Australian Finance Group's Clean Loan Book Meets A Nervous Market

Fund managers disagree on whether tax policy risk or a 46% profit jump should set the tone for this mortgage aggregator

31 May 2026 · 6 min read

Fund managers split sharply on Australian Finance Group through May 2026. Endeavor Asset Management said the mortgage aggregator fell 22.1 per cent during the month following consensus earnings downgrades tied to higher interest rates, and exited its position altogether given a federal budget and potential tax changes it believed would reduce confidence around property purchases and weigh on near-term earnings visibility. Seneca Financial Solutions took the opposite view in the same month, describing a stellar result with profit growth of 46 per cent and noting the stock had been a core holding it recently upweighted, even as shares retreated on broader sector nerves following a Commonwealth Bank result that showed rising bad debts elsewhere in the mortgage market.

We thought that had a stellar result. Profit growth of 46%. It is a large Australian mortgage aggregator... The stock trades on a really attractive valuations. That was actually $2 pre-report, spiked up to $2.20 following its report.

— Seneca Financial Solutions, Presentation, May 2026

A record unblemished by bad debts, so far

Seneca Financial Solutions made a point of distinguishing AFG's own lending book from the broader banking sector concerns. The manager said AFG's track record for loan arrears and bad debt management remains unblemished since it first began lending in 2012, and noted the company announced a $15 million on-market share buyback after month end, a signal it read as confidence from management even as the stock retreated on read-through fears from the banks. Datt Capital, in a separate May 2026 article, flagged a different tailwind entirely, suggesting AFG stands to benefit from higher refinancing activity as borrowers shop around to reduce their debt repayments.

Momentum before the pullback

The May weakness followed a strong March quarter. Endeavor Asset Management reported the share price rose 9.6 per cent as total mortgage lodgements increased 22.7 per cent and higher-margin securitisation lodgements rose 80 per cent, with the continued shift toward AFG's proprietary lending products supporting expectations for stronger earnings and margin expansion. The manager said consensus had upgraded earnings forecasts modestly on robust loan volumes and improving net interest margins, and described AFG as one of the higher-quality defensive small caps on the ASX at the time.

The structural case that built the position

That constructive view traces back to a standout August 2025 result. Ellerston Capital said AFG was its strongest performer that month, rallying 26 per cent after net interest margins surprised to the upside, and argued the company sits in a real sweet spot as ongoing rate cuts drive stronger demand for housing credit while also lowering its own funding costs. Wilson Asset Management detailed the scale of the improvement, reporting FY2025 revenue of $1.24 billion, up 15 per cent, and net profit after tax of $35.0 million, up 21 per cent, with settlements in the highest-margin AFG Securities division rising 65 per cent to $2.7 billion. The manager also noted NAB's withdrawal of its Advantedge white-label business had created scope for AFG to capture a greater share of that market.

AFG is benefitting from continued positive momentum in national house prices and another RBA rate cut priced in for the remainder of 2025, which should drive increased mortgage activity and strengthen AFG's competitiveness relative to the banks.

— Blackwattle Investment Partners, Monthly Report, August 2025

Endeavor Asset Management pointed to a further structural tailwind in September 2025, noting the government's First Home Buyer scheme supports loans up to 95 per cent of a property's value with a government guarantee on the portion above 80 per cent, letting lenders earn interest on the full loan while carrying risk closer to an 80 per cent exposure. The manager said it expected portfolio positions in NAB, Westpac, Macquarie and AFG to benefit from the resulting improvement in risk-weighted capital efficiency.

What managers are watching next

With Endeavor Asset Management now on the sidelines pending a more favourable tax and rate environment and Seneca Financial Solutions treating the May pullback as an opportunity to hold a core position, the key questions are whether AFG's unblemished bad debt record survives a period of rising arrears at the major banks, and whether the refinancing wave Datt Capital points to offsets any near-term slowdown in new lodgements tied to the tax and policy uncertainty Endeavor Asset Management flagged.