RMC: Non-Bank Lender - The Yield Behind the Curtain
RMC: Non-Bank Lender - The Yield Behind the Curtain
In a Nutshell
Executive Summary
In a Nutshell
Resimac is a non-bank mortgage and asset finance lender that funds itself through wholesale markets rather than customer deposits. At A$1.19 vs our fair value of A$1.21, the stock is trading at essentially fair value — a 2% implied gap. The compelling case here is income: an 8.4% fully franked dividend yield from a debt-free lender whose earnings trough is demonstrably behind it.
Investor Profiles
| Profile | Rating | Rationale |
|---|---|---|
| Income | ★★★★☆ | The FY27 dividend is forecast at 10.6 cents per share fully franked — an 8.9% yield at the current price. The ordinary payout sits at a conservative 55% of earnings, making it well-covered. Special dividends are likely to taper as the capital position matures, but the ordinary stream is sustainable and growing. This is a genuine income story with full franking credits attached. |
| Value | ★★★☆☆ | At 8.4x forecast FY27 earnings and 1.19x book value, Resimac is not obviously cheap. Our fair value of A$1.21 implies just 2% upside from current levels. A meaningful margin of safety is absent in the base case, though a re-rating becomes possible if the structural lending margin thesis is confirmed over the next 12 months. Value investors need more than 2% to justify the risk. |
| Growth | ★★☆☆☆ | Net interest income grows at a forecast 6–8% per annum, broadly in line with the broader mortgage market. Earnings per share is recovering strongly from a trough, but that reflects normalisation rather than genuine acceleration. The asset finance segment offers optionality, but organic origination growth needs to roughly double from current levels to matter. This is not a growth stock. |
| Quality | ★★★☆☆ | The business carries no corporate debt and operates with a cost-to-income ratio of 50% — the best among its listed non-bank peers. Return on equity has recovered to approximately 14% and is forecast to hold there. The moat is real but narrow: securitisation infrastructure and 40 years of RMBS investor relationships provide a funding cost advantage that smaller competitors cannot easily replicate. Management credibility is a drag, however, with the new CEO yet to establish a track record. |
| Thematic | ★★☆☆☆ | Non-bank lenders benefit structurally as major banks continue tightening credit standards, pushing non-conforming borrowers toward the specialist channel. That tailwind is real but slow-moving and already priced into the sector. The more immediate thematic exposure is to wholesale funding markets and the RBA rate cycle — both of which are headwinds, not tailwinds, over the next 12–18 months. |
Resimac is best suited to income-oriented investors willing to accept moderate capital risk in exchange for a high, fully franked dividend yield. The ordinary payout is well-covered, the balance sheet carries zero corporate debt, and the earnings recovery from the FY25 trough has already been confirmed by interim results. For investors whose primary objective is after-tax income rather than capital appreciation, the combination of yield, franking, and financial conservatism is genuinely attractive — provided they monitor the wholesale funding environment closely.
Executive Summary
Resimac lends money it doesn't hold in deposits. Instead, it pools mortgages and asset finance loans into securities sold to institutional investors — a model that lives and dies by the spread between what borrowers pay and what wholesale markets charge. That spread, the net interest margin, is everything.
The first half of FY26 delivered a sharp recovery. Normalised profit almost doubled year on year as the lending margin expanded to 163 basis points, arrears fell, and the company successfully digested a $1.4 billion auto finance portfolio acquired from Westpac. The balance sheet is clean: no corporate debt, surplus capital, and $83 million returned to shareholders as special dividends in under a year.
The investment case rests on two foundations. The first is income — a fully franked dividend yield approaching 9% from a debt-free lender whose earnings are recovering, not deteriorating. The second is optionality: if the asset finance business scales organically to $600 million or more in originations per half-year, the blended lending margin lifts structurally, and the bull case value of A$1.55 becomes reachable. The risk is that roughly half of the recent margin improvement reflects compressed wholesale funding costs that are now normalising as the RBA tightens again.
At A$1.19 vs fair value of A$1.21, the stock is trading at fair value.
Results & Outlook
What happened?
The first half of FY26 confirmed the earnings trough is behind Resimac. Normalised profit after tax rose 97% to $29.6 million, driven by a lending margin that expanded to 163 basis points — the widest in three years. Arrears improved meaningfully, with Stage 3 loans falling from 2.11% to 1.76% of the portfolio. The Westpac auto finance integration completed without disruption, and the company retired its remaining hybrid capital note without replacement.
| Metric | FY25A | FY26E | FY27E | FY28E |
|---|---|---|---|---|
| Net Interest Income (A$m) | 170.5 | 195.0 | 208.0 | 224.0 |
| Pre-Impairment Operating Profit (A$m) | 78.4 | 105.0 | 111.5 | 122.5 |
| NPAT (A$m) | 34.6 | 55.7 | 59.6 | 66.6 |
| EPS (cents) | 8.75 | 14.1 | 15.1 | 16.8 |
| DPS — total (cents, fully franked) | 19.0* | 9.9 | 10.6 | 11.5 |
| Net Interest Margin (basis points) | 154 | 158 | 155 | 158 |
| Return on Equity (%) | 9.0 | 14.0 | 14.0 | 15.0 |
* FY25 DPS includes a $12.0 cents per share special dividend; not expected to repeat at that magnitude.
What's next?
The central question for the next 12 months is whether the lending margin holds above 155 basis points once wholesale funding costs normalise. The RBA's February 2026 rate rise has accelerated that process, and our model assumes the margin dips to 155 basis points in FY27 before recovering as the asset finance portfolio rebuilds.
The asset finance loan book is the key variable to watch. It troughed at approximately $1.9 billion as the acquired Westpac portfolio runs off, and organic originations need to reach $350 million per half-year — up from roughly $300 million currently — to stabilise it. Two consecutive halves at that level, reported in August 2026 and February 2027, will determine whether the structural lending margin story is real or aspirational.
ASIC proceedings related to historical hardship obligations remain unresolved. A penalty in the $10–25 million range is our base assumption, but the outcome is binary and the timeline uncertain.
Valuation & Risks
| Metric | Value |
|---|---|
| Fair Value | A$1.21 |
| Current Price | A$1.19 |
| Implied Gap | +2% |
| Bull Case (20% probability) | A$1.55 |
| Bear Case (25% probability) | A$0.87 |
| Severe Case (5% probability) | A$0.56 |
| FY27 Dividend Yield (at A$1.19) | 8.9% fully franked |
| FY27 Price-to-Earnings | 7.9x |
What could go wrong?
The single biggest risk is a simultaneous compression in the lending margin and an escalation in ASIC penalties. Neither alone is fatal — our model already absorbs a margin dip to 155 basis points in FY27 and a $20 million penalty charge. But if both arrive together — the lending margin falls to 148 basis points as wholesale funding costs normalise by 30 basis points, and ASIC secures a $40–50 million penalty with accompanying licence conditions — the Bear case of A$0.87 becomes the central scenario rather than a tail risk. That outcome is a 27% drawdown from today's price.
Every 10 basis points of sustained lending margin movement shifts fair value by approximately 22 cents per share. That asymmetry makes the monthly BBSW spread relative to the RBA cash rate the single most important number to monitor. Historically it runs at a 25–50 basis point premium to the cash rate; it is currently near zero. Normalisation is a matter of when, not if.