NZF cuts profit forecast, but says has plenty of cash
15th Aug 08, 12:09pm
Property financier and broker NZF Group has cut its profit forecast for the current year to March 31, citing higher interest rates on its bank funding lines and reduced lending in the housing markets. However, it said it had more cash on hand than it needed even if all its debenture investors withdrew their money. NZF, which owns NZF Money, 51% of Finance Direct and 50% of Mike Pero mortgages, said it was now forecasting a net profit for the year of NZ$2.0 million to NZ$2.5 million, down from the NZ$3.8 million reported in 2007/08. "We want to advise the market as early as we can so there are no surprises," NZF managing director John Callaghan said. NZF said the international credit crunch had affected the property market, reducing lending growth and increasing funding costs. "The home loan, investment and property development markets have become further depressed and this has resulted in fewer quality lending opportunities in the market," NZF said. "In these times, NZF has continued its conservative stance in credit assessment." NZF said it had retained its NZ$40 million line of credit with the Commonwealth Bank of Australia as it provided flexibility, although there were costs of holding the unused facility. NZF said it hedged its loan book to neutralise the impact of falling interest rates, but this had to be accounted for as a marked to market move that would impact reported profit. Lower housing sales were feeding through into lower income from NZF's brokerage business. "This impacts on NZF's wholly owned brokerages and also its subsidiaries Mike Pero Mortgages and Finance Direct," it said, adding lower commissions from the main trading banks were also driving revenues down. Callaghan said NZF had significant unused funding lines "to take advantage of any uplift in activity in the housing market that would inevitably occur should interest rates fall as expected." "Our residential lending focus has always been on first mortgage security over quality property. The majority of our lending is insured by an unrelated third party insurer "“ Genworth Financial, which is AA rated by Standard and Poor's. So whilst we have negligible bad debt we are significantly covered," Callaghan said. "On the borrowing side the bulk of our NZ$259 million book is bank financed "“ principally Westpac Banking Corporation. We have actively reduced our reliance on debenture stock issuances over the years and now have just NZ$51 million on issue," he said. "This is more than covered by cash and available funding lines of NZ$77.75 million." NZF has a NZ$250 million funding line from Westpac. NZF has 4 out of the 5 Survivability Factors as measured in our assesment of finance companies. Its lending and activities are diversified across mortgage lending, personal lending and broking. Its funding is diversified across Westpac, CBA and debentures. It also has a strong family backer in the Huljich family. Here is their Survivability entry below. NZF Money NZF Money is part of the NZF group that includes Mike Pero Mortgages, Finance Direct and NZ Mortgage finance. It lends to residential property owners and investors, but does little development or project lending. It has a bank funding line from Westpac, has securitized some loans and raises money through debentures. It therefore has diversified funding and its Huljich family shareholders count as a wealthy owner able to inject capital if needed.