Free flowing

QUARTERLY BUSINESS UPDATE

Need To Know

• 4Q net inflows of $3.2bn fractionally below the midpoint of guidance for $2.3bn-$4.3bn
• Strong market movement of $1.2bn saw ending FUA of $70.3bn up 26%yoy and slightly above consensus ($69.1bn)
• Outflows for the quarter continue at elevated levels driven by off-platform investments and some partial withdrawals
• No guidance was provided given the prevailing economic uncertainty, although we expect minor earnings upgrades and improving sentiment

Investment Implications

NWL's 4Q update saw funds free flowing, however in both directions, with net inflows marginally below the midpoint of the previous guidance ($2.3bn-$4.3bn). Positive market movement of $1.2bn helped NWL reach total Funds Under Administration (FUA) of $70.3bn, slightly above consensus ($69.1bn). Member accounts increased by 3,858 during the quarter to 127,507, which was the strongest quarter for member growth in FY23. 

There is a continued subtle structural shift for advisers to move investments to off-platform opportunities, including term deposits and other alternative investments, which is a trend we continue to monitor. We note that the platforms are actively attempting to integrate more investments onto its platforms, however, challenges with liquidity and capital calls remain. This still remains a small portion of overall investment assets.

The new non-custodial administration service is now live for clients after successfully launching in April 2023. It now was $126m of non-custodial FUA onboarded, and we expect this segment to drive incremental earnings.

No formal guidance was provided, however, NWL commented that throughout the June quarter, significant growth was achieved through establishing new partnerships with advisers and licensees, reinforcing confidence in the transition pipeline and potential for new business opportunities.

Despite the strong inflows, the prevailing economic uncertainty and impact on investor sentiment has resulted in delays in committed transitions and new business activity, and make it challenging to estimate the timing of transitions on a monthly or quarterly basis. NWL is set to release its full FY23 results on 22 August 2023 (date subject to change) where we expect a more formal outlook.

Investment View

NWL remains highly profitable with strong EBITDA margins and cash flow generation. Our Buy rating is premised on NWL continuing to take market share from the incumbents coupled with further operating leverage. NWL’s market share stands at 6.7% vs the four largest players with have over 64% of the market and are continuing to leak FUM. The market currently assumes that NWL earnings margins only go back to FY19 levels by FY25E. In our view, this looks materially too conservative, with no attribution for the inherent operating leverage within the business as scale increases over time.