Netwealth Group: 4Q flows step up

About the author:

Scott Murdoch
Author name:
By Scott Murdoch
Job title:
Senior Analyst
Date posted:
09 July 2021, 10:00 AM
Sectors Covered:
Diversified Financials, Professional Services

  • Netwealth Group (ASX:NWL) reported 4Q21 FUA of A$47.1bn, +12.7% for the quarter and +49.6% on pcp.
  • Quarterly net FUA inflows were A$3.1bn, +36% for the quarter and +102% on the pcp. NWL recorded FY21 net inflows of A$9.8bn (31% of starting FUA).
  • 4Q21 client account numbers grew 5.8% (qoq), another indicator that momentum accelerated in the final quarter.
  • NWL’s opportunity and ability to deliver consistently strong long-term earnings growth remains intact. We view NWL as a high quality business, but retain a Hold on valuation.

4Q21 FUA update

Netwealth Group (ASX:NWL) ended 4Q21 with FUA of A$47.1bn, up 12.7% for the quarter (including positive market movement of A$2.2bn) and up 49.6% on the pcp (including positive market movement of A$5.8bn).

4Q21 net inflows were A$3.1bn (MorgansE of A$2.7bn), +35.8% for the quarter and +102% on the pcp. NWL’s largest client flows (ANZ transition) represented ~12% of net inflow (~A$370m).

4Q21 member accounts of 97,319 (+19% on pcp) reflects ongoing growth within the adviser clients using the platform, with growth accelerating during the quarter.

Pooled cash balances ended the period at 6.9% of FUA (~A$3.25bn), with absolute pooled cash balances slightly ahead of the pcp (A$3.1bn).

No slowdown in momentum

Net inflows beat guidance: Flows momentum picked up in 4Q21 (A$9.8bn FY21 total versus A$9bn guidance) and were ~10% above expectations. We expect further growth in net inflows to be guided for in FY22, despite a lower assumed benefit from the ANZ FUA transition (~A$1.3bn in FY21). We forecast net inflows of A$10.5bn for FY22, ~22% growth on starting FUA. 

Outcome on pooled cash margin a swing factor: we expect NWL to finalise an outcome on its pooled cash (currently with ANZ) in 1H22. We factor in a 35bp (from 30bp; equating to a ‘take rate’ of ~70bp) margin compression from Mar-22. Every +/-10bp move from our assumption will have a ~ +/-3.5-4% impact on FY23 EPS.

Forecasts: upgrades on the back of higher FUA

We upgrade FY21/22/23 EPS by 1.3%/4.2%/7.4%.

NWL commences FY22 with starting FUA +22% on average FY21.

Our DCF valuation moves target price to (login to view).

Hold recommendation (no change); 

We view NWL as an attractive business, benefitting from a strong industry position, high cash generation and industry tailwinds. The inevitable cut to pooled cash earnings from 4Q22 dampens the growth run-rate in FY23, but we still forecast a five-year EPS CAGR of +20% to FY26.

Price catalysts: pooled cash clarity

NWL will report its FY21 result on 18 August 2021.

Catalysts include: clarity on the pooled cash margin; large client wins (transitions).

Risks

Lower-than-expected ‘take rate’ on pooled cash; aggressive/irrational competitor pricing; lower-than-expected inflows; loss of a major client relationship; greater-than-expected revenue margin pressure; and slower medium-term net inflow profile versus market expectations. 

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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