Australian Finance Group (ASX:AFG) told investors its first half of FY2026 delivered a “record” performance, with management pointing to accelerating profit growth, operating leverage, and improving margins in its manufacturing (lending) business alongside continued momentum in its distribution network.
Chief Executive Officer David Bailey said the result reflected disciplined execution of AFG’s strategy across three pillars: expanding the broker network, offering a market-leading technology proposition, and driving higher-margin manufacturing through AFG Securities. He said the company is progressing toward its FY2029 aspirations and is supported by structural tailwinds such as continued broker channel market share gains and industry consolidation.
Network scale and early second-half trading
Management also flagged a strong start to calendar 2026. Bailey said January lodgements were up strongly across residential and AFG Securities, with growth across all states and particular strength in New South Wales and Victoria. He said record RMBS issuance improved funding certainty and supported a positive near-term outlook for net interest margin (NIM).
Financial performance and cash generation
Chief Financial Officer Luca Belgiorno said the first half represented a “meaningful step up” in profitability. He reported:
- Gross profit increased 16% to AUD 78 million.
- EBITDA increased 43% to AUD 36 million.
- Return on equity improved to 21%.
Belgiorno said 74% of earnings are “annuity style,” providing a stable base. He also highlighted cost discipline and operating leverage, with gross profit up 16% while operating expenses rose 5%, improving the cost-to-income ratio to 56% from 64%. Operating expense growth reflected targeted investment in performance-linked remuneration and technology, partly offset by reduced headcount. Amortization related to the group’s platforms increased by AUD 1 million.
Net cash from operating activities increased 50% to AUD 20 million, and cash conversion was 85%, according to Belgiorno. The company declared a fully franked interim dividend of AUD 0.047 per share, which management said was consistent with its payout policy.
Distribution: subscriptions and multi-product mix
In distribution, Belgiorno said gross profit increased 5% to AUD 58 million, and the segment continued to generate the majority of group earnings with a 37% return on equity. He emphasized an improving quality of earnings, led by subscription revenue tied to AFG’s technology and platform services.
Subscription income increased 11% to AUD 11 million, marking what Belgiorno described as the eighth consecutive year of double-digit growth. Subscription income was “close to 20%” of distribution gross profit, increasing the recurring component of earnings. Residential margins increased by AUD 1.9 million, driven by record settlement volumes, while upfront payout ratios remained stable at 96.3%.
Belgiorno said Asset Finance settlements grew 15% and that the business has grown at an annualized rate of 22% since AFG acquired Fintelligence. He added that BBI moderated in the period, with competition becoming “more rational” and performance improving compared to the second half of FY2025.
Manufacturing: book growth, funding-led NIM expansion
AFG’s manufacturing business (lending via AFG Securities) was a key contributor to the period’s earnings uplift. Belgiorno said manufacturing gross profit increased 62% to AUD 21 million, with the loan book closing at AUD 6.3 billion after a strong December. He reported NIM increased to 124 basis points, up 11 basis points over the half, and said operating leverage delivered AUD 4 million in scale benefits while the manufacturing cost-to-income ratio improved by 19 percentage points.
Belgiorno said the NIM expansion was “funding-led, not risk-led.” He attributed about 9 basis points of uplift to structural factors (excluding the cash-to-BBSW spread), with the spread contributing roughly 5 basis points. That placed underlying NIM at about 119 basis points. During the half, AFG renewed three warehouse facilities at improved margins and completed an RMBS issuance priced 25 basis points inside its prior transaction. He added a further AUD 1 billion to AUD 2 billion deal was completed “last week” on similar terms with strong investor support.
Belgiorno said 53% of the portfolio is now term-funded, reducing exposure to short-term funding volatility. He also pointed to an exit NIM of 126 basis points, saying this provided confidence for the second half due to the full-period benefit from funding secured in the first half and the additional term transaction completed after period end.
Broker investments, capital position, and outlook
Bailey also discussed AFG’s broker investment strategy, describing it as targeted minority investments aligned to succession and scale. He said five broker investments have been completed, are “earnings accretive from day one,” and are beginning to pursue secondary acquisitions, which management said is enhancing network effects over time.
In the Q&A, management said AFG has invested about AUD 7 million across the broker investment portfolio, with an average stake of around 25% and annualized EBITDA of AUD 2 million from those investments. Management said returns are assessed case-by-case against hurdle rates, and that contributions are expected to build over time.
Belgiorno said the group ended the half with AUD 63 million of unrestricted cash and remained in a net cash position. He cited a trail book net asset of AUD 86 billion as embedded value and said strategic investments total AUD 56 million, while the balance sheet remains flexible for additional investment where returns are compelling.
On outlook, Bailey said the company expects earnings to accelerate in the second half, driven by strong January lodgements across residential and AFG Securities (with strong February numbers also cited), a higher-margin mix supported by improved NIM and growing subscription income, and continued operating leverage alongside a seasonal cost profile.
About Australian Finance Group (ASX:AFG)
Australian Finance Group Limited, together with its subsidiaries, engages in the mortgage broking business in Australia. It operates in two segments: Aggregation and AFG Home Loans. The company is involved in the mortgage origination and management of home and commercial loans, and consumer asset finance; and distribution of own branded home loan products. It also offers Suite360, commercial and business broking, and smart marketing platforms. The company was formerly known as Australian Finance Group Pty Ltd.
