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Wealth platforms flex their muscles as fund managers struggle
The new-generation wealth management platforms, Praemium (ASX:PPS), HUB24 (ASX:HUB) and Netwealth (ASX:NWL) are once again gaining ground, with all three players delivering record net inflows over the March quarter of 2022; in stark contrast to the active funds management sector, which is seeing the opposite trend.
Leading the pack was HUB24 (ASX:HUB), which posted net quarterly inflows of $2.6 billion, up 36.4 percent on the prior period. Total funds under administration (FUA) were $68.3 billion, up 33 percent due to substantial increases in the PARS services and the successful completion of the Class Limited acquisition. The platform added 30 new advisers during the quarter, taking the number to 3,432.
HUB24 says its “market-leading digital reporting feature which enables advisers to customise client presentations in real time, delivering engaging and efficient client reviews has been in pilot, and following positive adviser feedback the solution, will be rolled-out to all advisers from mid-May.”
Praemium recorded quarterly inflows of $725m, up 82 per for the March quarter. This helped its total funds under administration (FUA) figure to rise to $47.7 billion. According to one media source, “CEO Anthony Wamsteker said that he was delighted with the results, saying that it shows Praemium is delivering on its strategy to become one of the biggest independent specialist platform providers in Australia.”
Netwealth posted its quarterly result last week, recording a 1.6%, or $900 million, increase in funds under administration (FUA) to $57.6 billion. Despite being a positive result, it is one of the weakest quarters the platform has endured, growing at a much slower rate that its two competitors. Some of it is being put down to tough trading conditions.
Netwealth is still the largest of the three, making it the sixth-largest provider based on market share (it trails Macquarie Wrap by some distance). It is primarily focused on high-net-wealth (HNW) clients. Its average FUA is $16.6 million per intermediary, compared to $14.8 million for HUB. Praemium is largely considered by the industry as having the best HNW non-custody solution, via its Powerwrap business.
Owing to the attractiveness of all three platforms, M&A is heating-up in the sector. Netwealth recently took a 25% stake in fintech Xeppo and lobbed a merger proposal to merge with Praemium, which has since been declined. HUB acquired Xplore, Ord Minnett’s PARS reporting service and more recently a takeover of self-managed super fund (SMSF) administration provider Class Ltd (ASX: CL1).
On a price/earnings (P/E) ratio basis, neither HUB nor NWL are cheap. HUB trades on a PE of 156.67x and NWL trades on a PE of 59.77. PPS on the other hand appears to have suffered quite a pullback in share price following the rejection of a $785m merger deal and a disappointing loss at its HY results.
Under the terms, shareholders would have received one NWL share for every 11.96 PPS shares. That implies a value of $1.50 per PPS share, as opposed to the $1.24 trading price at the time of the offer. PPS is now trading at $0.73. That’s a 41 percent fall and well-overdone. NPAT swung from $2.8m profit to a loss of $2.6m but Praemium achieved record FUA and platform growth, boosted by the inclusion of a full six months’ worth of revenue from the Power wrap acquisition. Shareholders seemingly concerned about the recent loss need to look past it. Management have said it reflects an increase in expenses in key investments in operations; sales and marketing; and research and development.
Ord Minnett has a Buy recommendation with a target price of $1.50. The broker says the 1H result missed earnings expectations, but that this looks to be a one-off. “Strong revenue, improving margins and potential corporate interest are just some of the attractive qualities of the stock that make it an attractive buy at these levels,” the broker says.
