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.”