Netwealth shares drop on Morgan Stanley downgrade
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The news: Morgan Stanley analysts have downgraded Netwealth to ‘equal weight’ from ‘overweight’ saying a lot of the positive attributes are now captured in the investment platform’s valuation.
The numbers: Despite the rating downgrade, the brokerage lifted its price target on Netwealth to $27.50 from $23.50.
Shares in the company were 2.5% lower at $27.11 on the ASX in early trading.
The context: The analysts said the Melbourne-based financial services group remains one of the best software businesses in Australia, with structural tailwinds entrenched and execution difficult to fault.
The analysts forecast $15.4 billion of inflows in FY25, with potential upside to $17.2 billion if markets remain buoyant. They also expect lower competition in the form of higher pricing and less product innovation, as well as scope for industry consolidation as smaller platforms increasingly find it difficult to compete with scaled players.
What they said: “However, NWL shares are +80% year-to-date, with the stock now trading on 62x FY25 P/E or a 10% to 30% premium to its five-year average 49x,” they said in a note.
The source: Morgan Stanley research
