Australia’s fastest-growing wealth management platform, Netwealth Group Ltd (ASX: NWL) has released its first-half results .
The market had lofty expectations going into the announcement, as the Netwealth share price has subsequently fallen 4.49% to $17.05 at the time of writing.
Revenue growth increasingly drops to the bottom line
The business recorded total revenue for the half of $72.4 million, an increase of $13.7 million or 23.4% compared to last year, spurred by an increase in client accounts and migration of financial intermediaries to the platform.
Total operating expenses were $31.9 million, an increase of $4.3 million or 15.8%, primarily driven by new hires to support growth initiatives.
Due to the growing operating leverage within the business resulting from lower growth in costs compared to revenue, net profit after tax (NPAT) increased 34.5% to $27.6 million.
EBITDA – a metric used by management to indicate the operating cash flow of the business – was $40.5 million, an increase of 30.1%.
Margins continued to rise with EBITDA climbing from 53.1% to 56.0% and NPAT growing from 35.0% to 38.2%.
Netwealth declared a fully franked interim dividend of $0.0906 cents per share, compared to $0.069 last year.
Operating metrics continue to drive performance
Funds under administration (FUA) for the half was $38.8 billion, a record half-year increase of $7.3 billion or 23.2%. Positively, FUA was largely driven by strong net inflows of $4.5 billion and positive market movement of $2.8 billion.
First-half funds under management (FUM) was $9.3 billion, an increase of $3.6 billion or 62.0%.
Average account size increased to $440,000, up from $385,000 at 30 June 2020. The average annualised platform revenue earned per account increased to $1,666, an increase of 6.5%.
FY21 outlook
In the subsequent period from 1 January to 15 February, FUA increased to $40.7 billion, a 4.9% increase since 31 December 2020.
Management guided to the market that FUA net inflows for FY21 are expected to be in the range of $8.5 billion to $9.0 billion.
My take
Netwealth continues to take market share from incumbent wealth management platforms and is now the 7th largest platform provider in Australia.
Much of the financials and operating metrics continue to grow at impressive double-digit rates, with little indication the positive growth momentum will slow down.
However, I would encourage investors to look past the reported numbers and focus on the cash flow of the business.
Taking the EBITDA of $40.5 million and subtracting the $23.1 million paid in tax and the $22.1 million in dividends returned to shareholders, the company’s cash balance actually reduced in half.
This isn’t cause for concern. Netwealth is a technology-focused platform disrupting the industry with a long runway of growth ahead. But it is worth looking deeper into the financials to see past the headline numbers.
To keep up to date with Reporting Season 2021, check out the dedicated Rask Media hub for daily updates.
