Broker AFG launches A$140 million IPO

Australia's largest mortgage broking group, Australian Finance Group, yesterday lodged a prospectus for an initial public offer and listing on the Australian Securities Exchange.

The form and timing of a selldown by the founders, including chief executive Brett McKeon and key managers, has been a staple of sector speculation.

The timing and form of the sale will be read by some as an indicator the Australian mortgage market is near a cyclical peak. Options for a trade sale must have been on the table in the recent past as they were in recent years.

Moreover, AFG may yet prove an attractive morsel for any number of bank and foreign buyers.

In a statement, AFG said the IPO was expected to raise between A$121.3 million and $140.1 million, based on an indicative price range of $1.20 to $1.38 per share.

Based on the mid-point of this range of $1.29 per share, approximately $35 million will be raised by the issue of new shares and approximately $95.9 million by the sale of shares by existing shareholders.

Existing shareholders will continue to own approximately 52.7 per cent of AFG, with shares owned by the co-founders and certain other existing shareholders escrowed until the release of the company's FY2016 result. Macquarie Group's stake in AFG will fall from 9.9 per cent to 5.2 per cent at the completion of the IPO.

McKeon said in a statement: "We have received a number of offers for the company since we started operations more than 20 years ago, but we believe listing on the ASX is the best avenue to ensure AFG's sustainable growth and to retain and attract brokers to our network."

AFG was founded in 1994 and has grown to become one of the biggest mortgage broking groups in Australia, with more than 2,300 AFG brokers distributing over 1,400 mortgage products supplied by AFG's panel of over 30 lenders.

The AFG loan book currently sits at more than $100 billion. The company claims to have originated 16.7 per cent of all residential mortgages originated by mortgage brokers in 2014.

According to the pro forma financial report in the prospectus AFG made a net profit of $16.1 million in 2013/14 - 7.5 cents a share. Its forecast is for net profit of 17.8 million for the year to June and earnings per share of 8.3 cents.

The average upfront commission rate in 2013/14 was 59 basis points and the average trail was 17 bps. AFG has forecast that the average upfront commission rate will increase to 62 bps in the current financial year, while the average trail will remain unchanged.

McKeon will remain as managing director of AFG upon listing on the ASX. Co-founder Malcolm Watkins also remains on the Board in an executive function, with Kevin Matthews becoming a non-executive director.

Tony Gill will remain as independent non-executive chairman with independent non-executive directors John Atkins, Jim Minto and Craig Carter completing the Board.

AFG shares are expected to begin trading on the ASX on a deferred settlement basis on or around 22 May 2015.