Netwealth (ASX:NWL) share price drops 5% on FY21 earnings

The financial services giant's share price has taken an early hit after the company reported its FY21 earnings today.

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The Netwealth Group Ltd (ASX: NWL) share price is down in the red this morning as the Australian superannuation and fintech firm reported its FY21 earnings.

In early trading, the company's shares are selling for $14.26, a fall of 4.68% on yesterday's closing price.

Let's have a closer look at Netwealth's FY21 results.

Netwealth share price falls on NPAT growth of 23.9%

Netwealth illustrated a number of progress points in its report from the year prior, underlined by earnings growth and margin decompressions:

  • EBITDA of $79.3 million, a 19.9% year on year increase
  • EBITDA margin increase from 53.4% to 54.8%
  • Net profit after tax (NPAT) of $54.1 million, a $10.4 million or 23.9% year on year increase
  • Platform revenue up 17% year on year to $142 million
  • Total income of $144.9 million, an increase of $21 million or 17%
  • Funds under administration (FUA) increase by 49.6% to $47.1 billion
  • Declared fully franked final dividend of 9.5 cents per share, representing a total FY2021 dividend of 18.56 cents per share, a 26.3% increase on the year prior.

What happened in FY21 for Netwealth?

In a positive news, the company reported strong earnings and revenue growth for FY21.

To illustrate, platform revenue expanded by 17% year on year, whereas NPAT for the FY21 came in approximately 24% higher.

Moreover, Netwealth also increased its headcount by 63 during the year to 402. Of this number, there was an additional 43 "resources" in the tech team.

In addition to the 50% increase in FUA from FY20, the firm also realised record FUA net inflows of $9.8 billion for the year.

This coincided with a 9% increase in transaction fee revenue due to growing scale, which came in at 12% of platform revenue for FY21. Netwealth explains this is underscored by "higher trading volumes" and "additional revenue streams", alongside "improvements in trading margins".

Netwealth also increased its total number of accounts by 19% year-over-year and saw the number of financial intermediaries using its platform grow by 10%. As a result, its average account size increased to $481,000 from $385,000.

Furthermore, the company recorded the largest quarterly FUA inflows for its Plan For Life platform of $2.3 billion, which is the "highest 12-month net fund flows for the thirteenth consecutive quarter" in this segment.

Finally, as per its update, Netwealth was the "6th largest platform provider" operating in the market, with a "market share of 4.6%, up 1.0% for the year".

What did management say?

Joint managing directors Michael and Matthew Heine said:

We continue to gain industry recognition as the leading specialist platform provider. During the year we achieved the highest overall satisfaction score among primary users for the tenth year in a row according to research by Investment Trends.

Moreover, touching on the firm's strategy walking forwards, the pair added:

We are confident of sustaining our growth momentum into the future by positioning ourselves to benefit from the significant changes currently reshaping the industry and our continued and increasing investment in technology, features, functionality, and service.

What's next for Netwealth?

Netwealth estimates its FUA inflows for FY22 to sit at approximately $10 billion, whereas it sees no "material change" to admin fee margins.

Moreover, it advises that FY22 "has begun very well, with strong inflow momentum continuing" with FUA at $49.7 billion by 16 August.

In addition, it claims its financial position is robust due to a combination of factors such as a "very high correlation between EBITDA and operating cash flow" and equally as high levels of recurring revenue.

As such, in FY22 the company is "strategically stepping up" its investment in "people and technology" as part of its growth vision.

Prior to today, the Netwealth share price had posted a loss of 6% over the year to date. Despite this, Netwealth shares are 6% in the green over the last 12 months.

These results have lagged the S&P/ASX 200 index (ASX: XJO)'s return of around 25% over the last year.

The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Netwealth. The Motley Fool Australia owns shares of and has recommended Netwealth. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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