Are These 5 Mortgage Lenders Making Enough Money? – AFG, MOC, GMA, HGH And BOQ

A mortgage company is a provider of loans, which utilises the funds from the borrowers to source finances from large banks at cheaper interest rates for the purpose of lending money.

Mortgage firms are basically categorised into three distinct categories, namely mortgage bankers, mortgage broker companies and direct lenders. Mortgage bankers receive the application for a loan, they seek for a suitable lender and hand over the money to the borrowers themselves. Mortgage brokers are different from mortgage lenders in the fact that they simply act as a mediator between the borrower and the lender. On loan request, they connect the borrower to the lender, who receives the monthly payments. Mortgage brokers earn money in the form of commissions. A direct lender has its own money and guidelines for the loans provided. They extend loans to the consumers through a broker or a banker.

Now let us have a close look at few examples of mortgage stocks listed on ASX.

Australian Finance Group Ltd (ASX: AFG)

Australian Finance Group Ltd (ASX: AFG) is engaged in the mortgage origination and management of the home and commercial loans. The company recently released its Mortgage Index for the fourth quarter of the financial year 2019. In the three months to June 30th, the AFG Index recorded more than $13 billion in lodgements, up 12% on the prior quarter.

In another recent announcement, the company came up with a change in its executive team, wherein Mark Hewitt took up the new role as the General Manager Industry and Partnership Development. Chris Slater took over the responsibility of Sales and Distribution across the AFG Home Loans and residential broking businesses. The company is also planning to appoint a GM for the AFGS (AFG Securities) business.

1HFY19 Highlights: During the six months ended 31st December 2018, the company reported NPAT amounting to $16.69 million. Residential settlements for the period stood at $17.2 billion and AFG Home Loans settlements amounted to $1.73 billion, up 6% on pcp. The combined residential and commercial loan book for the period was valued at $151.8 billion. Return on equity for the period stood at 35%. A fully franked interim dividend of 4.7 cents per share was also declared during the period.

Revenues for the period witnessed a rise of 3.2% on pcp, with revenue from AFG Home Loans up 21% on the prior period. Total revenue from AFG Wholesale Mortgage Broking segment amounted to $281,703. The company responded to the Final Report of Royal Commission released in February, recommending abortion of trail commissions to mortgage brokers by lenders.

Financial Highlights (Source: Company Reports)

The stock of the company, at market close on 17th July 2019, was trading at a price of $1.835, up 2.514%, with a market cap of $378.07 million.

Mortgage Choice Limited (ASX: MOC)

Mortgage Choice Limited (ASX: MOC) is a financial services organisation providing mortgage broking and other credit services.

Financial Highlights: During the half year ended 31st December 2018, the company reported NPAT on a cash basis amounting to $7.1 million, in line with the guidance provided. At the end of the period, the company had a loan book of $54.5 billion, up 1% on the prior corresponding period value of $54 billion. Financial planning funds under advice stood at $816.9 million, up 28.8% on the prior corresponding period. Financial planning insurance premiums in force amounted to $28.9 million, up 8.5% on pcp. EBITDA (cash basis) during the period was reported at $11.02 million as compared to $18.46 million in the prior corresponding period. During the period, the company reported cash earnings per share of 5.7 cents. In addition, the Board declared a fully franked interim dividend of 3 cents per share.

Profit and Loss Statement (Source: Company Presentation)

The adoption of a new franchisee remuneration model structure to increase the payment to franchisees and reduction of volatility in earnings worked as key drivers of performance during the six month period. Due to the change in the remuneration model, the company witnessed a decline in the gross profit for the core broking business. Settlement volumes during the period were impacted by the slowing property and home loan markets.

The stock of the company, at market close on 17th July 2019, was trading at a price of $1.160, up 0.433%, with a market cap of $149.37 million.

Genworth Mortgage Insurance Australia Limited (ASX: GMA)

Genworth Mortgage Insurance Australia Limited (ASX: GMA) is a leading lenders mortgage insurance (LMI) provider in the Australian LMI market and a provider of capital and risk management solutions in the Australian residential mortgage market.

Financial Updates for 1Q19: During the quarter ended 31st March 2019, the company reported a statutory net profit after tax amounting to $47.8 million as compared to $8.4 million in the prior corresponding period. Underlying NPAT for the period amounted to $22.3 million as compared to $19.9 million in 1Q18. During the period, the company witnessed a strong capital position with net tangible assets amounting to $4 per share as compared to $3.94 in the previous quarter.

Key Performance Measures (Source: Company Reports)

Net insurance written during the quarter totalled $5,393.5 million, up 24% when compared to $4,349.2 million in the prior corresponding quarter. Growth in net insurance written was attributable to the bulk portfolio business and sustainable growth in LMI flow. Gross written premium during the quarter stood at $86.3 million, down 50.4% on the prior corresponding period premium of $174.1 million. Net earned premium for the quarter amounted to $72.9 million, up 8.2% on pcp value of $67.4 million. As at 31st March 2019, the company has $1.2 million in unearned premium reserve.

The management stated that the company’s performance in the first quarter was in line with the guidance provided for the full year with ongoing progress in enhancing the core business model.  

The stock of the company, at market close on 17th July 2019, was trading at a price of $2.980, up 0.676%, with a market cap of $1.23 billion.

Heartland Group Holdings Limited (HGH)

Heartland Group Holdings Limited (ASX: HGH) is a leading reverse mortgage provider in New Zealand. The company recently announced the completion of a reverse mortgage funding facility of $250 million. In aggregate, the company now has access to committed Australian reverse mortgage loan funding of $850 million.

Highlights of 1HFY19: During the six months ended 31st December 2018, the company generated a net operating income of $102.1 million, up 8.7% as compared to the prior corresponding period. Net profit after tax for the period stood at $33.1 million, depicting an increase of 6.5% on the prior corresponding period. Gross finance receivable for the period amounted to $4.2 billion, reporting 11.9% annualised growth from 30th June 2018. The cost-to-income ratio for the period improved to 42.5% against 42.9% in the prior corresponding period. Annualised return-on-equity for the period stood at 10.3%. During the period, the company declared an interim dividend of 3.5 cents per share.

Operating expense ratio for the period stood at 42.5%, down 40 bps compared to the prior corresponding half. During the period, the company incurred an impairment expense amounting to $13.3 million, up $2.9 million or 27.6% on the prior corresponding period. An increase to the extent of $2.2 million was a result of the new IFRS9 methodology. Despite the increase in the expense, the underlying receivables performance remained stable. Non-performing loans ratio for the period also improved to 1.70%.

NPL Data (Source: Company Presentation)

FY19 Guidance: The company issued an updated earnings guidance in the range of $73 million to $75 million, a mid-point of which will lead to NPAT growth of approximately 10% on the previous year.

The stock of the company last traded at a price of $1.660, with a market cap of $854.01 million as on 15th July 2019.

Bank of Queensland Limited (ASX: BOQ)

Bank of Queensland Limited (ASX: BOQ) is engaged in the provision of financial services and products. The company recently notified that Matt Baxby resigned from the position of CFO but will remain with the group till the release of full year results in October 2019. In another announcement, the company updated investors on the appointment of George Frazis as the Managing Director & CEO from 5th September 2019.

1H19 Highlights: During the first half ended 28th February 2019, the company reported cash earnings after tax amounting to $167 million, down 8% in comparison to earnings of $182 million in the prior corresponding period. Statutory profit after tax for the period stood at $156 million, down 10% as compared to $174 million in pcp. Cash net interest margin went down by 3 bps, from 1.97% in 1H18 to 1.94% in 1H19.

Key Metrics (Source: Company Presentation)

Cash operating expenses for the period stood at $268 million, up 2% on the prior corresponding period. Loan impairment expense for the period amounted to $30 million, up 3 basis points from pcp to 13 basis points of lending. As compared to 2H18, the company witnessed a decrease of 5 basis points in Common Equity Tier 1 ratio at 9.26% due to an increase in software spend and transition to new accounting standards. Cash return on average equity for the period stood at 8.8%.

The stock of the company, at market close on 17th July 2019, was trading at a price of $9.210, down 0.325%, with a market cap of $3.81 billion.


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