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Netwealth (ASX:NWL) share price rises after second guidance upgrade

The Netwealth Group Ltd (ASX: NWL) share price is moving higher today after the company increased net inflow guidance for the second time in as many quarters.

Key highlights from the second quarter ending 31 December include:

  • Funds Under Administration (FUA) of $56.6 billion, increasing $4.7 billion quarter-on-quarter (QoQ)
    • Net inflows of $3.6 billion
    • Positive market movement of $1.1 billion
  • Funds Under Management (FUM) of $13.8 billion, increasing $1.2 billion QoQ
  • Managed account balance of $11.7 billion, increasing $1 billion QoQ
  • Number of accounts of 107,103, adding 4,799 new accounts over the quarter

Netwealth continues to lead the industry in net inflows. Subsequently, its market share has surpassed materiality (greater than 5%) to 5.2%.

Looking over the past 12 months, Netwealth has increased its FUA by 46.0%, net inflows by 40.9% and accounts by 21.4%.

Double-edged sword

Netwealth noted it holds 6.1% of its client assets in cash.

The company receives interest on this cash, for which it passes some onto its client and keeps the remainder as revenue.

Given record-low interest rates, the interest revenue derived from cash accounts has been decreasing over time.

But with the US Federal Reserve positioning the market for numerous rate rises over 2022, this trend will begin to reverse.

Overall this is a positive for Netwealth, as it will be able to earn greater interest on cash accounts as interest rates rise.

“In the event that the Reserve Bank of Australia rates return to 50 basis points, we would expect our margin to exceed the 105 basis points we are currently receiving”

However, it also has a downside effect. Higher interest rates will likely lead to lower asset prices, whether it be bonds, property or shares.

Subsequently, Netwealth could see its total FUA fall over 2022, reducing its administration fees.

The fall would be softened by net inflows. Nonetheless, interest rates increases remain a double-edged sword for Netwealth and its peers.

Second upgrade for FY22

Providing commentary on the remainder of FY22, management noted Netwealth’s customer pipeline and win rate remain strong.

Subsequently, the business is upgrading FY22 net inflows guidance to $13.5 billion.

It’s the second upgrade in as many quarters. Previously Netwealth upgraded net inflows guidance from $10.0 billion to $12.5 billion in the September quarter.

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