The Praemium Ltd (ASX: PPS) share price is packing its bags and taking a trip to the downside on Monday.
The disappointing price action follows the release of the investment platform's FY22 half-year results.
At the time of writing, Praemium shares are swapping hands for $1.085 apiece, down 11.4%.
Let's take a closer look at the company's results.
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Praemium share price plunges as earnings swing to a loss
- Revenue up 25% from prior corresponding period to $39.2 million
- Record funds under administration (FUA) of $49 billion, increasing 43%
- Record net platform inflows of $2.9 billion, representing an increase of 87%
- Underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) of $7.5 million, up 6%
- Net profit after tax (NPAT) swings from $2.8 million to a loss of $2.6 million
- Maintained cash reserves of $19.4 million at the end of the December period
What else happened during the half?
For the six months ended 31 December, Praemium achieved record FUA and platform growth, taking the company to $49 billion in FUA. This result is partly boosted by the inclusion of a full six months worth of revenue from the Powerwrap acquisition.
Additionally, the financial services company witnessed higher growth in FUA in its international platform than its Australian platform. For reference, the international platform experienced a 58% jump, compared to the Australian segment's 28% increase.
However, as announced on 21 December 2021, Praemium is offloading its international business to Morningstar for A$65.1 million. Shareholders were relatively unfazed by the news at the time, with the Praemium share price moving a mere 2% higher.
Shareholders might be unsettled by the swing back into loss-making territory in the latest half. This marks the first time Praemium has made a loss on the bottom-line since 2015.
According to the half-year report, this reflects an increase in expenses in "key investments" in operations; sales and marketing; and research and development. The largest of these expenses was a $12.3 million investment in operations, representing a 31% increase.
What did management say?
Commenting on the result, Praemium CEO Anthony Wamsteker said:
The first half of FY2022 saw continued strong growth in revenue, reflecting the ongoing success of our investments in people and technology, including the recent acquisition of Powerwrap. Following another half year in which we significantly expanded the size of our team in order to further improve the underlying proprietary technology and client service levels, we are confident that our strong growth will continue.
Regarding the sale of Praemium's international business, Wamsteker noted:
The sale of our International business segment to Morningstar should provide all our stakeholders with confidence in our ongoing strategy. It allows a dedicated focus on our home market in Australia whilst the quality of the acquirer ratifies our underlying platform and technology.
The ability to now focus exclusively on the Australian platform market at a time of a major shift from incumbents to independent challengers and in the expectations of advisers and clients regarding the range of assets to be managed in one place, creates strong alignment between our strategy and our opportunity.
What's next?
Praemium remains confident in its future prospects, citing further tailwinds for independent wealth management platforms. Namely, the push from new regulations, a generational shift in advisors, and growing wealth among high net worth individuals.
Additionally, the company believes there is space for further disruption in the market. Currently, Praemium holds a 2% market share.
Finally, Praemium is expected to complete its sale of the international business during Q2 or Q3 of 2022. Any surplus proceeds from the sale are to be returned to shareholders.
Praemium share price snapshot
It seems the Praemium share price has gotten off on the wrong foot in 2022. Shares in the company are down 26% since the start of the year. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is 4.8% in the red, making it the better performer.
Despite the pullback, Praemium shareholders are still up 33% in the last 12 months.
