Digital Transformation And Rising Australian Demand Will Expand Alternative Lending Markets

Key Takeaways

• Automation, digital transformation, and AI initiatives could enable Resimac to outpace competitors through efficiency gains and superior customer experience.
  
• Structural shifts in funding, market trends, and regulatory changes position Resimac to expand market share and drive sustained profit growth.
  
• Reliance on wholesale funding, diminishing auto portfolio benefits, regulatory risks, and demographic headwinds threaten Resimac's future revenue growth and earnings outlook in a competitive market.

Catalysts

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

• While analyst consensus anticipates a temporary earnings boost from the Westpac auto portfolio acquisition, the vastly improved operational leverage-combined with the platform build-out for future novated lease and consumer loan originations-points to an ongoing, step-change in diversified revenue generation and structurally higher profit contributions well beyond the runoff, setting the stage for long-term growth in both earnings and net margins.
  
• Analysts broadly agree that automation and digital transformation will yield efficiency and margin gains, but the current pace of AI-driven operational reengineering and customer experience initiatives could enable Resimac to radically outcompete both banks and fintech upstarts, leading to sustainably higher loan volumes, industry-leading processing times, and superior cost-to-income ratios by 2026 and beyond.
  
• Major funding cost reductions and continued deepening of the securitization market, demonstrated by oversubscribed RMBS and ABS issuances at record-low senior spreads, are positioning Resimac to structurally lower its cost base and accelerate net interest margin expansion, turbocharging profitability as AUM scales.
  
• Australia's undersupplied housing market and record population growth, combined with Resimac's renewed broker engagement and a "back to the core" home loan focus, signal the potential for multi-year AUM and revenue compounding that could far surpass current consensus AUM growth estimates as the cycle turns in their favor.
  
• Regulatory trends and consumer sentiment continue to drive share away from major banks to non-bank lenders, and Resimac-with 40 years of brand equity, new leadership focused on technology, and the flexibility to innovate-stands to capture an outsized portion of this structural migration, significantly increasing market share and long-term earnings power.

Resimac Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Resimac Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Resimac Group's revenue will grow by 93.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 21.1% today to 6.9% in 3 years time.
• The bullish analysts expect earnings to reach A$82.5 million (and earnings per share of A$0.21) 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 price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 8.6x on those 2028 earnings, down from 11.9x 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 7.38%, as per the Simply Wall St company report.

Resimac Group Future Earnings Per Share Growth

Risks

• Intensifying competition from major banks and fintech disruptors in a commoditised lending market may continue to compress Resimac's net interest margins and pressure revenue growth, especially as the group's own commentary highlights ongoing margin management trade-offs and aggressive repricing campaigns to build volume.
  
• Heavy reliance on wholesale funding-as opposed to retail deposits-makes Resimac vulnerable to adverse market conditions; any future volatility in funding markets or increased cost of capital could negatively affect earnings and potentially restrict loan book growth.
  
• The recent growth in assets under management and operating profit has been underpinned by the acquisition of the Westpac consumer auto portfolio, but this portfolio has a defined run-off period over the next two years and the company is not yet originating significant new auto finance business, which could lead to a moderation of AUM and profit contribution as the acquired book amortizes, impacting future revenue momentum.
  
• Regulatory headwinds, including the potential for tighter lending standards or macroprudential interventions and increased compliance costs, present an ongoing risk to origination volumes and could directly affect long-term revenue and cost-to-income ratios.
  
• Secular demographic trends-specifically the risk of slower population growth and an ageing demographic profile in Australia and New Zealand-could structurally depress long-term housing demand, constraining mortgage origination volumes and ultimately impacting Resimac's future revenue and earnings potential.

Valuation

• The assumed bullish price target for Resimac Group is A$1.5, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Resimac Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• 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 bullish analysts, you'd need to believe that by 2028, revenues will be A$1.2 billion, earnings will come to A$82.5 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 7.4%.
• Given the current share price of A$1.04, the bullish analyst price target of A$1.5 is 30.7% 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.