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Netwealth share price up 5% after delivering strong half year profit growth

In afternoon trade the Netwealth Group Ltd (ASX: NWL) share price is on course to start the week on a positive note.

At the time of writing the investment platform provider’s shares are up 5% to $7.34 following the release of its first half result.

What happened in the first half?

For the six months ended December 31, Netwealth grew its half year revenue by 19% to $48.2 million and underlying half year EBITDA by 21.2% to $24.8 million.

Underlying half year net profit after tax came in at $17 million, which was an increase of $3 million or 21.2% on the prior corresponding period.

A key driver of this growth was an increase in its funds under administration (FUA). Net inflows for the half year were $1.9 billion and market movement was negative $0.9 billion. This resulted in FUA climbing to $19 billion at the end of the half. Over the 12 months FUA increased $3.6 billion or 23%.

The good news for shareholders is that its FUA is still only scratching at the surface of a massive market opportunity. Management estimates that it has a 2.2% share of a market worth an estimated $860 billion. And given the continued shift towards specialist platforms, it believes it is well-positioned to continue this growth over the long-term.

Westpac Banking Corp (ASX: WBC) and its BT business lead the way with an 18.4% market share, closely followed by AMP Limited (ASX: AMP) with a 17.4% share, and Commonwealth Bank of Australia (ASX: CBA) and its soon to be offloaded subsidiary Colonial First State with a 14.9% share.

Outlook.

Management advised that its new business pipeline continues to grow and expects it to convert into inflows throughout 2019. Especially after a number of advisers and intermediaries recently selected Netwealth as their preferred platform against incumbent platforms.

In addition, the company expects an acceleration of advisers exiting larger institutions and selecting new platforms.

In light of this, and subject to the timing of new large client transitions, the company remains confident that its full year FUA net inflows in FY 2019 will be greater than in FY 2018.

Should you invest?

I’m a big fan of Netwealth and believe it could have a bright future ahead of it if there isn’t a price war amongst the investment platform providers.

At 50x estimated forward earnings its shares are a little expensive for my liking, but it could of course grow into its current valuation if it continues with this strong form. I’m going to keep my powder dry for now, but I’ll be keeping a close eye on its progress.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of Netwealth. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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