Strong Momentum
Shares in investment platform, Praemium (ASX:PPS) reacted adversely to its rejection of Netwealth’s $ 1.50 per share takeover offer and its half-year result. However, the share price of Praemium advanced 16.10% on 19 April 2022, following a positive March quarter update from the company.
Praemium released a robust quarterly result with funds inflows across its Australian platforms. Management is confident and expects to continue its strong growth for the remainder of FY22. The divestment of its international business to Morningstar is still right on the track. We will review these updates in today’s report.
3Q22 Results Review
For the three months ending in March, Praemium (ASX:PPS) achieved quarterly net inflows of $725 million, representing an 82% increase on the prior corresponding period (pcp), but a fall of 42% from the December quarter 2021. The Australian business had a significant increase in net inflows to $446 million, compared with $45 million on pcp. But its international business dropped to $279 million from $353 million on pcp.
In addition, Praemium reported financial year to date net inflows of $3.6 billion, representing a 112% increase on pcp of $1.7 billion. The Australian business almost tripled its performance to $2.6 billion, from $0.9 billion on pcp. The international business also increased from $0.8 billion on pcp to $1.0 billion.
Praemium’s international businesses underperformed its Australian business. Thus, divesting the international operation to Morningstar is a smart move, allowing Praemium to focus on the domestic core business in the future, in our view.
Total funds under administration (FUA) came to $47.7 billion, reflecting a 26% lift in the past 12 months underpinned by market-leading functionality in key areas. FUA on the Australia Platform went up 23% on pcp to $20.7 billion, while FUA in International operation surged by 28% to $5.6 billion over the same timeframe. FUA in non-custodial Portfolio Administration and Reporting Service VMAAS stood at $21.4 million, up 28% compared to pcp.
Praemium (ASX:PPS) noted that the solid net platform inflows for the March quarter were offset by the FX impact. This relates to a higher Australian Dollar to Pound Sterling exchange rate and negative market movements on FUA.
“This shows Praemium is delivering on our strategy to become one of Australia’s largest independent specialist platform providers. It was also very pleasing to add a further $362 million into our highest revenue margin product the Praemium SMA scheme, which is a record net inflow for a third quarter,” said Praemium CEO Anthony Wamsteker.
Mr Wamsteker also said the company could become a leading platform provider and projected continued FUA and revenue growth for the remainder of FY2022 with a strong pipeline of new business opportunities. We think management at this point is very confident, and we believe 2022 will be a good year for Praemium with a prosperous outlook.
Outlook
Praemium has invested significant amounts in its software and related platform technology. It is still at the level of scaling up and could still see some sizeable ‘cash-burning’ on this front.
On 31 December 2021, Praemium had a strong balance sheet with cash reserves of $19.4 million. The cash reserves, together with the proceeds of the $65 million divestment of its international business to Morningstar, should give it some support which we expect to see complete in Q2/Q3 this year.
Praemium’s net inflows to FUA ratio increased from 1.05% pcp to 1.52% last quarter. And we are also seeing net inflows growth into the platform of advisors shifting client money across each quarter. We think Praemium’s fundamental business is very strong at this point.
Meanwhile, we still expect to see Praemium (ASX:PPS) a higher market share penetration in the Australian market and more M&A offers of Praemium’s Australian business in the future.
Furthermore, the rising RBA official cash rate will potentially boost Praemium’s fixed interest income, as well as its proprietary cash transaction margin from FY23.
Overall, Praemium (ASX:PPS)shares are now attractively priced, given the long-term growth potential, so we retain our recommendation as a buy for Members without exposure. It will remain firmly held in the Fat Prophets portfolio.
Disclosure: Interests associated with Fat Prophets hold shares in Praemium (ASX:PPS). The Praemium platform is also used by Fat Prophets Wealth Management.
