Australian Finance Group shares rally 6% as company posts $55 million profit

The Australian Finance Group share price is in the green today after an optimistic earnings card for FY22.

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Key points

  • The Australian Finance Group posted its earnings for FY22 this morning with strong growth in its top and bottom lines
  • The company attributed its success to efforts in diversifying its product lines and saw strong results from its AFG Securities business
  • Despite rising interest rates and deteriorating consumer sentiment, the company posted a strong outlook for FY23, saying it expects mortgage and credit sales to remain strong

The Australian Finance Group Ltd (ASX: AFG) share price is currently up 6.33% today after the company posted a bullish FY22 earnings card this morning.

Shares in the mortgage broking and lending group are currently trading at $2.02 each. They touched a high of $2.05 shortly after the market opened this morning.

Let's go over the highlights of the ASX financial company's report.

What did the company report?

  • Fully franked dividend of 9.6 cents per share
  • Total revenue up 24.35% year-over-year (YoY) to $928.98 million
  • Normalised underlying net profit after tax and amortisation (NPATA) up 12% YoY to $55.8 million
  • Balance sheet of net cash and short-term investments of $217 million
  • Trail book net assets up 223.52% YoY to $5.5 million.

Australian Finance Group CEO David Bailey attributed its earnings growth primarily to diversification into additional different business lines, including AFG Securities.

This is claimed to have led to a 20% group earnings increase from the corresponding reporting period and buoyed the final dividend amount by 30%. Settlements for AFG securities doubled in FY22, with especially strong performance observed in 2H FY22.

Its direct lending product line experienced the most growth in FY22, with settlements up 102% to $2.7 billion. Still, Bailey notes that aggregation remains the company's most important business, with its loan book expanding to a record value of $182.2 billion and recording $59.4 billion worth of settlements throughout the year.

The fully franked dividend of 9.6 cents has a record date of 6 September and a payment date of 22 September. Total dividends for FY22 ended at 16.6 cents per share, representing a payout ratio of 80% and a dividend yield of roughly 9%.

What else happened in FY22?

Australian Finance Group mentioned the performance from its strategic investments into Thinktank, Fintelligence, and BrokerEngine, saying they contributed to its earnings and helped the company achieve its strategic priorities of expansion and diversification.

Thinktank contributed $6.1 to the company's earnings, and Fintelligence contributed $3.6 million in FY22.

Some opportunities these investments allow the company to tap into include the reportedly under-served asset finance market. BrokerEngine's financial technology will also synergize with its offering to brokers and customers.

The company notes that its efforts in expansion and diversification have been largely successful, with AFG securities contributing 26% of gross profit for FY22, behind its leading aggregation segment at 46%. By comparison, AFG Securities is claimed to have only contributed 4% in FY2015.

What did management say?

Bailey welcomed the FY22 results, saying:

AFG Securities settlements more than doubled in the year, significantly outperforming the strong 36% growth in both white label (distributed on behalf of ADIs) and aggregation settlements.

This outperformance was maintained throughout the year, with settlements in the second half exceeding the first half period.

What's next?

In its outlook for FY23, Australian Finance Group noted that interest rates were in the process of moving to "more neutral levels" by the Reserve Bank of Australia (RBA).

However, the company added that the big picture was that these rate hikes remained at "historically low levels" and that the broader economy was still performing strongly, noting the low unemployment levels. The company estimates that demand for mortgage and broking services will likely remain high.

Alongside a more neutral backdrop, the company also said it had a solid pipeline of fixed-rate residential mortgages that were due for renewal over the next few years, valued at roughly $46 billion. The impact of these loans is that they will provide the company with future settlements as well as cross-selling opportunities to expand its loan book further.

Australian Finance Group share price snapshot

The Australian Finance Group share price is down 23.96% year to date. Comparatively, the S&P/ASX 200 Financials Index (ASX: XFJ) is doing better. It's down 4.01% over the same period.

The company's market capitalisation is around $540 million.

Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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