Specialist platform flows surprising to the upside
The ASX-listed specialist wealth management platforms are showing no signs of slowing momentum, with all three players delivering record net inflows over the September quarter (1Q22), coming in materially ahead of market expectations.
Strong platform flows predominantly reflect continued market share gains and the tailwinds from industry change; financial advisers leaving aligned groups for independent firms increasingly value the superior technology and service provided by the specialist platforms. While investors will continue to worry about high valuations, competitive pricing pressures and reaching peak flows…based on the first quarter 2021 updates and outlook commentary, inflows may very well stay stronger for longer.
Netwealth Group (ASX:NWL; $4.3 billion market cap) reported Platform custody Funds Under Administration (FUA) of $52.0 billion as at September 2021, growing 10 per cent on the June quarter which represents 53 per cent annualized growth. Platform growth in 1Q22 was driven by $4.0 billion of net inflows ($3.1 billion excluding $0.9 billion from two large clients which attract lower fees) as well as positive market movements. NWL added almost 5,000 new platform users over the quarter (up 5 per cent on 4Q21) to finish September with 102,304 accounts. Management noted that the ongoing structural changes within the financial services industry continue to support and increase NWL’s addressable market and growth opportunities with the pipeline for new business remaining very strong across all market segments. On the back of stronger than anticipated 1Q22 inflows and the robust outlook, NWL upgraded its FY22 net flow guidance by 25 per cent to $12.5 billion (this still appears conservative considering the first quarter tends to be seasonally weak). Interestingly, on the investor call Management were asked their views on peak flows; their response was not yet…NWL sees an environment supporting of strong flows over the next three to five years considering so many different factors are driving momentum. These include adviser churn, incumbents struggling with compliance, brand and technology issues and specialists driving innovation and broadening functionality and capabilities to target more of the market.
HUB24 Limited (ASX:HUB; $2.3 billion market cap) reported 1Q22 Platform custody FUA of $45.4 billion, up 9.5 per cent on the prior quarter (38 per cent annualized) driven by $3.0 billion of net inflows and positive markets. The number of advisers using the HUB24 platform increased by 158 (5.2 per cent on the prior quarter) to 3,221 at September end. Management noted that the new business pipeline continues to grow with 30 new licensee agreements signed during 1Q22 while inflows have commenced to the IOOF private label platform which was launched last quarter. At the August results, HUB provided a $63-70 billion FY23 FUA target…the current run-rate of $3.0 billion quarterly flows implies c.$66 billion by FY23 assuming flat markets. So clear upside risk exists when we consider seasonality and potential for further new client wins. A few days after the 1Q22 update, HUB announced the proposed acquisition of Class Limited (ASX:CL1), a market-leading SMSF administration software provider, to accelerate it’s ‘platform of the future’ strategy and further strengthen the company’s competitive advantage.
Praemium Limited (ASX:PPS; $0.6 billion market cap) reported Australian Platform custody FUA of $19.9 billion in 1Q22, up 8.4 per cent quarter on quarter (33 per cent annualized) driven by $1.25 billion net inflows (comprising $660 million for the Praemium SMA scheme and $589 million for the Powerwrap scheme) plus favourable markets. Encouragingly, the ANZ client transition is almost complete while Management highlighted a solid pipeline of opportunities to support future growth and to deliver against PPS’ strategy of becoming one of Australia’s largest independent specialist platform providers. On the proposed divestment of the sub-scale International business (which also delivered strong 1Q22 inflows of $407 million), PPS noted that the formal sales process has moved to the due diligence phase with short-listed parties. A further update can be expected at the November AGM.
The Montgomery Small Companies Fund owns shares in HUB24 and Praemium. This article was prepared 21 October 2021 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade these companies you should seek financial advice.
Dominic Rose is the Portfolio Manager of the Montgomery Small Companies Fund. Dominic joined Montgomery in August 2019 after spending thirteen years specialising in smaller companies in portfolio management and equities research. Most recently, Dominic was a Portfolio Manager and Senior Research Analyst at MHOR Asset Management in Sydney for three years. Prior to this, he ran Deutsche Bank’s Small Caps Equity Research Team in Sydney for six years. He was also previously Head of Research at Foster Stockbroking.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
