
A: Sentiment varies by region, with Victoria being less optimistic. However, preapprovals and customer inquiries remain strong. Brokers are generally optimistic, and we see robust lodgement activity. - David Bailey, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
