Shares in technology company Netwealth Group Ltd (ASX: NWL) fell 4% today following the release of a Quarterly Business Update.
The Netwealth Business
Founded in 1999 by current Joint Managing Director Michael Heine, Netwealth offers a superannuation and non-superannuation platform for Financial Advisers to manage the administration and investment management of their clients’ accounts.
They claim to be the “one of the fastest growing wealth management businesses in Australia“.
Why Netwealth Shares Have Fallen
In their quarterly business update, Netwealth said Funds Under Administration (FUA) as at 31 March was $21.1 billion, an increase of $2.1 billion in the quarter.
Netwealth said this was their “largest quarterly increase in FUA since listing on the ASX in November 2017“. Net inflow of funds was $0.9 billion, with the remaining $1.2 billion increase a result of an increase in market movements.
A couple of days ago Netwealth announced ANZ Private Bank, part of Australia and New Zealand Banking Group (ASX: ANZ) had selected their platform to administer the $3 billion of funds they manage on behalf of clients, which was lost by fellow fast-growing ASX listed company Praemium Ltd (ASX: PPS). Praemium shares got whacked.
Netwealth claims to have a 2.3% market share as at 31 December.
Buy, Hold or Sell?
While they were impressive numbers, prior to today the Netwealth share price had enjoyed a pretty good run, up 19% since 1 January. Therefore, it’s not surprising to see some people locking in their profit.
I think Netwealth has a bright future. The business has a strong technology proposition and the upheaval in the industry on the back of the Royal Commission puts them in a good position to win new business from Financial Advisers. Their current market share of 2.3% is almost certainly going to grow.
One concern comes from fee compression. Fund platform behemoth BT Financial, which is owned by Westpac Banking Corp (ASX: WBC), recently announced significant cuts to its platform pricing.
The competitive nature of the platform industry may lead to further cuts and fee compression from other platform providers, and with Netwealth shares trading on a hefty price-earnings ratio of 90 times last year’s earnings/profit, the market is expecting and pricing in significant continued growth from Netwealth.
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At the time of writing, David does not have a financial interest in any of the companies mentioned.
