Avanti gets good report card

Avanti Finance’s move towards residential loans and its strong broker support augur well for the company, a recent report says.

Tuesday, November 29th 2016, 12:58PM

Ratings agency S&P recently confirmed Avanti’s BB credit rating, reflecting the company's “very strong capitalisation levels and sound and defendable business model, underpinned by a well-articulated and executed strategy.”

“Avanti's business model is transitioning toward a higher proportion of residential mortgage loans within its business mix--a business line that we consider highly commoditised and competitive.”

S&P says there is “a lack of meaningful competition in the non-bank sector within Avanti's chosen target market and adopted points of distribution – third party distribution.”

It says Avanti has a long-standing and successful history with brokers which augurs well the company.

Avanti's business position strength is broadly in line with the industry average for non-bank financial companies in New Zealand.
S&P says Avanti is targeting first secured residential mortgages at close to 50% of stock during the next three years, up from 35% currently, with the remainder comprising a mix of motor vehicle loans, other consumer and property loans, and some small to medium-size enterprise loans.

“We also expect the finance company's operating revenue mix to shift toward a higher proportion of net interest income as a result of the forecast growth in residential mortgage lending (currently 65% of operating revenues), which we consider as having good recurring characteristics and forecast to increase toward 75% in the next three years.

“Growth forecasts are strong for the next three years, with compound annual growth at more than 30%.”

S&P notes Avaniti has received $7 million of new committed capital from existing and new shareholders to help fund growth.

It also says banks have been providing a good level of support. “To date, the finance company has had little trouble extending the support of its long-dated warehouse funding, and we currently foresee little risk of this changing in the next 12 months.”

Tags: Avanti S&P