Praemium Ltd

ASX:PPS

Earnings Call Analysis

Earnings Call Transcript 2024-Q4

[Anthony Wamsteker, executive]

Welcome, everyone. Thank you for joining the call for our quarterly update on funds flow and funds under administration. I'm here with David Coulter, and we'll just take you through the high-level overview and some of the detail in the results.

Let me start by acknowledging the Traditional Custodians of Country and pay my respects to their Elders past, present and emerging for they hold the memories, traditions and culture of First Nations' People.

I'll put up the usual disclaimer there. I won't read through that, but it is in the presentation that is loaded into the ASX website.

As I said, David and I will take you through our high-level overview of where we're at in terms of the business strategy and then some of the detail on the quarterly flows and where we are in terms of annual growth rate. And then we'll take some questions, which there are some coming through already.

Now this slide on the strategy, we go through this each time we talk. There's -- as many of you have heard me say, there's at least 7 significant releases we have to the market. These are quarterlies, which has 4 a year, of course; the half yearly; and full year results; and then the AGM. But each time, we take the opportunity to reiterate what our strategy is and where our focus is in terms of the strategy for 2 reasons. One is, obviously, to give an update about how we're going on the key strategic initiatives but also in order to reassure shareholders that our strategy is consistent. We're not chopping and changing. It's not tactical, although there are tactical elements. But really, our strategy is a long-term strategy to take advantage of what we're seeing in the market and what we regard as our strengths and capabilities to serve the needs that are emerging in the market.

So on the -- first thing is our core areas in terms of our product. One is the platform side of our business, and the other is the noncustodial side of the business. And both of those we regard that we have leading position in some regards. Definitely in noncustody, we are not only leading in terms of the product offering, but we're also leading in terms of the market share that we have in what is a market that is somewhat fragmented. In some ways, our biggest competitor is back-office processes who are using Excel to manage portfolios. So our market share grows not just because we've got the best product but because more and more people are looking for the opportunity to outsource their back office administration on the noncustody side.

In terms of the platform, we continue to regard ourselves as having the preeminent product offering for the high net worth segment. And we intend to shore that position up further with the launch of our new IDPS, which is in its final stages.

In terms of the operations and making sure the operations are working well, the big thing that we've done over the last 3 or 4 months is get our revenue where it should be for the offering that we have. We felt we were somewhat under market, and so that became a high-priority focus in terms of the change management that we're putting through the business, and we're very pleased that we've launched that into the market. And whilst there's no financial presentation, we're sure that come the full year results release and the charts that we release associated with that, we will be able to see the fruits of what we've delivered there.

In terms of service, we have said consistently that whilst our service is adequate for what we do, it's not where we aspire it to be. As a high net worth platform, we're expecting to be dealing with high net worth clients and their advisers. We expect that we're dealing with people who have very high expectations on the service that they receive just as they get good service and everything else that they're doing in their lives. And so we aspire to have the highest standard of service.

It's a big objective. It's a big aspiration because the complexity of what we're dealing with is more than any other platform. Some of the assets that high net worth people want to hold are more complex to administer. And so we not only want to deal with complexity but continue to do that in a way that provides the best-in-class service.

In terms of superannuation, again, we're very happy with the progress that we're making. I must say, even though I'm going to talk about OneVue in a moment, that one of the good things we got with the OneVue business, you've heard me say again, we not only got a good client base and a good business, but we also got some very good people in OneVue superannuation field. So we're using that expertise to build out what we regard as the potential to significantly uplift our superannuation offering.

It's probably been a bit of a neglected area for us in the past because a lot of our funds under administration come from self-managed super. And self-managed super is, by its definition, self-managed. So it's not really for the platform provider to do that much in terms of the superannuation. But more and more, even high net worth clients are reliant on the superannuation system, and the retail super offering is a very important component of that.

So we regard that as a very big opportunity for us and the ongoing growth in superannuation, and the desire for people to have a superannuation offering that reflects high net worth characteristics is a big opportunity for us. And as I say, the capability that we've got with OneVue as well as Praemium gives us the foundation to build on that.

And finally, we have been on the lookout for acquisitions over the past 2 or 3 years since we divested the international business. David and I and others in our team have probably looked at circa 30 to 40 opportunities in some detail. That's not just discarding them straight away. OneVue is the one that stacked up and was clearly the most attractive opportunity for us, and we've walked away from all of the others. Some of them are probably still on the back burner, but we're very happy to have been able to focus on OneVue and what we're doing there.

Now I'm going to hand over to David in terms of the flow update, but I will just make this one overall comment. When you look at the flows, and David will talk about it in more detail than me, but there's a headline number and then there's the underlying state of the business. Now the headline number is adequate from our point of view, especially year-to-date. We continue to get the sort of funds flow that allows us to deliver on an expectation of double-digit growth in our business. And the double-digit growth, we talk about revenue growth. But obviously, the basis of the revenue growth is the size of the noncustody and custody business that we're administering. And we're getting double-digit growth in the assets under administration, both organically and through the OneVue acquisition.

So we're happy with the underlying. There has been some headwinds that have knocked about a little bit the headline number. We are conscious of that, but it's not causing us any great distress in terms of our aspiration to grow the business. And some of the steps that we've taken, in particular, the launch of the new IDPS gives us high level of confidence that we can continue to aspire [ to get ] double-digit growth revenue growth.

But I'll hand over to David to talk in a bit more detail. Thanks, David.

[David Coulter, executive]

Great. Thanks very much, Anthony. Look, all the numbers are on here, of course, presented in bullet point form. At the end of the presentation, you have the detailed tables that form part of the ASX release, which also gives a separate amount of color. And we're trying to convey it, of course, today in how we present the results, too. The comparisons here on this net flows and FUA slide are to March 2024. The ASX release itself goes into a little more detail than what's happened over the course of the year.

But in summary, the SMA continues to perform extremely well. It's a continual source of net funds inflow for Praemium. The most recent quarters had a conventional seasonal fluctuation in as much as the inflows have been very strong, but there's been a higher degree of pension outflow as people level up for the required pension drawdowns that they have to take relative to their, say, self-managed super fund and the rules that apply to those. And we've seen very often in the high net worth space that there's a rush in the month of June to draw down to match up to your pension requirements, and that's indeed happened to the SMA in this particular quarter, most prominently in June actually when we look at the numbers internally.

Powerwrap, we've been through on at least what the last call and several calls to, say, shareholders and other forums. And what's happening in Powerwrap is a repeat, albeit there's some volatility within quarters of the impact of advisers from a particular licensee departing, moving to essentially a closed shop [indiscernible], where they're taking their clients across to an analog solution. We stressed and we've done a lot of work to determine whether or not there's anything that is integrally part of Powerwrap that's causing this. And absolutely, the word is that, that is not the case. Powerwrap is a great solution for the ultra-high net worth, particularly within that licensee, and remains so.

Indeed, we've seen within certain clients that formerly were attached to these departed advisers, we're seeing that the inflow is returning. So it's not as though every single client for those advisers is destined to exit the Escala license. And there, we're seeing some reasonable green shoots, albeit this quarter has been a high level of outflow from the Powerwrap solution, principally as a result of the departed advisers.

I'd note also that if you look at the gross inflow numbers, and they're on the detailed slide again, Powerwrap has been remarkably consistent in the amount of inflow it's being able to attract. So this is an outflow story that is not to do with Powerwrap as a solution. It's to do with the ties we have to a particular client or advisory group.

OneVue has formed part of our stats for the first time this quarter having been acquired on the 15th of April. The level of outflow in OneVue is reasonably consistent with the level of [indiscernible] we observed when we did the detailed due diligence before acquisition. So it comes as no surprise to us [indiscernible] FUA as to what impact this has. The earn-outs for the acquisition are measured on organic growth or organic decline [ only nonmarket ] movement. So in terms of impact on earn-out, that will reduce the earn-out on a pro rata basis from all the stats we've put to the market previously.

And maybe I should have highlighted this first, but I'm going in the order we've got it on the slide. VMAAS as a solution is up 8% in the quarter line. So that continues to outperform even our best expectations really and the market overall. We're the clear leader in the provision of noncustodial. And we had some detail on that on the following slide.

Again, the comparisons here are to 31 March. The portfolio's numbers are up significantly in VMA. The portfolio numbers are up significantly in VMAAS. And as I referred to earlier, the FUA is up significantly in VMAAS for the quarter. The more interesting stat here is now for the course of the year, we've signed up 41 new client firms, which I think is one of the best years we've had. And the signing of Mercer was particularly noteworthy over the course of the year, having introduced 400 new portfolios, but also line us up with around $4 billion in FUA.

So we're the clear market leader, I believe, in this part of the market. There's no one anywhere near our FUA numbers and certainly no one anywhere near our portfolio numbers, which is where the revenue is generated for this particular service.

As I referred to earlier, here are the detailed tables. They are simply a replication of what is in the ASX release in more detail. They give you everything for the quarters. As I referred to earlier, noteworthy is the level of inflow on Powerwrap being remarkably consistent and also the remarkably consistent net flow performance in the flagship SMA product and OneVue having appeared in the statistics for the first time this quarter given the date of the acquisition.

So with that, that's the summary form. We are getting questions that we can see as presenters. As we went last time, what we'll try and do is not read out every question and then answer it. I feel like we'll probably get questions that have a very similar flavor to them.

[David Coulter, executive]

The first one we've got here is -- I won't even read out who it is from necessarily, but this one is from [ Cameron Brown ], asking us about the intention to pay dividends and be updated on that.

As Anthony noted at the start of the presentation, there's 7 significant data points to the market. We're providing our results on the 26th of August. And that result is not yet audited. So I think it would be more germane to talk about dividends when we get to that. We do have a dividend payment policy that's been adopted by the Board to pay at a range of NPAT, but it's a policy prescription, not necessarily a rigid floor and ceiling on the amount of dividends paid. We have stated before I put as a general principle that our preference is to pay fully franked dividends where we can return funds to shareholders and the buyback of shares being the second-order priority, which we've engaged in over the course of the year and brought close to $10 million in the most recent half, which is all, of course, published on ASX.

The second question concerns the product lineup, so I'll let Anthony answer that one.

[Anthony Wamsteker, executive]

Yes. Thanks for the question on -- with the launch of the next-generation IDPS, we would have 4 platform or schemes in the market being -- as well as the next-gen IDPS, Powerwrap, the Praemium managed account scheme and the OneVue IDPS, and that's right. And we are aware of it. The one thing I think it's important for everyone to understand in terms of the consolidation, we will consolidate down and we will have a much smaller range of schemes, making sure that we don't lose any functionality for the clients involved.

But that's not where the synergies are for us. The real synergy for us is running those schemes and running our clients on a single technology stack, and that's our highest priority. So we're realizing the synergies from getting onto a single technology stack, including OneVue, including the next-generation IDPS, including Powerwrap. That's where we've got the synergies already realized, especially in the case of Powerwrap, but going forward on the next-gen IDPS as well and OneVue.

So that's the most important game in our world. But in addition to that, there is some synergy in reducing the number of legal schemes. So that's the second-order priority, and we will be focused on that. But in addition to the platforms, we also run the noncustodial service on the same technology stack. So having a single technology stack is the priority for us, and we're able to do that because of the modular nature of the way we've set up our IP architecture.

[David Coulter, executive]

I think it's fair to reflect on that sort of streamlining of our services means we will focus again on the number of licenses we have and the amount of capital we have to hold against them over the course of the 2025 financial year. The acquisition of OneVue and back and forth with ASIC takes some time. So we did defer our initial collapsing of, say, Powerwrap and the Praemium SMA because we knew inevitably, we'd be bringing OneVue on. We knew that, not necessarily everybody else. And now that OneVue has joined the stable of companies, we'll be able to focus our efforts over the course of FY '25 on releasing -- well, maybe not releasing the capital but certainly lowering the capital requirements associated with the number of licenses we have.

There's another question here more on the timing of the IDPS rollout and whether or not all our clients will have access to it. Or would it be gradually rolled out? Again, I think that's one for you, Anthony.

[Anthony Wamsteker, executive]

Yes, good question. And it will be basically available to everyone relatively early on. Having said that, we will work with 1 or 2 clients to be the earliest transition to that. And so obviously, when we go live, we will have made sure that that's delivering on our aspiration not only for the product but for the service standards. And so there will be a little bit of bringing people on in some order so that we can deliver on the service standards that we aspire to.

The other thing, again, some of you have heard me say what are the big things that drive your sales, and product is one of the big 3 or 4. If you look at the big 4, the way we look at it, product, brand is another, service that we're delivering and the pricing are probably the 4 highest categories of drivers of sales and retention. And we're aware that our brand -- we've never invested as much in our brand as some other platforms, and that's appropriate. We're a smaller platform than many of our competitors. But we will be rolling out the new IDPS not just with a new -- as a new product, and we believe the best product in the market, high net worth advice in their clients, but we'll be making an effort to do that in a very high-profile way and lift our brand as part of that approach.

[David Coulter, executive]

Thanks. There's a question here on the quantum of price increases that we announced on 1 April or announced before that, I should say, and have put to our SMA product from 1 April.

What I would say on that is that the emphasis of the price increase was on trading and execution rather than a more predictable straight out administration fee as basis points to FUA. So it has some volatility in and of itself, depending on trading volumes. What we will do when we announce our results on the 26th of August is have the very detailed revenue basis points to FUA graphs that we produce for SMA, Powerwrap and indeed because we now own it, OneVue. So you will see transparently the impact of those price increases in the last quarter of the financial year. It's not appropriate to comment on them necessarily now, but they have been beneficial to the group overall, of course. But they're not predictable month-by-month going forward given that emphasis or reliance on trading and execution.

And then there is also now a question on -- and this is one for Anthony, I gather, as well. Comment on how much more of the outflows we expect from the adviser group for the departing advisers. Now we have made reference to that in the ASX release. But Anthony, any other...

[Anthony Wamsteker, executive]

No, just in the ASX release, I appreciate people might not have had a chance to read through all of that. But we've talked about the departed adviser flow is now up to about $1 billion. This is consistent with what we said in the past. Each quarter, we've said we're seeing a reasonably steady outflow from the departed advisers quarter-on-quarter. It's something like $0.25 billion. So with 4 quarters, that's now hit the $1 billion.

We've said we -- based on the rate of flow, we think it's prudent to think that's probably looked like it could have another 6 months to run. But it's -- as I've also said, there's a bit of crystal ball gazing there. There's a lot of action and reaction, if you like, amongst the advice firms trying to win the clients into the particular advice firm, and that's not always easy to predict. So we've made our best efforts to say, look, the rate of flow seems to be relatively steady at the moment, about $0.25 billion each quarter, $1 billion over the year. And it looks like it could have another 6 months or so to run.

[David Coulter, executive]

Thanks. Look, we've been asked another question on the pooled cash holdings through the quarter and what that looks like relative to peers.

My comment there is that it's not an allocation decision necessarily that we have any control over, how much cash is retained within a portfolio for a particular investor. But the SMA is up slightly. Powerwrap is down. And OneVue, in fact, has a higher allocation to cash than we've observed, and our other products is mostly the outcome of the type of investor that is best suited to those products.

If you think about an ultra-high net worth allocating more proportionately to interest -- sorry, yielding investments perhaps or to equities or to alternatives, the SMA being still high net worth but more towards the mass affluent segment of the market, and that being potentially an outcome from the way that they again need to liberate cash to an active drawdown later or looking perhaps to liberate some assets to trade. They're not decisions that we have any real insight into. And we know that we earn a reasonable margin if it's holding that cash, but principally that cash is held to enable that portfolio to trade.

And then with OneVue, we talked to the OneVue management team actually, that higher allocation to cash, and that's an observation made again because of the client segment that product is marketed to. Generally speaking, they'll have a higher allocation to cash because they have less of a hands-on approach with the adviser essentially is the view that's taken there. So the more that you interact with your adviser, the more active you are in trading your portfolio, the less likely you are to be making cash contributions and leaving them there untraded, where the OneVue solution, the advisers are not necessarily as active as ultra-high net worth or high net worth advisers, albeit there are some within that solution.

So it's a long-winded answer to say I can't really predict one way or the other. I don't see it trend one way or the other in the pool of cash. But the outcomes are as we publish them, of course.

And we've got a question on OneVue, in fact, and just what the prospects for that FUA are over time.

[Anthony Wamsteker, executive]

Yes. Good question. And I think for those of you who are closer to the business might recall that there is an earn-out on that business when we bought it. And the earn-out has upside potential for increasing in FUA. So when we acquired that business, both the seller and us as the buyer of that business felt there was some potential upside, and we're still of that view that there's some potential upside.

And what does that mean? There's upside partly from the existing clients, say, on balance. There's 19 clients overall, and they're all growing their business and looking to grow their business further. And there is some of the client base where we don't have all of the FUA, the multi-platform strategy. And there's some money with other platforms, and we feel there's some upside there.

So we continue to have that view, and we're running the client relationships accordingly. And -- but at this stage, what we've seen in the first quarter of our ownership is relative stability in FUA. And that's pleasing for now, but we are turning our mind to the growth opportunities inherent in that client base. In part, as you would anticipate, the clients of the OneVue solution have got good relationships with the service people, the client sets, people that they deal with, but they're also now conscious that we're migrating to the Praemium tech stack. And so there's a little bit of wait and see, let me see how that works out for the existing FUA I've got, make sure that you deliver on your promises there, and then it could be more FUA down the track once we've successfully migrated.

[David Coulter, executive]

Thanks. We don't have any more questions coming through the portal. So we might wrap it up there. Thanks very much for those who registered and have signed in and listened to the presentation. On the ASX release, again, there's a contact number for either me or Anthony. And if you do have questions you didn't think we answered in this forum but that you would like to have answered, you are, of course, free to ring either of us on that number. Any closing comments, Anthony?

[Anthony Wamsteker, executive]

No. I just -- I'll close by saying thanks to David and his team. I'm sure everyone who is a shareholder in the business would like me to say that David runs a pretty lean and mean team, which he does. It's tremendous how much output we get out of a relatively small team, including these releases. I think we're very transparent with the market. I think we're very open. We certainly want to be. But we do that with a pretty modest-sized team as well, which is good for keeping our margins where we want them to be.

So thanks, David, to you and your team and the transparency you give to the market but without a very extensive Investor Relations team. It's pretty much you. So well done.

[David Coulter, executive]

Thanks very much. Okay. Well, we'll be signing off. As I said, contact on that number if you do have any follow-up questions. Thanks for your attendance.

[Anthony Wamsteker, executive]

Thanks, everyone.