Netwealth profit jumps, but shares sink on income hit

Wealth provider Netwealth posted a better-than-expected profit, but investors were more focused on the impact of price changes.

Father and son, Michael (right) and Matt Heine, are joint managing directors of Netwealth, a wealth management and super investment platform company. Stuart McEvoy/The Australian.

Netwealth shares tumbled 5 per cent in early trade despite the wealth provider posting a better-than-expected net profit for the first half, with investors more focused on the impact of repricing measures taken last year.

For the six months through December, Netwealth posted a 34.5 per cent jump in net profit to $27.6m, well above the $25m the market had been expecting.

Total income rose to $72.4m, 23.4 per cent higher than the prior corresponding period, while platform revenue of $71.2m, up 24.1 per cent, was driven by higher average funds under administration and partially offset by lower platform revenue margins.

But investors sent its shares down 5.5 per cent in early trade, to $16.80, as it gave an update on the new pricing measures announced in March last year.

“On January 1, 2021 new pricing previously announced in March 2020, was fully implemented. As a result of the changes to pricing, we do not expect FUA administration fee income to increase significantly in the second half of 2021 compared to the first half,” Netwealth said.

Analysts noted the strong result but cautioned on the income hit from the repricing.

“The (profit) beat was driven by stronger-than-expected revenue margin due to higher transaction revenue and operating leverage,” Citi analyst Siraj Ahmed said.

“A solid first half from Netwealth which talks to various revenue streams in the business model. We continue to see upside to Netwealth’s fiscal 2021 estimated flow guidance, however the admin fee guidance does imply a higher-than-expected reduction in revenue margin.”

He admitted this greater-than-expected decline was partly a function of incorrect phasing of declines in his forecasts.

Macquarie analysts also cautioned on the final impacts of the repricing measures, saying they would partially offset some of the benefits to outer year earnings.

Netwealth funds under administration grew $7.3bn in the half, to $38.8bn, due to net inflows of $4.5bn and a further $2.8bn in positive market movements.

Looking ahead, Netwealth said it would continue to benefit from disruption, ongoing industry consolidation and change, and that the pipeline of new business and transitions was strong.

It sees funds under administration net inflows in the range of $8.5bn to $9bn for fiscal 2021, having already recorded $4.5bn in net inflows in the first half.

As at February 15, the wealth provider had $40.7bn in funds under administration, an increase of $1.9bn since the end of December.