The Australian Finance Group Ltd (ASX: AFG) share price has soared this morning, rising as much as 15.8% in the first hour of trade. The mortgage aggregation group released its half-year results before open revealing strong growth in profits.
AFG results
AFG reported a 10% increase in net profit after tax (NPAT) which reached $18.3 million, up from $16.7 million in 1H19. Underlying NPAT rose even more, increasing 20% to $17.7 million from $14.7 million, as the full impact of historical AFG Home Loans settlements is now translating into cash.
Total revenue of $334.28 million was reported, up 3%, driven by growth in the AFG Securities book, with gross profit up 17% to $42.8 million. Earnings per share climbed 9% to 8.4 cents from 7.4 cents in the prior corresponding period (pcp).
Strong cash flow supporting dividends
Net cash from operating activities increased 35% to $16.9 million from $12.5 million in 1H19. Strong cash flow generation will support a continued dividend payout ratio of 60% – 80%. The interim dividend was increased to 5.4 cents a share, up 15% from 4.7 cents a share in the pcp.
Net interest climbed an impressive 102% to $17.2 million, while the net interest margin was up 35% to 151 basis points from 113 basis points in the pcp.
Settlements and lodgements
While first-half settlements were flat at $16.9 billion, Q2 lodgements were up 19% on last year while settlements were up 6%.
AFG reported the value of its residential trail book rose 5% to $151.7 billion, while the AFG Home Loan trail book was up 17% to $9.8 billion, translating to strong cash flow generation. AFG Securities settlements rose 46% to $690 million with the AFG Securities loan book up 51% to $2.5 billion.
Diversified earnings
AFG reports that its investment since FY19 in growing the AFG Securities book is now providing a strong platform for earnings growth. AFG income is diversified across manufacturing (AFG Securities and AFG commercial), distribution, and aggregation. AFG's broker distribution network writes residential and commercial mortgages, personal loans, asset finance, and makes insurance referrals.
Balance sheet
AFG reports that it is capital light, with a strong balance sheet and no debt. Cash of $116.6 million was reported at the end of 2019, up from $96.8 million at 30 June 2019. This provides a platform for future investment in both organic and inorganic growth opportunities.
