The Australian Finance Group Ltd (ASX: AFG) share price is down almost 4% this morning after the mortgage group reported a 15.3% increase in profits despite economic upheaval.
The coronavirus pandemic has resulted in a flurry of lodgements as borrowers search for better deals on their mortgages, boosting AFG’s bottom line.
What does AFG do?
AFG began as an aggregator, providing mortgage brokers with access to products and support. It has now diversified to offer business finance, insurance, and AFG-branded and securitised products throughout Australia. One of the country’s largest mortgage provider companies, AFG has around 2,975 finance brokers offering customers a choice of more than 3,800 financial products from a range of lenders.
What did AFG report?
AFG reported its best financial result to date, with NPAT of $38.1 million, a 15.3% increase on FY19. Underlying NPAT increased 27% to $36.3 million. AFG reported residential settlements of $34.1 billion in FY20, up 8.9% on FY19. Business settlements were up 167% to $346 million. This gave a combined residential and commercial loan book of $163 billion at the end of FY20, a 5% increase on FY19.
A final dividend of 4.7 cents per share was declared, fully franked. In addition to the interim dividend of 5.4 cents, this represents a dividend yield of 6% over the past 12 months.
All divisions delivered growth with overall lodgements up 22% year on year. The company experienced a significant increase in lodgements as it navigated the initial impacts of COVID-19. Moving into the first quarter of FY21 lodgement activity remains robust, representing an increase of 28% on July 2019.
CEO David Bailey said the residential business was well-placed to reap the initial financial benefit of increased lodgment activity, heading into the new financial year.
However, he said uncertainty remained around the broader impact on the Australian economy for the balance of the new financial year.
What is the outlook for AFG?
AFG has warned that the full scale of future disruption to residential and commercial lending markets is difficult to predict and likely not yet fully realised. Said Bailey:
Our business model generates strong cash flow and is supported by a trail book that will generate cash flows which are actuarily reliable. AFG’s business model continues to be capital light, however we maintain a cautious outlook.
In the meantime, the company is awaiting court approval of its proposed merger with Connective. The ACCC has cleared the transaction, which will create Australia’s largest mortgage aggregator.
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