Post Market Wrap | Netwealth’s $2.6 billion net funds inflow for Funds Under Advice in March quarter

• Negative $1.7 billion market movement for Funds Under Advice in March quarter

•  Funds Under Management net funds inflow of $0.5 billion in March quarter 

• Platform market share increased from 4.4 percent to 5.5 percent for year to December 2021 

• Launch of refreshed administration service aimed at High Net Worth and Ultra High Net Worth market segments should support FUM and FUA growth 

• Higher RBA official cash rate will boost proprietary cash transaction account margin from FY23. 

March 2022 Quarterly business update

Netwealth continues to grow Funds Under Administration (FUA) and Funds Under Management (FUM), despite a negative $1.7 billion mark-to-market movement in FUA, during the March quarter. 

FUA net inflows of $2.6 billion were recorded during the March quarter, taking FUA to $57.6 billion at 31 March. However, FUA at 31 March increased by a lesser amount of $0.9 billionnet for the quarter. This is the result of negative market movement of $1.7 billion on client portfolios during this 3-month reporting period. The market movement for the 12 months to March 2022 was positive $2.4 billion, contributing to the 37 percent increase of $15.7 billion in total FUA.  

FUM net inflows for the March quarter were $0.5 billion, taking the total FUM at 31 March to $13.8 billion, an increase of 31 percent compared to March 2021.

Netwealth’s increasing market share continues to lead the industry for FUA net inflows for the rolling 12-month period to December 2021, taking its market share to 5.5 percent, up from 4.4 percent a year earlier. This increase positions Netwealth as Australia’s fastest growing platform provider.   

The number of member accounts at 31 March stood at 111,130, an increase of 19,122 accounts or 21 percent for the 12 months since March 2021.

Apart from these market-leading quantitative measures, Netwealth ranks highly in terms of a peer analysis, based on qualitative measures. The Investment Trends December 2021 Platform Competitive Analysis and Benchmarking Report, ranked Netwealth first for platform overall and first for Reporting and Transaction Tools. Netwealth has invested significant amounts on its software and related platform technology in recent years. This investment is reflected in the superior rankings in terms of platform functionality, in a highly competitive operating environment.

Outlook

The Group’s outlook statement did not include a full year earnings projection.  

Netwealth did however state that its win rate for new business is strong across all market segments. The launch of the Group’s upgraded non-custodial administration service in the final quarter, aimed at the High Net Worth and Ultra High Net Worth market segments, should continue to support solid growth in FUM and FUA over the medium term. Netwealth significantly increased headcount in the first half-year of FY22, resulting in a 32 percent increase in employee benefits, totalling $7.6 million. Much of this increase relates to the Group’s IT capability and is expected to deliver enhanced service levels to clients and improved operating efficiencies as the Group builds scale in future years.

A higher RBA official cash rate from the current 0.01 percent will boost the margin on the Netwealth cash transaction account from FY23. The Netwealth cash transaction account represents 6.8 percent of FUA at 31 March, up from 6.1 percent of FUA at 31 December 2021. 

Netwealth’s robust FUA sales pipeline, high EBITDA to cash conversion ratio and no debt, is supportive of consistent earnings performance over the medium term.

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.