It has been a disappointing start to the week for the Netwealth Group Ltd (ASX: NWL) share price.
The superannuation platform provider's shares sank around 7% to $8.78 on Monday following the release of its full year results.
Here's how Netwealth performed during the 12 months to June 30 compared to a year earlier:
- Platform revenue up 34.3% to $81.5 million.
- EBITDA rose 69.7% to $42.3 million.
- EBITDA margin expanded from 40.7% to 50.8%.
- NPAT jumped 72.7% to $29 million.
- Earnings per share of 8.96 cents.
- Funds under administration (FUA) climbed 40.9% to $17,960 million.
- Funds under management (FUM) rose 82.1% to $2,846 million.
- Outlook: Flat margins and continuation of pricing competition.
The key driver of Netwealth's strong performance in FY 2018 was the growth of its FUA and FUM.
FUA net inflows were $4.2 billion in FY 2018. FUA net inflows increased 7.4% over the previous year or 34.5% when you exclude a significant one-off client transition from the prior corresponding period. This was notably higher than its prospectus forecast of $2,500 million.
FUM rose 82.1% or $1,283 million to $2,846 million. This put its FUMs well ahead of its prospectus forecast as well. Management had originally been targeting FUM of $2,473 million.
Also beating its prospectus forecast was its platform revenue/average number of accounts metric. Management had been targeting $1,404, but delivered $1,405, up 9.1% on a year earlier.
Outlook.
Management hasn't provided any real guidance for FY 2019 but warned that it expects a continuation of pricing competition. However, it believes its superior service and platform functionality, combined with its competitive pricing, puts the company in a very strong position to compete and succeed.
Furthermore, thanks to the benefits of scale, continued improvements in operational processes, and automated technology, management expects any pricing compression to be offset and lead to an EBITDA margin in line with what it achieved in FY 2018.
Should you invest?
Based on this result Netwealth's shares are trading at 97x full year earnings, which I think is a touch expensive.
Especially given the increased pricing competition in the industry right now after Westpac Banking Corp (ASX: WBC) owned BT Financial Group slashed the prices of its products.
As a result, I intend to sit this one out until I've seen its half year results and the impact competition has had on FUA, FUM, and margins.
