Daily notes – Netwealth, AMP

Netwealth (NWL) – Growth slowing?.. AMP Limited (AMP) – Where to from here?..

Netwealth (NWL) – Growth slowing?

Netwealth reported December quarterly FUA flows that showed that inflows had slowed from the previous quarter and the prior corresponding period. Total FUA actually showed a small decrease during the quarter of 1.5% due mainly to negative market movements of $1.2b, offset by inflows of $876m. This is something not seen for some time.

The company remain “confident of continued strong growth resulting from the significant competitor and industry changes that are occuring”. And this really is the whole story.

Netwealth currently has a 2.2% share of the platform market. This market is concentrated by any measure, with the top 5 participants controlling a ~75% share. Yet over the 12 month period to September 2018, they were able to win 51.4% of total platform market flows ($4.4b).

This is a remarkable statistic. New money being allocated to platforms is not going to the incumbents (BT, AMP, Colonial, NAB, Macquarie) and the incumbents seem completely unable to combat this. So far they’ve been able to largely hang onto the FUA currently sitting on their platforms, which really is a testament to the stickiness of these revenue streams.

The big question is how the latest round of regulatory changes will affect the competitive environment and consumer perceptions of these businesses. Netwealth needs to continue winning an outsized portion of new platform flows in order to justify its valuation. It would be crazy for the incumbents to allow this to continue. They should be vastly outspending Netwealth on development, design, sales and services, which they can afford to do due to their size advantage. They should be offering sharper pricing. Anything to protect their strategic position. Westpac/ BT are starting to show their willingness to do just this. So far to no avail it would seem, but for how much longer?

AMP Limited (AMP) – Where to from here?

The negativity surrounding this company is palpable. Negativity mixed with uncertainty and frankly downright confusion do not a strong share price make. Obviously, this is a business in transition and management are attempting to simplify it by rationalising the portfolio of assets and balance sheet. Every announcement seems to bring more bad news. Today, another $105m in losses associated with a business that was sold in October last year as well as another $200m in advice remediation expenses which will almost entirely wipe out the profit for the year.

More worrying is the fact that the retained businesses seem to be in drawdown – $404m profit in H1 falling to $280m in H2, with another $160m in additional expenses expected in FY19. It’s unclear whether these expenses are one offs or will be recurring.

AMP as a consumer brand is damaged beyond repair. As mentioned in the note above, retail wealth management revenue is sticky but everything has its limits. It’s unlikely that the damage done during the royal commision can be undone. This is not to say that there’s no value in the component businesses, however management needs to act fast to protect this value. I’m not altogether sure that they have it in them or whether the culture of the company will allow it.