Netwealth Group Limited (NWL)
BUY

New product to help

 18 Aug 2023
Sector: Financials

RESULTS ANALYSIS

Need To Know

  • FY23 results in line with consensus. No FY24 guidance. Consensus earnings estimates are largely unchanged.
  • NWL demonstrated improving EBITDA margin on higher operating leverage.
  • Return of net fund inflows remains the key re-rating catalyst

Result Overview:

Underlying NPAT $67.2m, $67.3m consensus

EBITDA $100.7m, $100.9m consensus

EPS 27.5cps, 27.8cps consensus

DPS 24c, 23.7c consensus

Investment Implications

FY23 Result. NWL’s FY23 result was in line with the market. NWL reported an improved operating leverage mainly due to a slower headcount growth over 2H23. As a result, NWL EBITDA margins improved returning to management’s long-term target of ~50%. A full-year fully franked dividend of 24c (+20% y/y), in line with market expectations.

Core product relaunch. NWL plans to expand and relaunch its ‘Core’ product in September 2023 at a lower price point to boost its market presence in both the mass affluent & emerging affluent segments. Management hopes that the relaunched ‘Core’ product will provide a greater product menu to its retail clients enabling it to compete with its peers (HUB, AMP North, BT) more effectively and generate new streams of revenue and increase FUA inflows.  

Outlook. Like platform peers, NWL management no longer provides flow guidance for FY24. This is understandable given current market sentiment and the lack of visibility for FY24.

We believe that a return of net inflows would remain the key re-rating catalyst. NWL is on track to meet its 1Q24 expectations of ~A$73.5bn, given its reported FY23 FUA balance of A$72.2bn.

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 over 64% of the market and is continuing to leak FUM. The market currently assumes that NWL earnings margins only return 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.

Figure 1: Quarterly market share analysis from March 2016 to March 2023

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Stock Overview

Share Price

Company Overview

Netwealth is a technology company, a superannuation fund and an administration business. It provides superannuation products, portfolio services, managed accounts and managed funds.

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