Patience rewarded on AFG securitisation business

AFG spent close to $1 million preparing to list on the ASX in 2007, but held off as the financial storm clouds gathered on the horizon.

Within months the world was in the grip of the biggest economic crisis since The Great Depression.

It was a big investment for the Western Australian mortgage broking group, but five and a half years down the track and managing director Brett McKeon is adamant it was the right decision, saying the process validated AFG’s business model.

The group’s core business of mortgage broking is showing strong growth across the country, especially in its home state.

The cost of lending has come down, home-buyers and investors are borrowing again, and AFG has capitalised on the recent tight lending market to fund a number of niche development projects through its property division.

However it wasn’t just a public listing that got put on the backburner in 2007-08.

AFG was in the process of building multi-billion-dollar mortgage portfolios to market to international investment groups when the GFC hit.

Funding dried up almost overnight and the floor collapsed beneath the securitisation business. The fledgling operation was mothballed amid gloomy prophecies for the sector.

Fast forward to 2013 and it’s a very different picture, with AFG having just launched its mortgage securitisation business to the market.

Australia has emerged relatively unscathed from the GFC and global investors have switched on to the quality of Australian mortgage assets.

AFG is now looking forward to strong growth from its resurrected securitisation operation.

“Australian mortgage assets have probably been nearly the best performing in the securitisation space in the last half decade,” Mr McKeon said.

“And investors are seeing that (Australian mortgages) are lower risk and better yielding than some of the other instruments that are out there.”

AFG Securities is expected to announce a major transaction within weeks, and Mr McKeon revealed about $180 million worth of business came through the securitisation channel in January

“That’s quite substantial and. annualising out at a few billion dollars of business that goes on to our balance sheet,” Mr McKeon said.

“But the core business is also going pretty well and the only other real risk is unemployment in Australia.”

AFG claims more than 11 per cent of the national mortgage market through its mortgage aggregation business.

Its total mortgages for January 2013 jumped by 25 per cent nationally from a year earlier, led by WA, which turned in a 37 per cent spike.

It’s a big number, but it’s what it points to that concerns Mr McKeon. He said WA’s residential property market appeared to have shifted to very firm ground in the past four months and there were signs it might be about to take off.

Despite concerns about an artificial price hike, a rise in property values could boost the group’s development business.

AFG is already reaping the benefits of Perth’s unpredictable property market through its development projects around Fremantle.