Netwealth Group Limited

NWL Details

Modified Deposit Arrangement: Net Wealth Limited (ASX: NWL) is engaged in the superannuation master fund’s administration and its services, portfolio investment services to clients and intermediaries via its digital platform. As of 26 March 2021, the market capitalisation of the company stood at ~$3.35 billion. NWL has informed the market regarding the Reserve Bank of Australia’s (RBA) decision to reduce 10 basis points (bps) in the interest rates. On the above backdrop, NWL mentions that its agreement with ANZ (The Australia and New Zealand Banking Group Limited) regarding the interest payable on its pooled cash transaction account is ending on 24 March 2022. NWL is in talks with ANZ and other banks for an alternate deposit rate and facility. It also affirms its debt-free status and strong financial standing along-with the above news.

A Look at the 1HFY21 Results: The company reported an increase of $23.4% YoY in revenue to $72.4 million for 1HFY21, due to platform revenues of $71.2 million during the reporting period. For 1HFY21, NWL registered growth in FUA (Funds Under Administration) to $38.8 billion and in FUM to $9.3 billion, up by 62% YoY.  Its net profit after tax increased by 34.5% YoY to $27.61 million during 1HFY21. NWL has paid a fully franked final dividend of 7.80 cents per share for FY20 and declared an interim dividend of 9.06 cents per share for 1HFY21, with a payment date of 26 March 2021. It held a cash and cash equivalents balance of $79.81 million as of 31 December 2020.

1HFY21 Financial Highlights (Source: Company Reports)

Risks: NWL is exposed to credit, liquidity and interest rate, and market-related risks on its cash flows and instruments due to its business' financial nature. It also faces the risk of market uncertainty and volatility in the earnings caused by COVID-19 led uncertainties.

Outlook: NWL has a robust pipeline of new business and transitions for FY21. Given no significant adverse impact on the financial markets and the timing of transitions, NWL estimates FUA net inflows between $8.5-$9 billion for FY21.

Valuation Methodology: Price to Earnings Based Market Multiple Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of NWL gave a negative return of 10.09% in the past three months and a negative return of 3.97% in the past six months. The stock currently trades higher than the 52-weeks’ average price level of $5.79-$18.71. The stock of NWL has a support level of ~$13.565 and a resistance level of ~$15.078. We have valued the stock using a 3-years average Price to Earnings market multiple method (considering some premium to its three years’ average P/E multiple, due to decent financial performance of NWL in 1HFY21, growth in FUA, decent operating net cash flows, and robust pipeline of new business) to FY22E consensus EPS of $0.270 have arrived at an indicative target price of lower double-digit (in % terms). Considering the growth in FUM and net inflows, the increased earnings and revenue in 1HFY21, decent outlook, a stable balance sheet with the absence of borrowings, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $14.250, up by 3.410% on 26 March 2021.

NWL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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