Very strong results from Netwealth for the H1 to Dec 31st 2023 showing the fly wheel effect with an acceleration of revenue and most importantly widening margins as they reap the benefits of growing portfolios as markets finished 2023 on a high.

Key take outs

• Revenue and Market share growth between NWL and HUB24 not abating comparative to legacy platforms (see below)
• Operating Cost growth of 13.9% well below revenue growth and showing discipline management of capital
• Net profit margins expanding to 31.9%
• ROE over 50% past 5 years
• Rock solid balance sheet with no debt and $115m in cash and 57.4m FCF
• Insider ownership of just under via Heine Family 50% ensuring alignment with shareholders
• 86% of EPS paid out as dividend (14c FF)

Priced to perfection at 50x forward earnings so one to watch as movements in SP present opportunity to enter or top up on existing holdings.

Disc - Held in RL, not on SM.

Netwealth reported 1H FY24 results this morning. From their presentation:

Personally, I thought this was a great result for Netwealth. Operating leverage really starting to come through. It seems the increased investment in their platform that occurred in FY22 and FY23 is starting to show through now.

Still plenty of growth potential as shown by this graph from their presentation:

When will the growth start to taper off? Hard to say at the moment but until then I think the thesis remains intact.

Will update my valuation later.

Full presentation here

Disc: Held IRL and on Strawman.

Netwealth released their FY23 results yesterday. From their presentation:

I thought this was a pretty solid result with a return to bottom line growth of over 20%. They are taking advantage of a structural shift away from the legacy funds management platforms. Still only a 6.7% market share currently.

Disc: Held IRL. Not held on Strawman.

Market didn't like the quarterly update released today.

While FUA increased 14% to 8.2B, growth is slowing. This is now the second quarter in a row of shrinking net inflows (and down 37% on PCP).

Next comp NWL may fare better as market movement hadn't yet bottomed in the Mar-22 quarter (and hopefully outflows peaked in Dec and continue to reduce from here).

Disc. held IRL.

Nice half year results for Netwealth

Revenue 102.8 million up 18.9%

EBITDA 46.2 million up 10%, margins 44.9% (down on 2021 48.6% due to investing within)

NPAT 30.6million up 11.4%

EPS 12.4c up 11.7%

DPS 11c up 10%

Cash on hand 98.8million up 15.2% . No debt.

High insider ownership and high conviction in the strategy

With the theme of the current reporting season across the globe being on cost control and in United States job losses Netwealth is definately bucking the trend and investing in more people whom drive technology improvements to the business to enable them to maintain their growth and innovation as an organisation.

These investments can be seen in the staff headcount and costs which grew to 542 up 27 in the half and up to $38.1million or 22.8%. The heads that were added 19 were technology orientated. Add to this the spend in IT which grew by 97% to 6.7million on the half as Netwealth moved to migrate to cloud, upgrade workflow and enhance security.

Free cash flow grew by 9.4% to 47.66 million for the half.

Although expensive when measuring on traditional means ie PE at over 50 there's alot to like.

Happy holder in RL not on SM

Netwealth (NWL) released their results for 1H 2023 this morning. From their presentation:

Good to see them back on the growth trajectory after several years of investment into their platform.

Management have stated that they believe the investment phase is over and they should start to see some operating leverage kick in.

First time that they have hit over $100m in revenue in a half. Benefitted from increasing interest rates.

From a market share perspective, they are at about 6.3% of the total market share with plenty still to be gained from the top 4 large institutions.

Full presentation here

Half year report here

Disc: Held IRL, not held on Strawman.

Article on FUM flows - Super industry flows: AustralianSuper, HUB24 lead the way - Professional Planner

Netwealth released Dec 2022 quarter inflows and fair to say a mixed bag.

Short term there are some points to keep an eye on in terms of growth of inflows.

1. December qrt 2022 funds under administration growth rates slowed to 7.4% to 62.4billion for the Dec quarter which below the 2022 full year growth rate of 10.2%. Not a trend i like to see
2. The call out of the withdrawal of funds by high net worth investors was noted and something to watch in 2023 as economic landscape evolves
3. Due to trading at high PE netwealth can be volatile both to the downside and upside as is reflective with today's 9% fall.

Long term the move to recruit and attract key personnel in IT / communication services and Sales and Marketing is contrary to industry trends but clearly earmarked to maintain the advantage NWL have in the industry. This also reflects the financial strength the business upholds and confidence in the future.

Netwealth is aiming for inflows to financial year 2023 to be 11billion and is optimistic on new licenses which are set to convert in the current half.

Additionally the piloting of multi asset portfolio service as well as Xeppo (mobile integration) will further assist.

Overall Netwealth is a long term hold for me for the following reasons:

• NWL ranked 6th in size to 6.3% of all inflows having grown from 4.1% in 2022 or over 50% in 2 yrs
• (AMP over same period has 15.8% in 2020 to 14.2% in 2022)
• EBITDA 50% plus
• Net profit 33-38%
• No debt
• 80% plus dividend payout ratio
• 52.5% inside ownership with 3% dilution occurring in past 6 years

Along with HUB24 was able to purchase stock at single figures in real life pre 2020 and look forward to standing aside and allow compounding to do its thing .....

NWL December-2022-Quarterly-Business-Update.pdf

Netwealth is still sitting on a hefty PE of over 50 but their growth trajectory is still heading in the right direction. There were Funds under management net inflows of $2.9B for the September quarter which I think is strong given current market volatility. Total FUA is now at $58.1B. Their mobile integration with Xeppo is due to be launched in Q2 of 2023 which will hopefully provide a kick along to grabbing further market share from the big boys.

Netwealth have provided the market with their full year results and the depressed share price on offer earlier in the year looked to have been a solid opportunity to get into a nicely growing business at an attractive price. You can find their announcement here but the graphs that really standout for me are below. Rated number 6 in the industry by market share with 5.8% but tops with net fund inflows means their is still plenty or runway for growth (also highlights how well HUB24 are travelling too).

Netwealth continues to grow funds under administration at the fastest rate in Australia. Feel like this stock deserves its premium (although I note it’s PE of 59 according to yahoo finance). Other thoughts?

I had this company on my watchlist for well over a year before I pulled the trigger when their share price was punished after their results announcement back in February. Give next month they will unveil their latest quarterly update, today I purchased my full allocation of shares IRL. Netwealth's market share sits at roughly 5-6% but their inflows sit comfortably higher than their current market share. There appears to be heavy investment back into the business (which I like for the long term) specifically around their launch of their app and once rolled out has a strong potential to supercharge growth.

I still am a little perplexed by the large pullback they suffered but if the next quarterly update surprised to the upside, which management have a history of doing, I don't believe the share price will be seeing these levels for quite some time. No debt, growing and a healthy little div of roughly 1.3% this is a business I'm comfortable having in my portfolio for some time.

Number of Shares on issue = 245m

Insider ownership roughly 50% ( Founder family operates the business )

Revenue = 124m ( FY20), 144.8 (FY21) 84.7m ( 1H FY22)

Expense = 61.2m (FY20), 67.6m (FY21), 44.9m (1H FY22)

EBIT = 62.7m (FY20) , 77.2 (FY21), 39.8m (1HFY22)

I thought 1H FY22 results were good and management flagged that they are investing in Technology, People and Infrastructure to support the growth they are getting and scale the business for future growth.

They are expensing all of this investment and hence profit is subdue for the half. The following graphs from the presentation show their investment in last year.

Buy investing in their technology and people they are making their product number 1 recently from number 2

and because of award-winning products and services they are disrupting the Top 4 institutions and also no.1 providers for net funds flows

The following chart shows the growth and market share

How to hedge against increasing rates environment? Buy business that will benefit from rates increase.

Very solid results, received somewhat negatively by the market perhaps due to a modest decline in NPAT and EPS in this half compared to prior half. In the long term however - the only one that counts - the trajectory of revenue and NPAT continues inexorably from bottom left to top right. EPS growth is less impressive.

I admit to bias, since I have had part ownership in NWL for 3 years, I know the company extremely well, it has delivered me a 29% annual return and it has the maximum allocation I permit in my portfolio. It mystifies me why the company doesn't get more coverage by the analyst community. My confirmation bias is boosted by the fact NWL is also the largest holding in the Lakehouse Small Companies fund.

Netwealth is the biggest beneficiary of the industry transition to independent financial advice. It has been the recipient of the highest value of funds inflow of any platform provider, for 13 straight quarters, taking market share from the banks and growing to be the 6th largest platform provider, behind the 4 banks and Maquarie. It is widening the gap on HUB, and Praemium looks like it is falling by the wayside. 

Netwealth delivers 34.5% NPAT growth and current FUA1 $40.7 billion

1H2021 financial results highlights (PCP2 )

~ EBITDA of $40.5 million ($31.1 million), increase of 30.1% to PCP.

~EBITDA margin of 56.0% (53.1%) for 1H2021.

~ NPAT of $27.6 million ($20.5 million), $7.1 million increase or 34.5% increase to PCP.

~ Total Income of $72.4 million ($58.7 million) an increase of $13.7 million or 23.4% to PCP. Platform Revenue of $71.2 million ($57.3 million), an increase of $13.8 million or 24.1% to PCP.

~ Total Operating Expenses of $31.9 million ($27.5 million), an increase of $4.3 million to PCP, up 15.8% (including increase in employee benefits of $3.9 million, up 19.5% to $23.7 million for 1H2021). Headcount at 31 December 2020 of 371 with an additional 32 roles added in 1H2021.

~Operating net cash flow pre-tax3 of $40.5 million ($31.3 million), an increase of $9.1 million or 29.2% to PCP.

~EPS of 11.3 cents (8.4 cents), an increase of 2.9 cents or 34.5% to PCP.

~ On 17 February 2021, the board declared a fully franked interim dividend of 9.06 cents per share totalling $22.1 million for 1H2021. The dividend is payable on 26 March 2021. The exdividend date is 22 February 2021.

~ On 17 February 2021, Jane Tongs retired from the board and Tim Antonie was appointed as Chairman. On 1 February 2021 a new independent non-executive director, Kate Temby, was appointed.