Netwealth Group Ltd (ASX: NWL) shares have endured a tough 12 months.
However, a new report from Bell Potter indicates it could now be a considerable value opportunity.
The positive outlook has come on the back of a key announcement from the company yesterday.
Netwealth Group is a financial services and technology company.
It provides a wide range of products and services to the Australian financial investment industry, including cloud-based investment administration software as a service (SaaS), a retail superannuation fund, and an administration business.
Image source: Getty Images
What did Netwealth announce?
As reported by my colleague Laura Stewart yesterday, Netwealth announced it will acquire Paradino, an AI-enabled adviser workflow automation business, for a total upfront consideration of $20 million.
Netwealth will also invest an additional $10 million over two years to support Paradino's growth and technology development.
For investors, the main takeaway is that the acquisition of Paradino will significantly strengthen Netwealth's adviser platform capabilities.
While Netwealth has historically focused on platform administration and implementation, the deal brings advice workflow automation and specialist AI engineering expertise in-house, expanding its ability to deliver technology-led solutions to advisers.
The full release can be found here.
Bell Potter cautiously optimistic
Following the release, the team at Bell Potter updated its outlook on Netwealth shares.
Bell Potter views the acquisition positively from a strategic perspective, seeing Paradino as a differentiated opportunity for Netwealth to expand further into adviser workflows and the broader advice value chain.
The strong subscriber growth, low churn, adviser productivity benefits, and significant cross-sell opportunity across Netwealth's adviser base support the rationale.
However, Bell Potter notes that Netwealth is paying a relatively high price for Paradino, which is currently losing money. With no clear path to profitability yet, the success of the deal will depend on how well Netwealth executes its growth plans.
Big upside intact for Netwealth shares
The good news for investors is that Netwealth shares have been heavily sold off over the last 12 months, and now present a long-term value.
At the time of writing, Netwealth shares are trading at approximately $18.77. This is almost 40% lower than a year ago.
Following yesterday's announcement, Bell Potter has a buy recommendation and a $30 price target.
This indicates almost 60% upside from current levels.
The impact from Paradino is limited. There is 10% adviser growth straight away and the price tag is fair for what could be a transformational strategic move.
Trading on 33x, NWL continues to offer strong revenue growth potential at a discount to its prior TTC valuations.
