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.

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 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