AMP's stumble has smaller players smelling blood

Amid the storm unleashed by the commission, these tailwinds have become something more like a gale.

The market has arguably moved a long way ahead of the eventual facts on the ground, perhaps too far. The royal commission is still in fact-finding mode. Reports won’t be finalised until early 2019. Even then, what will and won’t be taken up in law is another issue entirely. It could well be two years before the dust settles.

Yet the theme looks well entrenched in the share prices. Hub24, Netwealth and Praemium all trade at 12-month forward price-to-earnings multiples of around 66, on Bloomberg numbers. That looks difficult to swallow. The Bell Potter team recently downgraded Netwealth to “hold” based on its valuation. (They are fans of the theme, though, and have “buys” on Praemium and another platform provider OneVue.)

Black agrees the “headline P/E” looks expensive, but he makes two points. First, these companies have already spent all the money they need to, allowing more revenue to drop through to the bottom line. Second, there is the sheer size of the opportunity. Despite claiming big slices of new fund flows, Hub24 represents less than 1 per cent of the market and Netwealth under 2 per cent.

“That tells you they have a very long runway to growth,” Black says.

Celeste Funds Management portfolio manager Paul Biddle also believes the likes of Netwealth (in which his fund is invested) have further to run, despite the dear price tag on the shares.

He says the market has “just started to realise” that if you get $10 billion peeled out of the $140 billion or so managed by AMP, and if that $10 billion is split up between the small independent platforms, that’s a hefty potential extra $3 billion on top of Netwealth’s $15 billion on its platforms now.

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Source: AMP’s stumble has smaller players smelling blood | afr.com