• Residential Mortgage Book: $205 billion, grew 4% for the period.
• AFG Home Loans Book: $13 billion.
• Asset Finance Settlements: 12% growth to $1.8 billion.
• AFG Securities Book Growth: 23% increase.
• Think Tank Loan Book Growth: 10% increase to $6 billion.
• Dividend Yield: 5%, fully franked.
• Return on Equity: 16%.
• Cash and Liquid Assets: $185 million.
• Distribution Business Growth: 8% growth, return on equity of 39%.
• Equity Investments EBITDA Contribution: $5 million to $7 million annualized.
• Net Interest Margin (NIM): 113 basis points, expected to improve.
• Profit Before Tax: $22.3 million.
• Residential Settlements: 13% increase to $32 billion.
• Gross Margin Increase: 6% to $15.3 million.
• Operating Expenses (Opex): Increased by 7% or $3.3 million.
• Dividend Per Share: $0.08, 60% payout ratio.
• Distribution Earnings: $92 million, up 8%.
• Manufacturing Earnings: Stabilized at $8 million.
• Gross Profit Growth: 4% increase.
• Cash Conversion Ratio: 80%, expected to return to 90-100% range.

• Warning! GuruFocus has detected 7 Warning Sign with ASX:AFG.

Release Date: February 28, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Australian Finance Group Ltd (ASX:AFG) reported record settlements and a growing loan book size, indicating strong business performance.
• The company experienced an 8% growth in its distribution business, which is its highest capital segment, with a return on equity of about 39%.
• AFG's investment in broker technology has resulted in a 35% productivity improvement among brokers.
• The company's securities loan book grew by 23%, reflecting robust growth in its securities business.
• AFG declared a fully franked dividend yield of 5%, showcasing its commitment to returning value to shareholders.

Negative Points

• The cost to income ratio remains higher than desired, indicating potential inefficiencies in operations.
• AFG's contribution from its Think Tank investment was lower than expected, impacting overall earnings.
• The payout ratio for brokers has increased, which could affect profit margins.
• The company's essential services segment recorded a loss, driven by higher full-time equivalent (FTE) costs.
• AFG's cash conversion ratio was lower than usual at 80%, affected by timing of commission payments and additional payment runs.

Q & A Highlights

Q: Can you provide more details on the equity broker investments and the timeline for reaching your goal of 35 investments? A: Luca Pietro Piccolo, CFO, explained that they expect to invest in 4 to 8 broker groups per annum. The first year will focus on building the pipeline, with a target of 4 investments. They aim to take minority equity interests of 20% to 40% in these businesses, ensuring they meet financial hurdle rates.

Q: Regarding the distribution business, what is the potential penetration of your broker groups with the new products and services? A: David Bailey, CEO, noted that as industry consolidation continues, larger broker groups will offer more services. Currently, 58% of brokers offer at least one product, but they aim for 40% to 50% to offer 2 to 3 products. The strategy is to add services that brokers can choose based on their needs.

Q: What are the expected contributions from the new broker services to gross profit? A: Luca Pietro Piccolo, CFO, mentioned that they aim for 30% of gross profit to come from new income streams, primarily broker services. This includes expanding the Broker Engine platform, which they expect to reach close to 100% adoption among brokers.

Q: How is the distribution business performing in terms of gross profit drivers? A: David Bailey, CEO, highlighted that the distribution business is seeing growth in subscription income and diversified products. They are focusing on increasing the penetration of these products among broker groups to drive further growth.

Q: Can you elaborate on the impact of technology investments on broker productivity? A: David Bailey, CEO, stated that technology investments have led to a 35% productivity improvement among brokers. This has been achieved through the adoption of Broker Engine Plus, which has increased from 34% to 46% among brokers.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.