The share price of Australian Finance Group rallied on Tuesday after the company revealed that the value of high margin loans settled through its in-house lending arm had more than doubled in the 12 months to the end of June.
In a filing to the ASX on Wednesday, the country’s largest mortgage services aggregator said that its lending subsidiary – AFG Securities – boosted settlements last financial year by A$2.7 billion or 102 per cent.
AFG Securities markets loans under the Retro and Link brands.
Link-branded mortgages, which are sold to self-employed borrowers and people who have been refused credit by other lenders, generate higher interest margins for AFG compared to standard home loans.
AFG also disclosed that settlements in its white label mortgage business grew by 36 per cent or $2.9 billion during the year.
The rapid expansion of AFG’s lending has allayed the concerns of some investors that the company would struggle to meet its full year consensus forecasts for operating earnings of between $55.8 million and $61.3 million.
It appears that AFG has managed to retain momentum in its lending operations despite the recent slide in home loan demand triggered by a succession of official rate rises.
Chief executive David Bailey said the company’s net profit excluding significant items was expected to remain within consensus estimates thanks to a 17 per cent increase in underlying earnings.
“Our strategy to diversify earnings and expand into higher margin lending products has been a key driver of our growth in this financial year,” he said.
Investors responded positively to the announcement, bidding up AFG scrip 14 cents or 7 per cent to $1.96.
Despite the continued strength in its core businesses, AFG is set to report a sharp fall in statutory net profit to $38.8 million due to writedowns of technology assets and a $15 million investment in the failed neobank, Volt Bank.
Impairments flowing from the company’s exposures to Volt and outdated technology are expected to wipe more than $21 million from the bottom line.
There is a possibility that AFG and other investors in Volt might receive a partial return on the capital they ploughed into the bank.
Volt is currently in talks with at least three local banks with a view to selling its mortgage origination and banking platforms.
Banking Day understands that two Sydney-based retail banks and another headquartered in Brisbane have submitted preliminary bids for Volt’s technology in the last week.
Proceeds from such as sale would be used to fund a capital return to investors, which means AFG might be in a position in 2023 to write back part of its losses incurred on the Volt investment.
AFG releases its full financial results on Friday 26 August.