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For the first time in its history, more than half of an aggregator’s gross margin in fiscal year 2019 was generated from outside of its mortgage broking business.
Australian Finance Group (AFG) last week announced an underlying profit of $28.56m, up 1.8% for the 12 months to 30 June 2019.
The growth created through the diversified earning streams even amidst the softer credit market represents a “watershed moment” in the group’s development, AFG noted in the full year debrief.
“The mortgage broking sector has endured a tumultuous 12 months, with unprecedented external forces leading to residential settlements being down 11.5% compared to last year,” explained CEO David Bailey.
“However, AFG has emerged with a stronger and more sustainable business by executing our strategy to continue to develop a more diversified earnings base while still recognising the importance of our traditional aggregation business.”
Several months ago, AFG reshaped its executive team to reflect its diversified earnings base and better support the development of the other areas of its business.
According to Bailey, the “stand out” contributor to the group’s growth in FY19 was the RMBS program, which has passed the $2bn under management milestone.
The settlements of $1.06bn through the AFG Securities business were up 108% on last year, while the settlements of $129.7m through the AFG Business platform were up 30.9% on the previous six months.
“AFG’s entry into the SME market through both its AFG Business platform and its investment in Thinktank is gaining momentum. We fully expect growth from both AFG Securities and AFG Commercial to provide additional contributions to earnings over the coming 12 months,” said Bailey.
The CEO also addressed AFG’s pending merger with Connective, which would result in a network of over 6,575 brokers if approved. Together, the two groups had combined mortgage settlements of $76bn in FY19.
“Upon completion, we anticipate Connective will have access to AFG’s securitisation program and the opportunity to grow both asset finance and commercial lending through the combined network,” explained Bailey.
“Expanded distribution channels and broader diversification of products provide greater choice and value for both brokers and consumers,” he added.
If the court approves the transaction, AFG expects the merger to be completed in the second half of FY20.
Looking ahead, Bailey is prepared for the lending landscape to remain challenging for those looking to provide or secure credit.
“We fully expect regulatory and compliance requirements will increasingly be a factor for the Australian financial services industry over the short to medium term,” said Bailey.
“The mortgage broking industry will need to adapt to the new environment,” he concluded.
