Netwealth Group Limited

Company Overview: Netwealth Group Limited (ASX: NWL) provides financial services to financial intermediaries and investors, which include managed funds, investor directed portfolio services, a superannuation master fund, separately managed accounts, and self-managed superannuation administration services. The company got listed on ASX in November 2017.

NWL Details

Diversified Revenue to Aid Future Business Growth: According to the Investment Trends December 2021 Competitive Analysis & Benchmarking report, the company has been ranked 1^st for the best overall platform, transaction tools, and reporting. NWL is focused on technology and platform innovation and possesses a home-grown leading investment platform, which connects clients and advisers. In addition, the company is focused on profitable & sustainable revenue growth, evident by the rising average account size to $529,000 as of 31 December 2021. Platform revenue per account also rose to $1,609, which showcases a rising average account balance and diversified revenue sources. Looking forward, the company is likely to be supported by the growth in affluent, high net-worth, and private wealth groups as the platform functionality supports and allows the unique and differentiated needs of the segment.

Insights of 1HFY22: During 1HFY22, the company experienced a decent financial and market position, primarily evident by low capital expenditure, rising cash, high level of recurring and growing revenue, ongoing strategic investment across IT, infrastructure, people and software.

Financial Summary (Source: Analysis by Kalkine Group)

Operational Summary: The company witnessed decent growth on operational side, reflected by rising FUA and net inflows as depicted in the below picture:

Operational Highlights (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around ~66.23% of the total shareholding, while the top 4 constitute the maximum holding. Heine Brothers Pty. Ltd. and Leslie Max Heine Pty. Ltd. are holding a maximum stake in the company at ~46.14% and ~7.23%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: During FY21, the company recorded a current ratio of 4.94x as compared to 3.26x in FY20. In addition, ROE for the year stood at 63.9% against 62.4% in FY20.

Liquidity and ROE Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Market Volatility: The company’s business growth could be impacted by extreme volatility in the investment market.
• Competition from Peers: NWL operates in a very competitive environment; hence rising market share of peers could impact the business growth.
• COVID-19 Risk: The company’s performance could be affected by the uncertainties in relation to the COVID-19 pandemic.

Outlook: As of 30 September 2021, the company has increased its market share by 1.2% to ~5.2%. During 2HFY22, the company would invest in business functions with the objective of generating new revenue streams and putting the foundation to support an extended period of strong net inflows. During Q4FY22, the company would roll out new non-custodial administration and reporting solutions. In addition, it has strategically increased investments in technology and operations, which will allow the company to maximise the opportunity and success in increasing its clients, market share and profitability. The company expects FUA net inflows to surpass $13.5 billion in FY22.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of NWL is trading below its 52-week low-high average of $12.200 - $18.250, respectively. The stock has been corrected by ~15.99% in the past three months. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ median, P/E multiple, considering the investment market volatility and other material business risks, etc. For the purpose of valuation, a few peers like Pinnacle Investment Management Group Ltd (ASX: PNI), Hub24 Ltd (ASX: HUB), Platinum Asset Management Ltd (ASX: PTM), and others have been considered. Considering the expected upside in valuation, rising revenue and FUA, growing market share, optimistic long-term outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing price of $14.670, down by ~1.079% as on 04 April 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

NWL Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.