Australian Finance Group Limited

AFG Details

September Quarter Witnessed Strong Home Loan Activity: Australian Finance Group Limited (ASX: AFG) is engaged in the mortgage origination and management of home loans and commercial loans. The company also engages in the distribution of its own branded home loan products, funded via traditional mortgage management products, white label and its established RMBS programme. The company recently updated the exchange that Oceancity Investments Pty Limited ceased to be a substantial shareholder. In another recent update, the company announced that Kevin Matthews, Non-Executive Director, retired from the Board with effect from 28 October 2019. Another announcement to the exchange stated that the 2019 AGM of the company is scheduled to be held on 22 November 2019.

September Quarter Index: The company recently provided an update on the Index, which is defined as a reliable barometer of quarterly home loan activity across Australia. On the back of low interest rates and property market recovery, home loan activity rebounded strongly in the September quarter. During the three-months period, lodgements amounting to $15.7 billion were reported. Volumes for the quarter increased at a rate of 21% on the previous quarter and 11% in comparison to prior corresponding quarter. The period was marked by lodgement of more than 29,000 mortgages. First buyers accounted for 15% of mortgages during the period, representing the highest level in seven years on the back of multiple interest rate cuts during the year.

Highlights of FY19 Financial Results: During the year ended 30 June 2019, the company reported underlying NPAT amounting to $28.6 million, up 2% on prior corresponding period NPAT of $28.1 million. Reported return on equity for the year remained constant in comparison to the prior corresponding year, at 33%. During the year, the company declared a final dividend amounting to 5.9 cents per share, as compared to 5.7 cents in FY18. During the year, the company’s Home Loans’ book reported a balance of $9.2 billion, up 25% in comparison to prior year.


FY19 Results (Source: Company Reports)

The company owns a strong balance sheet with no debt, that is expected to support the future development of the business. The company looks forward to further growth opportunities on the back of an established distribution network, providing choice and competition.In addition, growth is expected to further amplify, in the presence of well-developed compliance and technology platforms, strong cashflow generation, investment in technology and earnings diversification strategy.

Stock Recommendation:The stock has generated a positive return of 88.97% over the period of one year. As on 05 November 2019, the stock made new 52-week high of $2.860 with a new 52-week trading range at $0.840 - $2.860. On the same date, market capitalisation of the company stands at ~$590.66 million with an annual dividend yield of 3.87%. The quarter ended 30 September 2019 witnessed a record home loan activity with the highest mortgages lodge in almost two years. Multiple interest rate cuts during the period took mortgages by first home buyers to the highest level in seven years. The company is expecting the momentum to continue through to the end of the year and 2020, with further anticipated rate cuts by the RBA. On the valuation front, the stock has a price to book value multiple of 5.6x, which is higher than the financials industry median of 1.3x. Price/Cash Flow multiple of the stock at 19.1x is also higher than the industry median of 13.3x. Considering the whopping returns generated by the stock in the past one year, stretched valuations, and current trading levels, we are of the view that most of the positive factors have been discounted at the current levels. Hence, we recommend a ‘Sell’ rating on the stock at the current market price of $2.780, up 1.46% on 05 November 2019 and suggest investors to book the profit at the current juncture.

 
AFG Daily Technical Chart (Source: Thomson Reuters)

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