Financial Services - Platforms: No slowing in the flows
About the author:
- Author name:
- By Scott Murdoch
- Job title:
- Senior Analyst
- Date posted:
- 18 October 2021, 8:30 AM
- Sectors Covered:
- Diversified Financials, Professional Services
- Both specialist platforms (NWL, HUB) beat expectations for 1Q22 flows.
- NWL upgraded FY22 net inflow guidance to A$12.5bn (from A$10bn), on the back of a record A$4bn net inflows (+31% for the quarter and +111% on pcp).
- Ex-transitions, HUB also delivered a record A$3bn in net inflows (+37% for the quarter and +123% on pcp). HUB is well placed to beat its targeted A$9-10bn net inflow.
- Certainty on pooled cash arrangements is the next catalyst. Whilst there remains risk, we think it is adequately factored into consensus forecasts.
- We make no changes to current recommendations (NWL: Hold; HUB: Add). We view NWL as a high quality company but retain a Hold on valuation. Our Add recommendation on HUB is predicated on the group delivering operating leverage medium-term from its growing scale.
NWL: door opens to new client segment
Netwealth Group (ASX:NWL) ended 1Q22 with A$52bn FUA, up 10.2% for the quarter and up 52.7% on the pcp. Of the quarterly FUA move, net inflows accounted for A$4.0bn (up 31% on quarter and 111% on pcp) and market movements of A$0.8bn.
NWL upgraded net inflow guidance to A$12.5bn for FY22 (up from A$10bn).
Within flows, A$900m was the result of two insto/large account clients which NWL stated typically generate 2.5bps in fees (vs ~32bp on individual accounts). These ‘large accounts’ (eg, family offices) present a relatively new client segment for NWL and potentially a reasonably deep market opportunity.
Member accounts grew to 102,304 (+5.1% quarter and +20.7% on pcp) and pooled client cash balances were 6.7% of closing FUA (6.9% in 4Q21).
HUB: flows momentum continues
HUB24 (ASX:HUB) ended 1Q22 with total FUA of A$63.2bn (up 7.6% for the quarter); comprising Platform FUA of A$45.4bn (increase of 9.5% on quarter; + 80% on pcp ex acquisitions) and PARS FUA of A$17.8bn (up 3.3% for the quarter).
Of the A$3.9bn Platform FUA uplift, net inflows were A$3bn and market moves A$0.9bn. Net inflows were up 38% on quarter (excluding large transition); +123% on pcp; and 7% above our expectations (A$2.8bn). Flows were mostly captured in the higher revenue margin ‘retail’ segment.
Advisers increased 5.2% on the prior quarter to 3,221 (~20% annualised growth).
Pooled cash arrangements the next box to tick
NWL’s current ANZ pooled cash arrangement concludes in Mar-22 and HUB’s in Nov-22. We assume a 35-40bps cut to the ‘take rate’ for the platforms (assume consensus is broadly similar). For every 10bps difference to our assumption, the FY23 NPAT impact is +/- ~3% for NWL and +/- ~5% for HUB.
NWL: We retain a Hold recommendation on valuation grounds only. We view NWL as an attractive business, benefiting from a strong industry position, high cash generation and industry tailwinds.
HUB: We retain an Add recommendation. HUB continues to show evidence of materially increasing market share. We expect scale benefits to deliver a step-change in earnings over the next three years, with long-term growth thereafter supported by the entrenched nature of the platform within the adviser base.
Figure 1: Key financial metrics
Source: Morgans estimates, company data
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