The ASX small-cap stock Australian Finance Group Ltd (ASX: AFG) may not be well known, but it's an important part of the Australian economy. It's one of the largest mortgage broking groups in the country.
In the company's FY25 half-year presentation, it said that 75% of residential mortgages are now done through the broker channel and one in ten residential mortgages in Australia are written by an AFG broker. Approximately 550,000 borrowers are helped each year by AFG brokers.
There are a few reasons why the business looks like a compelling buy at this level, let's get into it.
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Strong loan growth across the board
A key metric for the growth of the business is the total value of the loans it lodges.
In the quarter for the three months to 30 June 2025, the ASX small-cap stock lodged more than $27 billion of home loans, up 19% year-over-year. This was the highest quarterly volume in the company's history.
In the latest quarter, NSW lodgements increased 16% year-over-year to $8.88 billion, Victoria lodgements rose 17% to $8.14 billion, Queensland lodgements increased 21% to $5.26 billion, Western Australia lodgements surged 25% to $3.67 billion and South Australian lodgements grew 18% year-over-year to $1.71 billion.
These are strong tailwinds for the company's earnings over the next 12 months and beyond, if the lodgement growth remains pleasing.
Property price growth
If the size of each loan grows, then AFG can benefit as its total lodgements increase.
Rising property prices can help both drive demand for mortgages and increase the size of each loan.
According to the ASX small-cap stock, the average size of the loan nationally in the fourth quarter of FY25 was $678,333. That was up from $674,855 in the third quarter of FY25 and an increase from $640,605 in the fourth quarter of FY24.
As Australia's population and the number of existing properties increase, the potential for more loans also rises.
Well-liked by brokers
The strength of the ASX small-cap stock is based on how much brokers like it and what it can provide for them.
In the FY25 half-year result, AFG reported a 7% net increase in broker numbers, with one in six brokers now being an AFG broker.
The company boasts of providing market-leading broker technology. Its 'BrokerEngine Plus' delivers a 35% productivity improvement for brokers, while achieving a net promoter score (NPS) – a customer satisfaction rating of more than 50. Around 46% of AFG brokers were subscribed to BrokerEngine as of the FY25 first half result, up from 34% in the first half of FY24.
With defensive earnings and a growing book of loans, I believe this ASX small-cap stock has a compelling future.
