Switching to harvest

1H23 RESULT

Need To Know

• Revenue ahead, leading to 3% earnings beat.
• Margins fell almost 5.0%, this was known driven by heavy investment in costs during the period
• NWL focus is switching to operating leverage, which should see profit margins lift 

Small revenue led earnings beat despite the impact of additional investment back into the business from high costs. EBITDA margins fell -4.7% in the 1H23 to 44.9%. Operating leverage is evident with FUA up 10% whilst revenue growth rose 18%. 

The quality of the result was high, with cash conversion of just over 100%. NWL retains a net-cash balance sheet with cash on hand of $98m. Platform accounts grew by a healthy 13% in the half, with total assets ending the period at $84bn.

Outlook comments reflect the tightening of FUM net inflow guidance from $11-13bn to $11bn released in late January 2023. Guidance implies an acceleration of inflows in the 2H23.

NWL also speaks to an increased focus on productivity, efficiency, and operating leverage. After a period of accelerated investment in people, resources, and technology, a switch in focus will be welcomed by investors in the current market.

1H23 Results:

Revenue $103m vs $99m market. 

EBITDA $46m vs $45m market.

NPAT $30.6m vs market $30.1m

EPS 12.4cps and DPS 11ps, both in-line with market

Outlook: Net inflows $11bn for FY23E. Non-headcount costs to be flat on 2H22, whilst headcount growth flat consistent with 1H23.  

Investment View

NWL’s pivot towards lifting margins will be welcomed by investors, particularly after the recent periods of higher investment spend.

Near-term catalysts include the launch of the non-custodial admin product expected in March 2023. This should deliver incremental earnings benefits over the near to medium term.

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 6.3% vs the four largest players with have over 55% 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.

Platform FUA in FY19 stood at <$30bn, this could be >$100bn by FY25E vs $62bn today. The increased focus on margins (announced today) in our view is likely to help the market believe in this journey. A 5%-point uplift in margins vs current consensus estimates would lift FY25E earnings by +10%. We rate NWL a Buy.  

Figure 1: NWL EV/EBITDA multiple has currently around the long-term average