Netwealth Group Unveiled Strong FY19 Results; Reported 24% NPAT Growth

Australia’s wealth management firm, Netwealth Group Limited (ASX: NWL) has reported strong FY19 results today. As at 30th June 2019, the company had Funds Under Administration (FUA) of $23.3 billion, up 29.9% on the previous corresponding period (pcp). During the year, the company experienced FUA net inflows of $4.3 billion. The growth in FUA was driven by existing financial intermediaries as well as new financial intermediaries.

Growth in FUA and Funds Under Management (FUM) (Source: Company Reports)

Following the release of FY19 results, NWL share price increased by 3.597% during the intraday trade as on 19 August 2019.

During FY19, the company reported growth of $6.9 million (23.9%) in its NPAT, which reached to $36.0 million. The company’s EBITDA grew by 22.9% to $52.0 million while the EBITDA margin increased to 52.6% in FY19, up from 50.8% in FY18.

In FY19, Netwealth’s platform revenue over average FUA decreased to 48.1bps, from 53.4bps in FY18. The average revenue earned per account increased by $55 to $1,460 per account during FY19, driven by the increase in the average account size to $323,000 per account at year end. Larger accounts typically earn higher transaction and ancillary fee income as these clients desire higher functionality.

During the year, employee benefits expense increased by $3.6 million (12.5%) to $32.3 million while headcount increased by 34. The total other operating expenses increased by $2.2 million to $14.5 million in FY2019. The increases were mainly related to software licences, insurance, compliance, advertising, marketing, and other expenses.

The company has declared a fully franked final dividend of 6.60 cents per share, payable on 26 September 2019, in addition to the interim dividend of 5.5 cents per share paid 28 March 2019.

During FY19, the company increased the investment in its platform technology and functionality with a significant number of enhancements implemented throughout the year. The company is committed to retaining its market leadership by providing quality administration and service excellence. The company is also focussed on winning and retaining profitable business and developing new revenue streams to diversify revenue sources. During the year, the company released a range of new platform features and products focused on improving the delivery of advice and increasing client engagement.

It is expected that the number of advisers changing platforms will continue to increase in future. Netwealth Group believes that it is well-positioned to take advantage of this opportunity. The company in its 2019 Annual report has assured that it will continue to enhance product investment options and functionality, provide clients with efficiency in portfolio management and prioritise functional enhancements.

In FY20, the company expects its FUA net inflows to be in excess of $7 billion and FUA in excess of $30 billion. The growth in FUA is supported by the company’s existing advisers. Besides that, the company’s strong pipeline of new business won, and opportunities will also underpin FUA growth. It is expected that FY2020 will be highly influenced by regulatory reform and more critical consumers in the superannuation and banking sectors. The company is planning to abreast of regulatory obligations and community expectations to ensure compliance and minimise risk of breach and or reputational damage.

Stock Performance: In the past six months, NWL’s stock has provided a negative return of 7.21% as on 16 August 2019. At market close on 19 August 2019, NWL’s stock was trading at a price of $7.20 with a market capitalisation of circa $1.65 billion.

Peer Analyses

Now let’s look at the performances of some of the other financial services companies trading on ASX.

Pendal Group Limited (ASX: PDL)

Independent, global investment management business, Pendal Group Limited (ASX: PDL) had Funds under Management (FUM) of around 48.5 million as at 30 June 2019. For the first half of FY19, the group reported total revenue and other income of around $242.44 million, down by 19.8% on pcp.

Half year Results Snapshot (Source: Company Reports)

The cash NPAT for the half year period was $84.52 million, down by 26.2% on pcp. The lower profit result was driven by:

  • Lower average funds under management (FUM), down 1.2% to $97.4 billion;
  • Significantly lower performance fee revenue, down 90.8% or $43.2 million to $4.4 million;
  • Lower base management fee revenue, down 4.0% to $238.7 million due to a decline in average FUM and a contraction in base management fee margin from 51 basis points to 49 basis points; which was offset by
  • Lower operating expenses largely due to decreased fee revenue.

For the half year period, the company declared a partly franked interim dividend of 20.0 cents per share which was 10% franked.

Recently, the company increased its voting power in the Metcash Limited from 10.38% to 11.38%.  the company now holds 103,455,068 ordinary shares of the Metcash.

Stock Performance: In the past six months, PDL’s stock has provided a negative return of 20.61% as on 16 August 2019. At market close on 19 August 2019, PDL’s stock was trading at a price of $6.650, up by 1.527% intraday, with a market capitalisation of circa $2.11 billion.

IOOF Holdings Ltd

IOOF Holdings Ltd (ASX: IFL), a leading group in the financial services industry, had Funds under Management, Advice and Administration (FUMA) of $149.5 billion as at 30 June 2019, up 18.7%, or $23.6 billion on the previous corresponding period (pcp).

In the Portfolio & Estate Administration segment, the company witnessed net inflow $561 million in the June quarter. In the Financial Advice segment, the company witnessed a net inflow of $432 million.

Funds movement for the three-month period ended 30 June 2019 (Source: Company Reports)

For the first half of FY19, the company reported Statutory NPAT of $135.4 million, up 200% on pcp. The Underlying EPS for the first half period declined by 4% to 28.5 cents per share, as compared to pcp.

Stock Performance: In the past six months, IFL’s stock has provided a negative return of 6.79% as on 16 August 2019. At market close on 19 August 2019, IFL’s stock was trading at a price of $5.110, up by 3.441% intraday, with a market capitalisation of circa $1.73 billion. The stock has an annual dividend yield of 10.63% and is trading at PE multiple of 9.720x.

Perpetual Limited (ASX: PPT)

 

Diversified financial services company, Perpetual Limited (ASX: PPT) had FUM of around $27.1 billion at the end of June quarter, down $0.3 billion on the last quarter.

During the June quarter, the company witnessed $1.2 billion of net outflows from Australian Equities primarily from Institutional and Intermediary Channel as well as $0.1 billion of net outflows from Global Equities primarily from Institutional and Intermediary Channels. The company also experienced a $0.2 billion of net inflows to Cash and Fixed Income.

FUM and flows by Channel (Source: Company Reports)

Recently, the company increased its voting power in Orora Limited from 8.45% to 10.81. The company now holds 130,399,761 ordinary securities of Orora.

In the first half of FY19, the company witnessed a decline of 12% in its NPAT as compared to pcp.

Stock Performance: In the past six months, PPT’s stock has provided a negative return of 0.39% as on 16 August 2019. At market close on 19 August 2019, PPT’s stock was trading at a price of $36.050, up by 1.836% intraday, with a market capitalisation of circa $1.65 billion. The stock has an annual dividend yield of 7.49% and is trading at PE multiple of 12.320x. The stock has a 52 weeks high price of $46.105 and 52 weeks low price of $29.700 with an average volume of ~209,580.

Credit Corp Group Limited (ASX: CCP)

Financial services provider, Credit Corp Group Limited (ASX: CCP) recently acquired Baycorp Holdings Pty Limited and its associated entities (collectively Baycorp) from Encore Capital Group, which improved the company’s current year earnings outlook.

This acquisition has also expanded the company’s investment guidance to the range of $300 million- 320 million. For the year 2020, the company is now expecting its Net Profit after Tax (NPAT) to grow by 15% to 18% over prior year.

In FY19, the company reported a 9% growth in its NPAT, which reached to $70.3 million and 16% growth in the consumer loan book which grew to $212 million. The company’s consumer lending and US debt buying businesses performed well during the year. The company reported basic earnings per share of 141.9 cents for FY19, up 5% on pcp. For the full year 2019, the company declared a total dividend of 72 cents per share, 8% on the previous year.

FY19 Results Snapshot (Source: Company reports)

Stock Performance: In the past six months, CCP’s stock has provided a return of 25.09% as on 16 August 2019. At market close on 19 August 2019, CCP’s stock was trading at a price of $28.130, up by 3.154% intraday, with a market capitalisation of circa $1.5 billion. The stock has an annual dividend yield of 2.64% and is trading at PE multiple of 19.22x. The stock has a 52 weeks high price of $28.490 and 52 weeks low price of $17.710 with an average volume of ~236,760.


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