Company Reports

Netwealth provides investment administration software as a service. It includes portfolio administration, investment management tools, and investment and managed account services. The firm’s administrative capabilities encompass custodial and noncustodial assets. Netwealth’s product integrates with external software, allowing it to facilitate more functions and streamline the implementation of financial advice to clients under a single—its own—platform. While Netwealth services all cohorts, it is particularly successful catering to more affluent clients who generate more revenue because of greater asset values and trading activity. This supports Netwealth's higher operating leverage relative to its peers.

There are early signs of improved flows for no-moat Netwealth relative to the subdued levels seen in 2023. However, we think prospective rebounds in net inflows will be short-lived. We retain our expectation that the rate of net inflows, as a percentage of funds under administration, will moderate over the long term. We also anticipate ongoing fee compression and reinvestment needs amid competitive pressure from other platforms. We expect Netwealth’s margin expansion rate to moderate over the next five years.

Netwealth provides investment administration software as a service. It includes portfolio administration, investment management tools, and investment and managed account services. The firm’s administrative capabilities encompass custodial and noncustodial assets. Netwealth’s product integrates with external software, allowing it to facilitate more functions and streamline the implementation of financial advice to clients under a single—its own—platform. While Netwealth services all cohorts, it is particularly successful catering to more affluent clients who generate more revenue because of greater asset values and trading activity. This supports Netwealth's higher operating leverage relative to its peers.

We lift our fair value estimate for no-moat Netwealth to AUD 10.60 per share from AUD 10.10, mainly from stronger revenue growth. At current prices, however, shares remain materially overvalued, with investors likely overlooking the trade-off between volume growth and margins in the increasingly competitive platform market in which Netwealth operates.

Our conviction in the thesis for listed wealth managers, asset managers, and their related service providers has strengthened after gathering insights from the recent 2023 Super & Wealth Summit, hosted by the Australian Financial Review. These firms are influenced by similar business drivers and industry trends. Most derive their revenue from funds under management and/or administration, or FUMA, which are driven by asset price movements and new fund flows from clients, and management fees or commissions on these FUMA.

Netwealth provides investment administration software as a service. It includes portfolio administration, investment management tools, and investment and managed account services. The firm’s administrative capabilities encompass custodial and noncustodial assets. Netwealth’s product integrates with external software, allowing it to facilitate more functions and streamline the implementation of financial advice to clients under a single—its own—platform. While Netwealth services all cohorts, it is particularly successful catering to more affluent clients who generate more revenue because of greater asset values and trading activity. This supports Netwealth's higher operating leverage relative to its peers.

We retain our fair value estimate on Netwealth at AUD 10.10 per share. Despite shares falling over 7% following the update for the first three months of fiscal 2024, which was broadly as expected, shares remain overvalued. The market is likely overlooking the trade-off between Netwealth’s revenue growth and margin expansion. We continue to forecast Netwealth’s market share gains to be slower than in the past five years due to resurgent competitive pressures. Moreover, we expect ongoing growth investments and fee compression to limit margin expansion.

We maintain our no moat rating for Netwealth, but raise our fair value estimate 7% to AUD 7.30 per share after a transition in the analyst covering the stock. Our upgrade reflects the expectation of improved earnings from increases in the cash margin rate and ongoing growth in funds under management and administration. Further, adding to FUMA growth will be the new Whole of Wealth, multiasset portfolio functionality and enhancements targeting managed discretionary accounts and high-net-worth individuals. Fiscal 2023 funds under administration and net inflow guidance between AUD 11 billion and AUD 13 billion points to ongoing market share gains. Netwealth continues to take share from competing platform providers with weaker customer service, poor integration, and underinvestment in features and functionality, such as automated reporting and analytics. We maintain our Standard Morningstar Capital Allocation Rating and High Morningstar Uncertainty Rating. The business is leveraged to volatile capital markets, changes in economic growth, and risk of regulatory changes.

We maintain our fair value estimate of AUD 6.20 per share and full-year fiscal 2021 earnings forecast for no-moat rated Netwealth heading into the release of its full-year results on Aug. 18, 2021. We expect full year revenue of AUD 150 million and underlying EBITDA of AUD 80 million, representing year-on-year growth rates of 24% and 25%, respectively. At the current market price of AUD 15.94, Netwealth continues to screen as significantly overvalued.

We’ve largely maintained our earnings forecasts for no-moat-rated Netwealth following its strong first-half result. However, the time value of money increases our fair value estimate by 3% to AUD 6.20 per share. At the current market price of AUD 16.75, we continue to believe Netwealth is significantly overvalued. The share price implies a fiscal 2022 price/earnings ratio of 59, versus 22 at our fair value.

Netwealth provides investment administration software as a service, or SaaS, in Australia via its proprietary software platform, which includes investment portfolio administration, investment management tools, and investment and managed account services. The company charges for its software based on the value of funds under management on its platform, comprising over 95% of group revenue, in addition to providing Netwealth-branded investment products, which are managed by third-party investment managers. In contrast to the large and well-established vertically integrated Australian wealth management businesses, Netwealth does not own investment management or financial advisory businesses.

We’ve maintained our fair value estimate for no-moat-rated Netwealth at AUD 6.00 per share following its second-quarter trading update. At the current market price of AUD 17.69, we consider the shares to be significantly overvalued. We consider the 12% share price jump, which followed the update, to be a massive over-reaction by the market despite the positives in the announcement.

Netwealth provides investment administration software as a service, or SaaS, in Australia via its proprietary software platform, which includes investment portfolio administration, investment management tools, and investment and managed account services. The company charges for its software based on the value of funds under management on its platform, comprising over 95% of group revenue, in addition to providing Netwealth-branded investment products, which are managed by third-party investment managers. In contrast to the large and well-established vertically integrated Australian wealth management businesses, Netwealth does not own investment management or financial advisory businesses.

We have maintained our fair value estimate for no-moat-rated Netwealth at AUD 6.00 per share following its fiscal 2021 first-quarter trading update. At the current market price of around AUD 18 per share, we consider the stock to be significantly overvalued. We don’t believe the trading update warranted the subsequent 13% increase in the share price, considering the growth in funds under management and administration, or FUMA, was broadly in line with our expectations.

Netwealth provides investment administration software as a service, or SaaS, in Australia via its proprietary software platform, which includes investment portfolio administration, investment management tools, and investment and managed account services. The company charges for its software based on the value of funds under management on its platform, comprising over 95% of group revenue, in addition to providing Netwealth-branded investment products, which are managed by third-party investment managers. In contrast to the large and well-established vertically integrated Australian wealth management businesses, Netwealth does not own investment management or financial advisory businesses.

We have maintained our fair value estimate for Netwealth at AUD 6.00 per share following its fiscal 2020 result and, at the current market price of AUD 14.22, continue to believe the stock is significantly overvalued. We have slightly increased our cost growth assumptions but the negative impact on our fair value estimate has been offset by the positive time value of money impact since our last update. Our fair value estimate implies a fiscal 2021 price/earnings ratio of 26 and dividend yield of 2.7%, or 3.8% including franking credits. In contrast, the share price implies a P/E ratio of 61, and dividend yield of 1.1%, or 1.6% including franking credits.

We have maintained our fair value estimate for Netwealth at AUD 5.70 per share following its first-half result, and at the current market price of AUD 7.80, continue to believe the shares are materially overvalued. The notable aspect of the result was management’s fiscal 2020 earnings guidance, which was weaker than we expected, and we’ve cut our fiscal 2020 earnings forecasts accordingly. However, the impact on our fair value is small and offset by other earnings adjustments and the positive time value of money effect on our financial model. At the current market price, Netwealth trades on a fiscal 2020 P/E ratio of 51 versus 31 at our fair value.

Netwealth provides investment administration software as a service, or SaaS, in Australia via its proprietary software platform, which includes investment portfolio administration, investment management tools, and investment and managed account services. The company charges for its software based on the value of funds under management on its platform, comprising over 95% of group revenue, in addition to providing Netwealth-branded investment products, which are managed by third-party investment managers. In contrast to the large and well-established vertically integrated Australian wealth management businesses, Netwealth does not own investment management or financial advisory businesses.

Netwealth provides investment administration software as a service, or SaaS, in Australia via its proprietary software platform, which includes investment portfolio administration, investment management tools, and investment and managed account services. The company charges for its software based on the value of funds under management on its platform, comprising over 95% of group revenue, in addition to providing Netwealth-branded investment products, which are managed by third-party investment managers. In contrast to the large and well-established vertically integrated Australian wealth management businesses, Netwealth does not own investment management or financial advisory businesses.

Netwealth’s second-quarter update was surprisingly strong, with funds under administration, or FUA, rising by 50% versus the prior year to AUD 28.5 billion. This was much better growth than the previous four quarters, which achieved an average annualised FUA growth rate of 29%. FUA growth comprises net inflows and the increase in the market value of existing FUA. However, 90% of the FUA growth in the December quarter came from net inflows, which shows the platform remains in strong demand from clients.