Good read ...
Sector: Non-bank financialsStock: Australian Financial Group (ASX: AFG)
Nick Guidera: I think it's non-bank financials and the reason why I think that's really interesting is because interest rate cuts are on the horizon.
Typically in a rate cut environment, you will see the bank's funding mix change and the funding disparity that you've seen where the banks have had a bit of an advantage in a higher interest rate environment. Plus you've had facilities in place from the Reserve Bank that have allowed cheaper credit that has now come to an end. A lot of these non-bank financials have been competing with one hand behind their back.
We particularly like those exposed to the mortgage market because in a lower interest rate environment you should see improved housing affordability. You should see improved housing turnover. And the stock we like in that space is AFG.
AFG is a mortgage aggregator, that is its DNA. It provides services to a bunch of mortgage brokers. And those are part of their network. There's 3,800 mortgage brokers within their network as part of that. They don't own direct shares in these mortgage brokers, but what they do, is they provide access to technology to compliance. They provide things like BrokerEngine, which allows you to fill out your information when you're submitting your mortgage to the broker. It provides connectivity to all the banks and access to all those products. And as the banks are shutting down branches and more people looking for advice when it comes to their mortgage, they're turning to a broker to do that. Brokers are taking share and we expect that to continue in the years ahead.
But probably the most interesting thing about AFG, they've also got a securities business. So, not only are they going to benefit from an increase in turnover of mortgages and household formation, they'll also benefit by their products ultimately being in the consideration set. They've got a $4 billion loan book. They haven't had a whole bunch of losses. I think they've had none in the last 12 to 18 months, but I think they're pretty well positioned
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