Netwealth Group Limited (NWL)
BUY

Go with the flow

 3 Apr 2023
Sector: Financials

MARCH QUARTERLY UPDATE

Need To Know

  • Net FUA inflows of just $1.65bn, down 37%y/y, partly offset by $1.73bn increase in market movement
  • Economic uncertainty and negative investor sentiment driving a ~10% downgrade of FY23 net inflow guidance (from $11bn to $9-$11bn)
  • Operating leverage from increased focus on productivity benefits likely more challenged

3Q23 net inflows came in at just A$1.65bn (down 37.3%) with a significant increase in net outflows (+48.9%) offsetting an 8.6% y/y fall in net inflows. A positive market movement of A$1.73bn ensured that FUA ended the quarter at A$65.8bn (+14.3% y/y) and in-line with market expectations. 

Downgrade. NWL has lowered its FY23 net inflow guidance from $11bn to a range of $9-11bn, a 10% downgrade at the mid-point. This is after a downgrade in February where previous guidance was for $11-13bn. The driver of the weak 3Q net inflows and downgrade to FY23 net inflows are cited as economic uncertainty and market volatility, which has resulted in negative investor sentiment and a delay in the timing of transitions and new business from existing clients. Furthermore, the current environment has made it more difficult to forecast the exact timing of transitions on a monthly or quarterly basis. 

New products. The Multi Asset Portfolio service (MAPs) pilot program is expected to launch in April 2023. The level of interest has been strong and is likely to considerably extend the addressable market. Other new product enhancements are underway focussing on advice enablement and efficiency. NWL also reiterated its focus on operating leverage, after a heavier investment period in its staff and product suite, although benefits are likely to be realised later given a slowing top-line growth. 

Investment View

Market volatility had placed downside risk to the net inflows number, especially with cash alternative products such as term deposits becoming much more attractive in the current interest rate environment. The magnitude of the downgrade will likely see NWL give up most of its recent outperformance against the market. Whilst NWL remains a highly profitable business with strong margins and cash generation, the significant multiple paid for the company may be at risk of further de-rating as growth begins to decelerate. 

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Company Overview

NWL is an Australian tech firm providing financial services like superannuation, managed funds, portfolio services, and self-managed super administration for both self-managed super and non-super investments.

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