Netwealth trims guidance as inflows fall, expenses rise

An uncertain economic environment coupled with changes in market sentiment has hurt Netwealth’s bottom line and sent its shares 10 per cent lower.

Netwealth shares have tumbled 10 per cent following a trading update. Picture: AAP

Netwealth shares have plunged more than 10 per cent after the wealth management platform provider trimmed its flows guidance for the full year and warned expenses would increase in the second half.

In an update to the market on Thursday, Netwealth guided to funds under administration net inflows of $11bn for fiscal 2023, “subject to timing of transitions and no further deterioration in macro and geopolitical environment”. This compares to its prior full-year guidance of between $11bn and $13bn in net flows.

Its shares sank at the open, tumbling 10.2 per cent to $12.52. By the close it was trading 9.2 per cent lower at $12.65. Prior to the update, Netwealth’s stock had risen 15 per cent in the first weeks of the year.

For the six months through to December 31, the wealth platform provider saw $5bn in net inflows, with market and economic conditions having a negative impact by the end of the second quarter.

“The uncertain economic environment coupled with recent changes in financial market sentiment has adversely impacted both the timing of committed transactions and subsequent inflows in the first half, and the quantum of outflows for the December quarter,” the group said.

Over the three months to the end of December, outflows topped $2bn and were “proportionally above average” due to high net worth and institutional clients withdrawing funds.

Funds under administration as at December 31 sat at $62.4bn, a 7.4 per cent lift for the quarter.

On the expenses side, Netwealth warned that the move to step up its investment in people and technology in 2022, as well as the return to a “post-Covid business environment”, would see expenses lift this year.

“Investment in our people has continued into fiscal 2023, albeit at a lower rate than the first half of 2022, with 27 new headcount added in the first half of 23 compared to the prior corresponding period,” the group said.

The most significant increases in non-employment expenses in the half were in IT and communications, marketing and travel and entertainment, with the combination of these coming in just under $5m.

Even with the challenges to flows, Netwealth said its pipeline and win rate for new business was very strong across all market segments.

“We have been successful in securing a number of significant new licensee relationships which will start transitioning and funding new accounts in the current half,” the company noted.

Following the market update, Macquarie analysts kept their outperform rating on the stock, with a target price of $13.93.

UBS analyst Scott Russell said flows were below expectations but total funds under administration were slightly ahead. The net inflows were the lowest since the first quarter of 2020, he added.

But a solid outlook on margins was a positive, Mr Russell noted: “We had been anticipating a positive surprise on revenues due to cash margins, and this appears to have been delivered. The company expects cash margins to rise by 20 basis points … this implies annualised revenue boost of $9m,” he told clients.