Australian Home Lending And Auto Diversification Will Fuel Market Expansion

Key Takeaways

• Strong home lending demand and technological investments are driving growth, operational efficiency, and an enhanced customer experience.
  
• Diversification into auto and consumer finance, improved funding conditions, and robust risk management bolster earnings resilience and asset quality.
  
• Heavy reliance on a finite acquired asset portfolio, margin compression risks, rising costs, and loan concentration threaten sustainability of earnings and future revenue growth.

Catalysts

Provides residential mortgage and asset finance lending products in Australia and New Zealand.

• The ongoing structural undersupply of housing and robust population growth in Australia continue to drive demand for home lending, and Resimac's 14% mortgage settlements growth and 17% increase in home loan applications signal a return to strong loan book expansion, supporting future revenue and earnings growth.
  
• Accelerating digital adoption and Resimac's investment in AI-driven technology, intelligent automation, and fast turnaround for brokers and customers will enhance operational efficiency and customer experience, positioning the company to widen its addressable market and potentially expand net margins.
  
• The successful acquisition and integration of Westpac's auto portfolio both diversifies Resimac's AUM and establishes a platform for entry into the novated lease and consumer finance markets, creating new revenue streams and supporting earnings resilience as the auto book contributes incremental profit over FY26 and FY27.
  
• Favorable funding market dynamics (e.g., oversubscribed securitization issuances and declining funding margins) are already reducing Resimac's cost of funds, with further potential from expected monetary policy easing, supporting net interest margin and bottom-line profitability.
  
• Strengthened broker engagement, improved retention initiatives with AI insights, and ongoing investment in credit risk management/collections suggest further improvement in asset quality, translating to stable or reduced impairments and supporting more resilient future earnings.

Resimac Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Resimac Group's revenue will grow by 91.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 21.1% today to 7.0% in 3 years time.
• Analysts expect earnings to reach A$79.7 million (and earnings per share of A$0.2) by about September 2028, up from A$34.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.0x on those 2028 earnings, down from 12.2x today. This future PE is lower than the current PE for the AU Diversified Financial industry at 19.9x.
• Analysts expect the number of shares outstanding to decline by 1.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.43%, as per the Simply Wall St company report.

Resimac Group Future Earnings Per Share Growth

Risks

• The company's recent profit growth and asset expansion are heavily reliant on the acquisition of the Westpac autos portfolio, which is a finite, runoff book with no new originations planned for at least two years; this dependency creates a structural risk to ongoing revenue and operating profit growth once the acquired assets are amortized.
  
• Margins, particularly net interest margin (NIM), have recently benefited from short-term factors such as lower funding costs and specific rate cycles, but management acknowledges operating in a highly commoditized, competitive market where pricing pressure and the need to trade margin for volume could squeeze profitability over time.
  
• Cost base increases tied to servicing the acquired portfolio and continued investments in technology, compliance, and operational uplift create uncertainty about the ability to achieve the necessary cost-to-income efficiencies, posing a threat to net margins and overall earnings if growth does not sufficiently outpace expenses.
  
• Elevated impairment expenses and increased net write-offs, particularly in the Asset Finance segment, highlight the risk of higher credit losses in a challenging macro environment; while recent improvements in arrears are noted, credit risk in SME lending and cyclical economic volatility could impact future provisioning and thus net profit.
  
• Despite steps toward diversification, Resimac's loan book still reflects a high concentration in Australian and New Zealand residential mortgages and asset finance, exposing it to sector and geographic risks-prolonged housing affordability issues, property market stagnation, or regulatory tightening could limit origination growth and revenue sustainability in the long run.

Valuation

• The analysts have a consensus price target of A$1.183 for Resimac Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$1.5, and the most bearish reporting a price target of just A$1.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$1.1 billion, earnings will come to A$79.7 million, and it would be trading on a PE ratio of 7.0x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of A$1.07, the analyst price target of A$1.18 is 9.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.