SYDNEY — Australian Finance Group Ltd.’s stock fell in Monday trade despite positive momentum going into fiscal 2022, as investors eye changing interest-rate conditions in the longer term.
Shares in the Australian nonbank financial company slid 4.0% to 2.19 Australian dollars (US$1.58). AFG shares lost almost 19.0% in January as investors braced for a different set of interest-rate conditions in fiscal 2023 and beyond, perhaps spurring a mortgage and housing bear market.
AFG on Friday reported a 20% jump in net profit for the six months to December to A$30.0 million, which was 1% above consensus expectations. The company’s revenue rose 31.5% to A$469.7 million.
Citi now estimates fiscal 2022 net profit of A$63.1 million, almost double the level in 2019 when the current housing bull market began, and sees operating performance momentum likely to continue into the second half. However, Citi notes that AFG’s share price has significantly underperformed the market.
“The weakness in the share price over the past six months is likely to reflect investors are looking beyond fiscal 2022 where AFG is set to face a completely changed set of market conditions,” Citi said.
Despite solid operational performance amid a strong housing market, AFG and other nonbank financials are expected to face higher mortgage rates if the Reserve Bank of Australia raises its cash rate as expected. At the same time, mortgage borrowers’ loan capacity could fall with higher rates.
“All of these factors are expected to slow activity and weaken house prices,” Citi said.