Frantic share trading drives Netwealth’s record fund inflows and share high
The super and wealth management platform benefited from investors piling into the market after it lows in late March.
A boom in share trading after global markets hit lows in March and major adjustments in the investment portfolios of wealthy individuals and families has provided a big boost to Netwealth, which will set sail for the $40bn funds under advice mark in 2021.
The surge in client activity in the last few months of the 2020 financial year helped the superannuation and wealth management platform record a 21 per cent increase in net profit to $43.8m and a 25.5 per cent rise in total revenue thanks to record inflows from rich clients and financial advisers.
Joint managing director and billionaire Michael Heine told The Australian that trading activity had at one stage increased by as much as 14 times the usual trading volumes after the ASX and other markets hit lows in late March as the world came to grips with the COVID-19 pandemic.
“Overall it ended up three times our usual figures by the end of the year and while it has settled back down to somewhat normal levels again, without question the fourth quarter was a good quarter for us despite the trials and tribulations that COVID brought,” he said.
“Certainly people got out of stocks for a while there and went to cash, waiting for opportunities. As soon as the market bottomed then people got back in. Trading volumes for our share platforms went through the roof for a period there.”
Netwealth’s profit announcement on Thursday boosted the firm’s share price, which surged to a high of $14.67 during trading before eventually finishing up 7.3 per cent to $13.95 and making the stock one of the best performers in the ASX200 for the day.
Funds under advice for Netwealth, which Mr Heine runs with son Matt, hit a record $31.5bn as of June 30, an increase of $8.2bn or 35 per cent compared to a year earlier.
It also has $7.3bn funds under management, which grew by $3.3bn during the 2020 financial year.
Based on their current pipeline, existing clients and prospective new clients, the firm projected funds under management inflows of about $8bn during 2021, which would see it reach at least $39bn by the end of June 2021.
Netwealth also said its previously announced price cuts for its wealth platform products would be applied to all its clients by the end of the calendar year, but it had still been able to maintain a high EBITDA margin of 52.3 per cent.
Mr Heine said a “price war” with its competitors had settled down and despite that Netwealth was still able to invest in its technology and hire more people despite the pandemic.
Netwealth’s total operating expenses reached $59.1m, a 26.2 per cent increase from last year.
However, the company said the rise was due to IT infrastructure and software spending, and the hiring of more staff, to support its increasing client numbers.
“Our costs will go up because we are willing to invest, and if we didn’t we would suffer in the years to come. We want to make sure we are here and strong. It is our time, and we have to grab it,” Mr Heine said.
Netwealth declared a fully franked dividend of 7.8c per share, payable on September 24.
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