Asset finance broking/aggregation group and SME lender COG Financial Services Limited (ASX: COG) reported an underlying Net Profit After Tax and before Amortisation (NPATA) of $10.1m in its H1 FY21 (the six months ended December 2020). This was more than double the equivalent underlying profit figures for both the previous corresponding period (pcp) and the previous period (pp). The Company managed this excellent profit increase despite the economic drag imparted by the ongoing COVID-19 pandemic. It was aided by low interest rates and sustained borrowing demand from small- and medium-sized enterprises (SMEs). In another positive, the profit growth reported was in large part organic – on a like-for-like basis, H1 FY21-on-H1 FY20 profit jumped by a still impressive 107%.
Both the Finance Broking and Lending arms contributed to the NPATA uplift
Within the Finance Broking & Aggregation (FB&A) segment, H1 FY21 NPATA jumped by 87% on a pcp basis to $5.9m. This unit operates under a number of well-known brands, including Consolidated Finance Group, Centrepoint Finance and Platform Finance. While Net Amount Financed was down by 11% on average on the pcp, profits marched higher on the back of increased margins. The Company was able to grow margins due to a number of factors, including a continued fall in interest rates.
Profits reported by the now renamed Lending segment (it was previously Commercial Equipment Financing) rebounded, with its H1 FY21 NPATA of $4.5m up 125% on pcp. This as originations of new chattel mortgage product started to rise in COG Lending arm’s H1 FY21. At the same time, the old finance lease portfolio continued to run off. COG Lending’s half yearly performance was ably assisted by improved credit quality. Of the 650 accounts granted COVID-19 hardship relief in COG’s Lending segment over its FY20, all but 10 have cured, allowing around $0.9m of the provision for expected loss to be reversed.
Foreshadowed revised origination structure sees only a non-cash impairment
At the time of its FY20 AGM, COG unveiled plans to implement a revised origination structure in its Lending unit. The Company now undertakes direct lending through a 51%-owned subsidiary to its broker network. This revamp will see COG book a one-off non cash impairment loss for goodwill of $36.6m in relation to the Company’s investment in its wholly owned subsidiary TL Commercial Finance Pty Limited. This goodwill was previously recognised back in FY17 in the wake of a change in accounting policy. The goodwill impairment does not reflect a loss from a direct cash investment.
COG has a clear growth strategy and the cash to fund it
COG generated significant cash over its H1 FY21. With unrestricted cash and term deposits attributable to members at 31 December 2020 totalling $53.0m, the Company has plenty of headroom to pursue its stated growth strategy of acquiring more finance brokers and building capabilities in areas like insurance broking.
“This is another terrific result, demonstrating that COG is a great business in normal times and an even better one in times of stress. In the near term, we will look to acquire more finance brokers and continue to build out our insurance broking capability with the establishment of a hub and spoke network to operate through our aggregation members, ” said COG Financial CEO, Andrew Bennett.
“In addition, our managed investment scheme offering via Westlawn Finance Limited is now operational and poised for significant growth in the coming years.”
- COG Financial doubles profit as low interest rates drive borrowing - January 28, 2021