NWL - FY24

Forum Topics NWL NWL FY24

Pinned straw:

Added 3 months ago

A good result was reported today for FY24, but the market reaction was strangely negative, with the share price down nearly 6%.

Funds Under Administration (FUA) of $88.0 billion, up 25.2% year on year - compared to growth in prior years of 26% (2023), 18% (2022) and 30% (2021). So still a pretty healthy growth trajectory.

Funds Under Management (FUM) of $20.5 billion, up 28% year on year - compared to growth in prior years of 22% (2023), 12% (2022) and 60% (2021).

Market share has increased to 7.7% (up 0.9% from prior year).

Possibly the muted reaction is due to the evidence that HUB24 is starting to catch up with Netweatlh. This is the first time in my memory that Netwealth did not achieve the number 1 spot for largest net funds flow during the year. They achieved $10.4 billion compared to HUB24 with $12.9 billion. And although HUB24's market share at 7.3% is still slightly less than Netwealth's, it increased by 1.2% this year. This shows Netwealth is not gaining market share as quickly as HUB24.

However my high conviction in Netwealth remains unshaken - they have an excellent track record of innovation, they understand their market intimately and the transition of leadership from Michael Heine to his son Matt, after several years as joint CEOs, has been faultless.

I might have considered an each way bet by investing in HUB24, but I note that another of my RL portfolio companies Bailador has recently invested in Dash, yet another company with a wealth management platform targeted at financial advisers, so I think 2 fingers in the wealth management pie is enough for me.

Solvetheriddle

Added 3 months ago

@lankypom IMO it is just the SP/valuation not a structural business issue with NWL, although i hold HUB, as disclosed before and as i presented the thesis to the group a while ago. i think NWL is a better quality business with less M&A and a better client mix, IMO, but not a big difference..

both groups are increasing share and to me, the question is when is the natural limit to that end, whatever it is is much higher. i first invested in HUB (for the funds i was associated with, not my own money!) about 10 years ago. the trouble HUB had getting traction back then was huge. They needed $4b in FUM before the IFA's would take them seriously, so I discount new entrants as a real threat. The big guys have had several goes attempting to replicate the features of HUB/NWL, and they have failed.

my ongoing valuation is run off lower/flat margins more than offset by volume gains. plugging in eps growth estimates and exit PE both valuations are full, they are to some degree correlated with market moves and so can be valued on overall severe market pullbacks, that hen i would add.

HUB in hindsight have done better than i have expected and NWL trades at a premium to HUB on my numbers. so relative value. would add to HUB or buy NWL at the right price.

mikebrisy

Added 3 months ago

IMO market reaction is totally understandable in the context of where the SP had got to. It's run very hardin the last 9 months, and would have needed major outperformance to not pull back.

Great company. Great result. One I sold out of a long time ago(June-21) and have regretted not getting back on.

Still too rich for me at these levels.

(and @edgescape)

BoredSaint

Added 3 months ago

Had a quick read through the results.

I believe the share price reaction could also be related to them saying that FY25 would see an increase in expenses as they increase investments into their platform. We saw this similarly in FY22 and FY23 which saw a reduction in the EPS growth rate followed by that investment coming through with good growth in FY24. the 2H of FY24 was also somewhat weaker than 1H.

Likely FY25 growth won't be at the same level of FY24 which was likely priced into the increasing share price in the run up to results. On my numbers, at around $20 we would need to see CAGR of around 20% for the next 5 years in order to achieve 10% pa return. This may still be achievable in the long run but expect some more modest numbers in the next FY which may put pressure on the share price.

I think taking a long term view though, this is a company that still has massive tailwinds as the legacy platforms lose market share. I think around $15 represents better value for a long term hold provided there aren't too many slipups.

Disc: Held IRL, not held on Strawman.

edgescape

Added 3 months ago

@mikebrisy This Morningstar report is what prompted me to sell Netwealth after a poor financial update.

Lesson is not to follow Morningstar's reports especially when it comes to technology companies that have built a name for themselves. Because Morningstar always thinks any software platform is a commodity that can easily be replicated by a bigger player which I now know is wrong

I think this is one of the dangers of not looking at other analyst views. I should not have resorted to the Morningstar reports via the Morgan Stanley account but tried to look at others as well and then form my own opinion.

The comments on economic moat are just laughable now. Morningstar defintely needs a new analyst that understands what technology and more importantly what a "brand" is.

At the end of the day, everyone will still try and buy the dip on NWL and HUB no matter what the result IMO.

mikebrisy

Added 3 months ago

@edgescape I have learned early in my ASX investing career, to my significant cost, the risk of acting on seemingly persuasive "analyst narratives", arguments and analyses. They often convey a sense of authority and rigour that does not bear further interrogation. The example you’ve highlighted definitely fits in that category.

That said, I do use analyst reports. They often provide good insights to dig deeper into. They often present analyses of markets and competitors that would take me many hours, days or weeks to replicate, or they may be impossible for me to perform myself. The best analysts conduct and present primary research and provide visibility to the supporting facts.

For example, in a recent GS $XRO research report, the analyst summarised a series of conversations had with UK accountants at the recent UK Xerocon. Or in a recent RBC Capital report, analysis of a market survey polling healthcare professional prescribing intentions was used to support forecasts for DAYBUE relevant to $NEU.

My use of the analyst reports in these cases is less about their TP and recommendation, and more to use their fact-based analysis as input to my own analysis. Many analysts are highly capable and use the considerable resources of their institutions (e.g. databases, expensive market research reports etc.) to develop insights that are valuable to me. But I always want to have a direct line-of-sight to the underlying facts. Not just the analyst’s opinion and arguments.

Ultimately, I have to "own" my analysis and decisions. The huge advantage of this is that, when I make mistakes which is often, I can learn. When you follow an analyst recommendation, it is harder to learn.