RHG- who’s buying their spin that higher funding costs justify higher rates than competitors

"No smoke. No mirrors. No accounting shenanigans.
There is simply lots of cash rolling into RHG’s coffers. The
business reported a profit of $69m for the six months to
31 December and delivered cash from operations of $65m,
after paying $35m to the taxman. That’s close to the current
market capitalisation and more than we were expecting
it to make for the full year.
There are two factors working in RHG’s favour. Firstly,
it hasn’t passed on all of the Reserve Bank’s interest cuts.
Last year the company was charging its customers a
margin of approximately 2.2% more than the official cash
rate. Now that margin is above 3%.
The exorbitant rates are forcing customers elsewhere—
20% of the loan book was repaid or refinanced during the
six month period, which is about as much as you would
expect in a full year if the company’s rates were
competitive—but, for the 50% of its customers that are ‘low
doc’, RHG can probably get away with it. These homeowners,
who represent riskier credit for lenders, don’t have many
refinancing alternatives in the current market.
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Secondly, RHG’s funding cost is referenced off the
30-day bank bill rate (the rate banks charge each other to
Far more importantly, RHG’s four directors have
shown no inclination to return the bounty to
shareholders. We highlighted the apparent shift in
direction in our review of the annual meeting last year
and nothing seems to have changed. No dividend was
declared despite enough cash and franking credits to
pay out at least 10 cents a share.