Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Investment administrator <a href="https://www.smartkarma.com/entities/praemium-ltd" target="_blank" data-smartkarma-citation="entities:9360:1" rel="noopener">Praemium Ltd (PPS AU)</a> has rejected a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02446233-3A580069?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">non-binding proposal</a> from key competitor <a href="https://www.smartkarma.com/entities/netwealth-group-ltd" target="_blank" data-smartkarma-citation="entities:25951:1" rel="noopener">Netwealth (NWL AU)</a>.
By way of a Scheme, Netwealth was offering 1 new NWL share for every 11.96 PPS shares, or an indicative Offer consideration of A$1.50, a 29% premium to last close, and a lifetime high.
PPS' board said the Proposal did not appropriately value Praemium’s current performance, near-term trajectory, growth momentum, and was not representative of recent transaction premia in the Australian platform and funds administration space.
This space is indeed hot. When PPS peer <a href="https://www.smartkarma.com/entities/onevue-holdings-ltd" target="_blank" data-smartkarma-citation="entities:24327:1" rel="noopener">Onevue Holdings (OVH AU)</a> was taken private in the middle of last year (as discussed by <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar</a> in<a href="https://skr.ma/rGK8k" target="_blank" rel="noopener"> OneVue-Iress: Australian Deal Trading Wide</a>), the independent expert flagged (<a href="https://onevue.com.au/wp-content/uploads/2020/09/Scheme-Booklet_final.pdf" target="_blank" rel="noopener">page 132</a>) 12 peers (including PPS and NWL). Of the remaining 10:
<ul>
<li>
<a href="https://www.smartkarma.com/entities/powerwrap-ltd" target="_blank" data-smartkarma-citation="entities:30664:1" rel="noopener">Powerwrap Ltd (PWL AU)</a> was taken private (by PPS) last October;</li>
<li>
<a href="https://www.smartkarma.com/entities/xplore-wealth-ltd" target="_blank" data-smartkarma-citation="entities:12161:1" rel="noopener">xplore (XPL AU)</a> was taken private by <a href="https://www.smartkarma.com/entities/hub24-ltd" target="_blank" data-smartkarma-citation="entities:12336:1" rel="noopener">Hub24 Ltd (HUB AU)</a> in <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02349028-2A1284538?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">March</a>;</li>
<li>
<a href="https://www.smartkarma.com/entities/link-administration-holdings-ltd" target="_blank" data-smartkarma-citation="entities:970:1" rel="noopener">Link Administration Holdings (LNK AU)</a> was subject to Offers from SS&amp;C and Carlyle, but in May this year opted to go the IPO route for PEXA, the digital property settlement platform - <a href="https://skr.ma/CrBHo" target="_blank" rel="noopener">Link Admin (LNK AU) Goes IPO Route For PEXA Afterall</a>;
</li>
<li>
<a href="https://www.smartkarma.com/entities/iress-ltd" target="_blank" data-smartkarma-citation="entities:15342:1" rel="noopener">Iress Ltd (IRE AU)</a> backed an Offer from EQT but the two were <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02422609-3A576043?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">unable to agree</a> to a transaction in September - <a href="https://skr.ma/Rm5oC" target="_blank" rel="noopener">Iress (IRE AU) Accepts EQT's Latest Proposal</a>;</li>
<li>
<a href="https://www.smartkarma.com/entities/mainstream-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:30611:1" rel="noopener">Mainstream Group Holdings Ltd (MAI AU)</a> was taken private by Apex last month  - <a href="https://skr.ma/fu9ej" target="_blank" rel="noopener">Mainstream (MAI AU): Apex on Top Again as Bidding War Continues....</a>; and</li>
<li>
<a href="https://www.smartkarma.com/entities/hub24-ltd" target="_blank" data-smartkarma-citation="entities:12336:1" rel="noopener">Hub24 Ltd (HUB AU)</a> and <a href="https://www.smartkarma.com/entities/class-ltd" target="_blank" data-smartkarma-citation="entities:24287:1" rel="noopener">Class Ltd (CL1 AU)</a> entered into a Scheme Implementation Deed last month - <a href="https://skr.ma/odCXE" target="_blank" rel="noopener">Class - Hub24: Scheme Trading Wide</a>.</li>
</ul>
Given the above, you can build an understanding why PPS would hold out for a superior Offer.
More below the fold.

Investment administrator Praemium Ltd (PPS AU) has rejected a non-binding proposal from key competitor Netwealth (NWL AU).
By way of a Scheme, Netwealth was offering 1 new NWL share for every 11.96 PPS shares, or an indicative Offer consideration of A$1.50, a 29% premium to last close, and a lifetime high.
PPS' board said the Proposal did not appropriately value Praemium’s current performance, near-term trajectory, growth momentum, and was not representative of recent transaction premia in the Australian platform and funds administration space.
This space is indeed hot. When PPS peer Onevue Holdings (OVH AU) was taken private in the middle of last year (as discussed by Janaghan Jeyakumar in OneVue-Iress: Australian Deal Trading Wide), the independent expert flagged (page 132) 12 peers (including PPS and NWL). Of the remaining 10:


Powerwrap Ltd (PWL AU) was taken private (by PPS) last October;

xplore (XPL AU) was taken private by Hub24 Ltd (HUB AU) in March;

Link Administration Holdings (LNK AU) was subject to Offers from SS&amp;C and Carlyle, but in May this year opted to go the IPO route for PEXA, the digital property settlement platform - Link Admin (LNK AU) Goes IPO Route For PEXA Afterall;


Iress Ltd (IRE AU) backed an Offer from EQT but the two were unable to agree to a transaction in September - Iress (IRE AU) Accepts EQT's Latest Proposal;

Mainstream Group Holdings Ltd (MAI AU) was taken private by Apex last month  - Mainstream (MAI AU): Apex on Top Again as Bidding War Continues....; and

Hub24 Ltd (HUB AU) and Class Ltd (CL1 AU) entered into a Scheme Implementation Deed last month - Class - Hub24: Scheme Trading Wide.

Given the above, you can build an understanding why PPS would hold out for a superior Offer.
More below the fold.

Praemium (PPS AU) Spurns Netwealth's (NWL AU) Proposal

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Equity Bottom-Up

We are initiating coverage of <a href="https://www.smartkarma.com/entities/25951" target="_blank" data-smartkarma-citation="entities:25951:1">Netwealth Group Ltd (NWL AU)</a> with a AUD 5.00 fair value estimate, a no-moat rating, and a high fair value uncertainty rating. Netwealth provides investment administration software as a service, or SaaS, in Australia via its proprietary platform. We expect the company to continue to quickly grow funds under advice, or FUA, on its platform and increase its market share to 5% from around 2% over the next decade. However, Netwealth has numerous competitors with similar offerings and customer switching costs are low, and we forecast the strong FUA growth to be offset by fee compression. At the current market price of AUD 6.20, we believe Netwealth shares are significantly overvalued.Netwealth operates in a commoditised industry with a number of independent investment management platform competitors including: <a href="https://www.smartkarma.com/entities/12336" target="_blank" data-smartkarma-citation="entities:12336:1">Hub24 Ltd (HUB AU)</a>; <a href="https://www.smartkarma.com/entities/9360" target="_blank" data-smartkarma-citation="entities:9360:1">Praemium Ltd (PPS AU)</a>; <a href="https://www.smartkarma.com/entities/24327" target="_blank" data-smartkarma-citation="entities:24327:1">Onevue Holdings Ltd (OVH AU)</a>; <a href="https://www.smartkarma.com/entities/12161" target="_blank" data-smartkarma-citation="entities:12161:1">Managed Accounts Holdings Ltd (MGP AU)</a>; and Powerwrap (unlisted). Further, Netwealth competes with platforms owned by the large vertically integrated wealth management firms including: the <a href="https://www.smartkarma.com/entities/444" target="_blank" data-smartkarma-citation="entities:444:1">Westpac Banking Corp (WBC AU)</a> owned BT Financial; <a href="https://www.smartkarma.com/entities/14" target="_blank" data-smartkarma-citation="entities:14:1">Commonwealth Bank Of Australia (CBA AU)</a> owned CFS; <a href="https://www.smartkarma.com/entities/15" target="_blank" data-smartkarma-citation="entities:15:1">National Australia Bank Ltd (NAB AU)</a> owned MLC; <a href="https://www.smartkarma.com/entities/678" target="_blank" data-smartkarma-citation="entities:678:1">AMP Ltd (AMP AU)</a>; <a href="https://www.smartkarma.com/entities/310" target="_blank" data-smartkarma-citation="entities:310:1">Macquarie Group Ltd (MQG AU)</a>; and <a href="https://www.smartkarma.com/entities/12349" target="_blank" data-smartkarma-citation="entities:12349:1">IOOF Holdings Ltd (IFL AU)</a>. Collectively, these vertically integrated firms comprise 85%, in contrast to Netwealth’s market share of around 2%. Platforms largely compete on functionality, customer service, and price but rarely have exclusivity with their financial advisor customers and the average financial advisor uses two or three different platforms. Netwealth’s lack of competitive advantages and the commoditised nature of the industry in which it operates means we don’t believe it has an economic moat.Our fair value estimate implies a fiscal 2018 dividend yield of 1.4%, and a P/E ratio of 43. We expect Netwealth to increase its FUA by a CAGR of 20% over the next decade as the company wins market share from a relatively low base. However, fee compression is likely to offset FUA growth and we forecast a revenue CAGR of 15% over the same period. Our valuation is derived using a discounted cash flow model with a weighted average cost of capital of 9.0%. The capital-light nature of Netwealth’s business model means we expect the balance sheet to remain debt-free for the foreseeable future.Analysts: Gareth James and Angus Hewitt

We are initiating coverage of Netwealth Group Ltd (NWL AU) with a AUD 5.00 fair value estimate, a no-moat rating, and a high fair value uncertainty rating. Netwealth provides investment administration software as a service, or SaaS, in Australia via its proprietary platform. We expect the company to continue to quickly grow funds under advice, or FUA, on its platform and increase its market share to 5% from around 2% over the next decade. However, Netwealth has numerous competitors with similar offerings and customer switching costs are low, and we forecast the strong FUA growth to be offset by fee compression. At the current market price of AUD 6.20, we believe Netwealth shares are significantly overvalued.Netwealth operates in a commoditised industry with a number of independent investment management platform competitors including: Hub24 Ltd (HUB AU); Praemium Ltd (PPS AU); Onevue Holdings Ltd (OVH AU); Managed Accounts Holdings Ltd (MGP AU); and Powerwrap (unlisted). Further, Netwealth competes with platforms owned by the large vertically integrated wealth management firms including: the Westpac Banking Corp (WBC AU) owned BT Financial; Commonwealth Bank Of Australia (CBA AU) owned CFS; National Australia Bank Ltd (NAB AU) owned MLC; AMP Ltd (AMP AU); Macquarie Group Ltd (MQG AU); and IOOF Holdings Ltd (IFL AU). Collectively, these vertically integrated firms comprise 85%, in contrast to Netwealth’s market share of around 2%. Platforms largely compete on functionality, customer service, and price but rarely have exclusivity with their financial advisor customers and the average financial advisor uses two or three different platforms. Netwealth’s lack of competitive advantages and the commoditised nature of the industry in which it operates means we don’t believe it has an economic moat.Our fair value estimate implies a fiscal 2018 dividend yield of 1.4%, and a P/E ratio of 43. We expect Netwealth to increase its FUA by a CAGR of 20% over the next decade as the company wins market share from a relatively low base. However, fee compression is likely to offset FUA growth and we forecast a revenue CAGR of 15% over the same period. Our valuation is derived using a discounted cash flow model with a weighted average cost of capital of 9.0%. The capital-light nature of Netwealth’s business model means we expect the balance sheet to remain debt-free for the foreseeable future.Analysts: Gareth James and Angus Hewitt

Initiating on Netwealth with a AUD 5.00 FVE and a No-Moat Rating

Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Macroeconomics

Two months ago, Evidente published a report which suggested that contrary to the RBA's view that the currency remained over-valued, the Australian dollar was trading below fair value. &nbsp;After what had been a strong period of out-performance from US dollar earners, I concluded that without the tailwind of A$ over-valuation - which prevailed through most of 2014 - their returns in the near term would be capped. In this post, I show that recent currency appreciation has eliminated the modest under-valuation and been associated with under-performance from US$ earners. The basket is trading on a median 12 mth forward PE of 20x, which represents a 25% premium to the median estimate for the ASX100, slightly higher than historical norms. The premium reflects the fact that offshore earners have strong growth expectations and low betas, thanks to their defensive business models. I highlight that the stocks suffering from the highest level of analyst bearishness remain Cochlear, Treasury Wine Estates and Westfield, which each attract less than 20% of buy recommendations from analysts.&nbsp;

Two months ago, Evidente published a report which suggested that contrary to the RBA's view that the currency remained over-valued, the Australian dollar was trading below fair value. &nbsp;After what had been a strong period of out-performance from US dollar earners, I concluded that without the tailwind of A$ over-valuation - which prevailed through most of 2014 - their returns in the near term would be capped. In this post, I show that recent currency appreciation has eliminated the modest under-valuation and been associated with under-performance from US$ earners. The basket is trading on a median 12 mth forward PE of 20x, which represents a 25% premium to the median estimate for the ASX100, slightly higher than historical norms. The premium reflects the fact that offshore earners have strong growth expectations and low betas, thanks to their defensive business models. I highlight that the stocks suffering from the highest level of analyst bearishness remain Cochlear, Treasury Wine Estates and Westfield, which each attract less than 20% of buy recommendations from analysts.&nbsp;

A new narrative for the Australian dollar (update)

Australia

Praemium Limited  provides online portfolio administration services in Australia. The Company has also developed technology for the operation and maintenance of separately managed accounts.

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Praemium Ltd (PPS AU)

Praemium (PPS AU) Spurns Netwealth's (NWL AU) Proposal

Currently trading 2.8% through terms. Apart from the premium to last close, the proposal for Praemium appears full. Yet this sector is very much...

David Blennerhassett

Initiating on Netwealth with a AUD 5.00 FVE and a No-Moat Rating

We are initiating coverage of Netwealth Group Ltd (NWL AU) with a AUD 5.00 fair value estimate, a no-moat rating, and a high fair value uncertainty...

Morningstar, Inc.

A new narrative for the Australian dollar (update)

Two months ago, Evidente published a report which suggested that contrary to the RBA's view that the currency remained over-valued, the Australian...

Sam Ferraro

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