Netwealth Group
Beyond the ticker
Netwealth Group ASX: NWL
Please read disclaimer at the end of the document
Introduction
Founded in 1999, Netwealth is one of the fastest growing wealth management businesses in Australia. They are a technology company, a superannuation fund, an administration business.
1.0 Focus Point
The focus point for Netwealth group is the 49.98% ownership by Heine Brothers Pty Ltd. Sitting on the board and being the majority shareholder they have most of the power in Netwealth group.
2.0 Financial Statement Breakdown
2.1 Majority shareholders
2.2 Directors and Executives
Jane Tongs - Independent Non-Executive Chairman
Jane has been on the board since April 2000, prior to that she was a partner at PWC specialisng in financial services. Jane is also currently a director of Cromwell Property Group, Warakirri Group, Hollard General Insurance and Brighton grammar School. Jane has a Bachelor of Business and an MBA as well as being a fellow of the Institute of Chartered Accountants.
Michael Heine - Joint Managing Director
Michael has been the Managing Director since 1999, and joint Managing Director with his son since 2014. Before Netwealth Micheal helped establish Heine Brothers fund management in 1982 until it was acquired in 1999 by ING.
Mathew Heine - Joint Managing Director
Mathew joined netwealth in 2001 and has been a director since 2004 and Managing Director since 2015. Mathew holds a Diploma of Financial Services and an Advanced Diploma of Management.
Davyd Lewis - Independent Non-Executive Director
David has been a director since 2009 before that he was a partner of Mallesons Stephen Jaques for 20 years working throughout the organisation He has a Bachelor of economics, a bachelor of Laws and a master of Laws.
Timothy Antonie - Independent Non-Executive Director
Timothy has been a director since 2015. He started his career at PWC and has worked at several Investment banks. Timothy is currently a director of Breville Group Limited and Premier Investments Limited.
Sally Freeman - Independent Non-Executive Director
Sally is the newest director appointed in 2019. She was a partner of KPMG for 15 years and prior to that was a partner at Ernest and Young. Sally holds a Bachelor of Commerce.
Board Rating - 70 /100
3.0 Operations
Netwealth group offers the following financial products:
Superannuation
Investor directed portfolio services for self managed super and non-super investments
Managed accounts
Managed funds
The revenue breakdown is depicted below.
Key takeaways from FY2020
Increased average account size by $62,000
Addition of 10,380 accounts (14.5% growth)
$31.5B Funds under administration (+35%) inflow growth (+109.5%)
$7.3B Funds under management (+84.4%) inflow growth (+312.4%)
4.0 Exposures
Netwealths biggest exposure is markets and the wider economic performance. A significant decrease in assets will impact revenue streams heavily.
Netwealth also has a large exposure to the decision making of its investment team. Poor performance from their funds under management and they could lose clients and turn potential customers to the competition.
5.0 Technical Analysis
From 2021 – current date, NWL holders have experienced gains of over 85% from capital gains alone. Although those fingers are nothing to complain about, the price action has been rather scattered. Since August 2020, there have been four major gaps which should be taken into consideration for traders wanting to gain exposure into Netwealth. Although long term holders might capitalize on rapid price changes (gaps), they can catch inexperienced traders off guard and result in huge potential losses (or gains). For this reason, we consider CWL shares to be risky based on the multiple, significant gaps explained underneath.
Point A
Point A represents the first major gap experienced in august 2020 and resulted in a high of 12.5% gain on the day. This gap was later filled as is illustrated by the arrow point to Point F.
Point B
Point B signified the second major gap which occurred in October 2020 which resulted in a high of the day being 9% higher than that end of day price for the day prior.
Point C
Point C shows the third major gap which was once again a gap up and hit highs of 5.7% over the previous day.
Point D
Point D was the fourth and final noticeable gap and resulted in a total decrease of 16% at the low of day.
Pont E
Point E illustrates the current share price for Netwealth and shows how close price action is to major resistance (Point H). Usually this would be a sign to either reduce / exit a long position or enter a short position as the share price is approaching major resistance, however, due to the low relative volume, price action may consolidate and completely neglect the evident resistance. It would be wise to ‘hold’ at this point in time as there are no catalysts or volume indication.
6.0 Competitors
7.0 Recent Market Sensitive Information
Netwealth strategic investment in Xeppo – 12th September 2020
Netwealth announces strategic partnership with Xeppo. Xeppo is a fintech data solutions provider that focuses on solutions for the financial services industry including accounting, financial planning and SMSF administration. Netwealth stated that their investment would enable them to better manage client relationships and create new revenue opportunities. The investment consisted of an initial 25% equity stake and has an option to increase their investment to 50%.
December 2020 Quarterly business update – 21st January 2021
Netwealths quarterly update was fairly positive as can be seen by the following increases. Netwealth stated that Funds Under Administration increased by $4.8 billion. FUA net inflows saw an increase of 33.7% to $2.6 billion as well as Funds Under Management increasing 15.5% which resembled growth of $1.3 billion for the quarter. Additionally, Netwealth advised that their FY2021 net inflows were expected to be between $8.5 billion - $9 billion compared to their previously advised inflow of $8 billion. As a result, NWL shares increase 11.7% for the day.
Change in deposit arrangement – 25th March 2021
Netwealth stated that the official interest rates reduced to 10bps, resulting in substantial liquidity to the banking sector at historic low rates. Due to this and the reduced cost of funding for banks, their agreement with ANX in relation to the interest payable on the pooled cash transaction is to be terminated in the coming 12 months. The agreement provided a margin of 75bps above the cash rate and will continue for 12 months.
8.0 ESG
Netwealth has received an unbelievably high CSR / ESG rating of 27/100
8.1 Environment
Netwealth group makes no effort to address Environmental concerns or filter their investments for environmentally sustainable companies.
8.2 Social
Netwealth targets a diverse workforce, currently women represent 44% of all employees, 36% of managers and 33% of senior executives. These numbers could use some improvement but they are no cause for concern.
8.3 Governance
Please refer to 2.2.
9.0 Conclusions
There is nothing that gives me more confidence in a company than a strong insider holding. Having the Heine brothers own almost 50% of all outstanding shares acts as a huge confidence boost to shareholders. In my opinion, Netwealth is a company that will deliver year on year and has done for the past couple of years, however I do believe their current valuation is not considered a bargain. Additionally, the relatively low dividend yield is rather unattractive. I rate NWL a hold. - Che
I am a short term hold and a long term buy for Netwealth group. They are a strong performing growth company, I think there is room for them to grow still. They posted incredible results for FY20 and if that continues the sky's the limit. I am a short term hold due to the technical analysis we performed, there is potential to get a better price in the short term. However, picking the bottom is near impossible. Watch the performance closely as soon as they stop growing the share price will quickly follow. - Thomas
Disclaimer
Advice in the Material is provided for the general information of readers and viewers (collectively referred to as "Readers") and does not have regard to any particular person's investment objectives, financial situation or needs. Accordingly, no Reader should act on the basis of any information in the Material without properly considering its applicability to their financial circumstances. If not properly qualified to do this for themselves, Readers should seek professional advice.
Investing and trading involves risk of loss. Past results are not necessarily indicative of future results.
The decision to invest or trade is for the Reader alone. We expressly disclaim all and any liability to any person, with respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance upon the whole or any part of the Material.
