FY22 results are in line with market expectations: NWL FY22 reported revenue of A$173m and an EBITDA of A$85m (+7%y/y) of both which were in line with market expectations. However, NWL’s 20% y/y revenue growth was offset by a 30% increase in the cost base.
DPS of 10cps was declared, bringing the full-year dividend to 20c, representing an 87% payout ratio.
Cost increase to deliver FY23 benefits: Throughout FY22, NWL increased its cost base by hiring 113 full-time equivalents. Management have flagged further increases in the cost base through FY23, the magnitude of these investments is expected to be well below those made in FY22.
Over the near to medium term, we see NWL benefiting from its cost-base investment as its operating leverage delivers incremental earnings benefit.
MAPs to increase revenue margin: NWL’s new multi-asset portfolio service (MAPs) that is expected to be launched in FY24, aims to target the 20% of assets that investors currently hold off the platform and the 86% of advice firms that currently provide admin services for these off-platform assets.
If NWL can replicate the proportion of non-custodial assets that HUB is currently administering (c. 30% of custodial assets), it is estimated that NWL’s MAPs solution could increase FY24 revenue and EBITDA figures by low to mid-single digits and attract new clients, increasing its Funds Under Administration (FUA).
Earnings revision: NWL FY23 net inflow guidance of A$11-$13bn, was reasonably wide in our view. With regulatory headwinds affecting its net inflows till late FY22, we forecast flows to marginally exceed the midpoint of management guidance.
There has been a small increase in NWL revenue margin to reflect the benefit of MAPs launch from FY24 and onwards. NWL’s result and outlook have caused minimal changes to consensus earnings for FY23e.
Investment view
In our view, we see NWL’s increased investment in its cost base delivering a return in FY23 and beyond, with operating leverage and the launch of MAPs to deliver incremental earnings benefits over the near to medium-term.
Risks To Investment View
Risks to our view on Netwealth include lower than expected growth in FUA, a quicker than expected decline in revenue/average FUA; lower than expected cash balances held on the platform; Regulatory risk in relation to platform pricing models; brand and/or reputation risk that could negatively the inflow of funds onto the platform; a faster/slower pace of policy rate tightening; and a significant decline in the market which negatively impacts the value of the assets held on the platform.
Recommendation
We have retained our Buy recommendation.
FIGURE 1: FY23: HEADCOUNT GROWTH EXPECTED TO SLOW IN 2023
FIGURE 2: PLATFORM PROVIDERS BY FUA MARKET SHARE
