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.

Netwealth announced their results for the first half of FY22 yesterday. The company continues to demonstrate very satisfactory profitable growth.

Revenue increased 17% over pcp to $84.7m, operating net cash flow of $45.7m was up 11%, but 'underlying' NPAT was marginally down (-0.5%) at $27.5m . This seems to be due mainly to investment in increased headcount, another 55 staff added in the half year period, representing a 12% increase.

Netwealth continues to be the number 1 rated platform and continues to be the greatest recipient of fund inflows across the industry, meaning that its market share continues to grow, It is still only the 6th largest platform, with a 5.2% market share, so the upside potential remains enormous.

The critics of Netwealth seem to point to declining margins brought about by increased competition and hence pressure on the fees that Netwealth can charge for fund management and administration. To counter this criticism, Netwealth are gaining more accounts, the average size of each account is increasing, and the revenue earned from each account is increasing, so the top line is still growing at a healthy pace.

A re-negotiated agreement with ANZ Bank with lower interest rates on cash deposits also seems to worry many commentators. From March this year interest on deposits will reduce from 0.95% above the overnight cash rate to 0.5%. By my calculations the impact of this reduced interest rate is around $5m based on 6% of funds under administration being held in cash, so it is not immaterial, but in a rising interest rate environment this impact should have been eroded by the time we get to FY23.

I am doubtless making the mistake of falling in love with a company that I own, but Netwealth is still a very strong hold for me.

I was pleased to read the announcement that Netwealth has made an offer to merge with Praemium, especially since this 'merger' (aka takeover) would exclude Praemium's international business, which is currently up for sale. I usually like the companies I invest in to have a global market, but in this case Netwealth only have 6% of the local platform market, so there is huge potential still to unseat the incumbent bank-affiliated platforms, and I would hate international operations to become a distraction.

Although Praemium have rejected the initial offer, at a paltry 29% premium to their share price at the time of the offer, I suspect we haven't heard the last of this.

For the first quarter of the year, FUA net inflows were $4b, an increase of 111% on pcp, bringing total FUA to $52b. $0.9b was accounted for by just 2 clients (presumably large institutions), so there was a bit of a spike in the quarter. Netwealth increased full year net inflow guidance by $2.5b to $12.5b, just over $3b a quarter, and say they have a very strong new customer pipeline.

Market share increased to 4.9%. HUB is not far behind at 4.3% and seems to be giving NWL a good run for their money. I'm happy that I picked the best horse in the race.

The market seemed to overact to this update. Profits will not grow in direct proportion to growth in FUA since the larger clients will attract lower management fees, but nonetheless this was a very pleasing update.

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.