Financial Services - Platforms: No slowing in the flows

About the author:

Scott Murdoch
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.

Investment view

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

Growth stocks have had a choppy ride since the onset of the pandemic

Source:  Morgans estimates, company data

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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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