Company Interview / A small cap financial with macro tailwinds

Key points:

Robert discusses AFG's role and strong fundamentals.Economic conditions suggest potential RBA rate cuts aiding housing activity.Non-bank lenders overcoming recent challenges, boosting AFG's position.

Robert Hawkesford from Blackwattle Investment Partners shares his positive outlook on the Australian Finance Group (ASX: AFG). Robert sees AFG as a strong small cap investment due to its dual role as a mortgage aggregator and lender. Over 15 years, AFG has maintained low bad debts, highlighting its business quality.

He notes that falling inflation and slight increases in unemployment suggest a favourable economic environment, potentially leading to RBA rate cuts next year. Such changes are expected to boost housing activity, benefiting companies like AFG. Despite rate hikes, new loan commitments return to two-year highs, signalling strong market resilience.

Robert highlights challenges faced by non-bank lenders like AFG, particularly during the RBA's term funding facility. However, with recent repayments, non-bank competitors regain their footing. He mentions the growing trend of consumers choosing mortgage brokers, which enhances AFG's competitive edge. Despite strong fundamentals, AFG trades at an attractive valuation with an 11x PE and a 6% dividend yield.