Why Macquarie Is Backing AFG

AFG’s recent results, credit growth data, and property market momentum help explain why Macquarie sees upside if the ASX rebounds.

The analysts out of Macquarie recently published their favourite ASX names for a potential rally if the ASX rebounds as they expect. Top of the list was Australian Finance Group (ASX: AFG). This might be a surprise to some.

It’s not a hot tech stock, it’s unrelated to AI and not part of a high-flying story like rare earths or copper or any of the resource thematics going around lately. It’s a small-cap stock.

What Does AFG Actually Do?

What does it do? AFG is a mortgage “aggregator” and lender. It earns a clip on housing loans in different ways. We can think of it as a play on Australian property. It’s been on the ASX for a long time.

AFG hit a high of $2.92 per share back on 27 August. That was the day its full-year results were released. The share price is down 20% since. The ASX 200 is down 5.5% over the same time frame. Has anything really changed since August?

The risk appetite of investors sure has. The ASX hit a six-month low this week. You know the reasons… inflation is a little sticky, rate cut expectations are moderating, US Big Tech is wobbling around valuations and heavy capex (at least for now), and the US government shutdown dragged on to its longest ever.

Housing and Lending Momentum

That’s the macro noise that’s been a headwind for the share market in general. But let’s look a little deeper into the industry news since.

The Australian Bureau of Statistics reported on the latest credit figures on 12 November. New loan commitments rose 6% — a strong lift. The big banks also released their latest updates. They expect similar credit growth in 2026. Investors are active in real estate again. All this is supportive of AFG’s future earnings.

Let’s go back to those full-year AFG results released in August. NPAT increased 21% to $35m. Its lending division hit a record $5.5 billion. Of course, that data is in the past now. It’s what’s ahead that matters.

On 17 October the company reported a “record-breaking” first quarter for the new financial year. Mortgage lodgements were up 10% on the previous three months. Loan sizes are bigger and investors are back. Its lending division – where it earns the best margins – is seeing momentum.

There also looks to be solid investor support for residential mortgage-backed securities (RMBS). That’s important for a “non-bank” lender like AFG.

The Risks Still Matter

It’s not all roses and sunshine. The big banks are now rustling their staff and strategies to win back borrowers directly — to pull them away from the current high grip of the mortgage brokers. That would hurt AFG if they do so. Then there are the usual risks of credit losses and potential for a lower multiple if something really spooks the market.

The bright side is that AFG could grow earnings per share by 15% in FY26 and again in FY27, according to Reuters. It yields about 5% to boot. That’s a solid proposition in this market, especially with the housing market seeing government stimulus via the First Home Buyer Grant and general shortage of property pushing up prices.

Why It’s on Macquarie’s List

AFG may not be the most exciting story in the stock market. But we can at least see where the Macquarie guys are coming from. If the ASX does rebound, as they expect, then firms with positive earnings momentum and modest valuation should be primed to lift.

It’s the kind of idea that doesn’t come with immodest risk. That’s not the same as saying it’s risk-free. No share is. Please don’t take this as a recommendation either. It isn’t.

I like to keep an eye on AFG as a handy guide to what investors and home buyers are doing in the property market – always good to know. There are reports coming out that Australian consumer confidence is rising. I doubt it’s a coincidence that this is happening as property prices lift. It’s good for spending – and should be for stocks like AFG.