Praemium Limited (PPS) Earnings Call Transcript & Summary

Welcome, everyone, on the call, and thank you for joining us for our quarterly update. At Praemium, we acknowledge the traditional custodians of country and pay our respect to their elders past and present. Please note the disclaimer at the start of the presentation. And if I step in today, we're just going to quickly recap where we are on our strategy, which, as I often say, has been very consistent for a number of years now, and our role is to execute that. As part of that, talk a little bit about Spectrum, which is now live and as you have all been able to see, has some funds flowing into that now. David will talk about the FUA and the flows and the more detailed information in the tables. And then we'll finish with some questions, which are already coming in. Thank you for those who are already starting to ask some questions. So as I say, the strategy has been consistent for some time now. And what we take the opportunity to do at these quarterly updates and then when we do financial results half yearly and full year is just talk a little bit about our progress in the 5 key areas. 5 key areas, one way to look at it is our product and what we're doing to improve the product, our operational areas, our service commitment to our clients and their clients, what we're doing on superannuation, which is a very important part of the overall wealth management market and which -- whilst we're targeting the high net worth and we have a whole range of product that is suitable for self-managed super funds, which is a big part of the high net worth segment, we acknowledge that we could do more in the retail superannuation space and feel that we're a bit underweight there. And so we keep developing out the superannuation offering and in terms of M&A. So there are our 5 pillars of strategy. Obviously, the highlight in terms of the business executing on that strategy over the past quarter or so has been the launch of Spectrum and the renaming of our VMA to the scope. When we talk about spectrum, we've used this slide before, but it's just a simple way of showing how spectrum can cater for the full range of investment alternatives that high net worth advisers like to use when they're dealing with their clients and constructing a portfolio for those clients. And I think everyone is aware that the range of asset types that people are holding is -- it's always expanded, but it's probably never expanded more than it has over the last couple of years. Obviously, Australian equities still make up the largest part of portfolios. It's still the biggest holding in the average high net worth portfolio. But it's gradually reducing. The wealth in Australia is expanding at a faster rate than the Australian share market itself. And so we're starting to see a whole range of alternative assets and hence, the value of spectrum for advisers because it is the ultimate high net worth solution as we say. We don't think we're being -- we're [indiscernible] the solution by saying that we feel that, that is what it is. And certainly, the feedback we get is that spectrum is really meeting the mark for the high net worth adviser. And some of the things there, bonds are back, as everyone knows, bonds are a very important part of portfolios. That's not going away. Alternative assets, structured products and the like and the Praemium ability to manage those and execute those portfolios for advisers is critical and Spectrum brings all those capabilities together in one product. So with that, I'll hand over to David, and we'll talk about the quarterly flows.

Okay. Thanks very much, Anthony. Thanks for joining the call as well. We've got all the basic numbers down here. I won't dwell on each necessarily, but I'm very, very pleased to point to Spectrum coming off Anthony's last slide. We've got FUA on platform at $30.2 billion, up 4%. There's both flow and market-based movement as a part of that 4% uplift with Spectrum contributing $72 million based on flows of $69 million, if you look at the second major paragraph on the page, where we've got net inflows of $371 million, which were up $232 million on the prior comparative or the prior quarter itself. These being comparisons to September 2024. So significant movement in SMA. Powerwrap has returned to a good favor and OneVue is stable at $4.2 billion. Just briefly on OneVue with $37 million in net outflow. We're extremely pleased with the way that OneVue is integrating into the organization. This was not purchased to be some sort of organic growth engine, although we expect that the clients that come across with OneVue will be organic growth positive once they're on the Praemium technology, and Anthony did refer briefly to that integration being on track. As far as the flows go, Spectrum at $69 million is effectively 20% of our overall flow without it having adversely affected at all. The performance of the SMA, which itself is up $96 million, nor Powerwrap at $78 million, which has now returned to net inflow. It's up $138 million on the September quarter. We had flagged in our previous update, and we flagged if you look at some of the detail in the ASX release that we expected Powerwrap outflows from departed advisers to continue at a certain rate. That has actually continued into this quarter, and that's part of the Q&A I've observed as well. Powerwrap's performance and its uplift in performance is based way more on improved inflow from existing groups. We've had very strong performances from some of our clients, which are growing very strongly. And even the particular client, which has had some of the adverse impact from departed advisers has had very strong gross inflow as well. So there's improvement all around on Powerwrap. And the reference I made earlier, the launch of Spectrum with that $69 million having effectively been generated largely in the month of December, if you consider a mid- to late October launch and preparatory work in November, that's been generated off the back of 1 month's worth of inflow represents contributions from approximately, I think it's about memory, 6 client groups. They're all existing clients, but it is that they've seen Spectrum as a great opportunity to put more on platform from their existing client base. So we're extremely pleased with that first half result from Spectrum. And in particular, reemphasizing that it has not had some sort of transfer or adverse impact on our other platform solutions. Just focus now on the noncustodial. We're very strong in recognizing that this group has the leading noncustodial solution in the market. FUA from our Scope+ solution is at $31.9 billion. That's a record, and it's up 5% on the previous quarter. Portfolio numbers have diminished slightly. That will happen. We haven't been producing this level of detail for very long. If you had access to internal numbers as, of course, we've got, you'd note that periodically, some of our major clients do a cleanup really of their books. And they will rationalize the number of portfolios they have, particularly for low balance clients. And that's what's occurred in this instance. One major client has performed a cleanup, a rationalization, and that's resulted in a slight dip in the portfolios, but we expect the overall growth trajectory to be fairly strong over the course of the financial year. We've signed up 7 new client groups in the quarter, and that brings us to 12 new client groups for Scope and Scope+ in the course of the 2 quarters that make up the half year for the financial year-to-date. And the last part of the presentation, these are the detailed tables that are also in the ASX release. They just copied and posted here so that you can see any of the detail. What's highlighted here really, if you look at the gross inflows improving, the gross outflows remaining relatively stable and net inflow performance being an improvement across the board, particularly over the 5 quarters that we're observing. I mean this is the SNA's best performance. For example, this is our cornerstone product. It's our best performance in 2 years at $261 million for the quarter. So Anthony and I, we've been looking at these numbers and discussing at Board level, and we're very, very pleased with the performance, particularly in the way that the existing products have performed at their strongest for many periods and Spectrum is a great overlay on top that's bringing new money into our platform solutions. So with that, I'll just go -- leave the detail on the screen, and we'll go to some of the Q&A. You might observe that everyone is able to access the Q&A function. You might be surprised to learn that some of the questions have a very consistent theme to them. So as has been done in previous quarters, I'll curate to some degree so that we're just hitting the themes that you're putting to us through these questions. So we won't be answering each question in turn. I'd also just make the point because there are a few coming through that we are due to announce our actual half year result on the 25th of February. There are questions here that are asking, what does this mean for your result? We're clearly unable to answer those questions, and we will be waiting until we produce the result.

So some questions on how -- sorry, how Spectrum is performing. I think I've answered a few of those just through the general speel. Trading activity through the second quarter. As I said, we'll talk about that when we go to the result. And we've talked about OneVue to some degree and a few questions are coming in there, which is really that it's on track. There's a specific question on the cash proportions in OneVue being much higher versus the other schemes. There's no particular reason for this, and we expect will change post transition in answer to a very specific question from Nick McGarrigle from Barrenjoey. The pipeline for Spectrum, Anthony, there's a few questions coming in on that. Do you have a comment?

Yes. Look, the pipeline continues to be very healthy. We're delighted with the way our distribution team is performing, our BDMs. They've had some good tailwinds because the launch of Spectrum and the publicity around that, the advertising we did around that has created a lot of opportunity for conversations with advice scripts and they've taken advantage of that. And so our sales pipeline is very healthy. We're pleased with it. It's as good as it's been in the time of [indiscernible].

There are some questions on Spectrum and Euroz Hartleys. We put a comment, I think if you go to the slide on that, that Euroz Hartleys is due to commence writing to the Spectrum product in future quarters. I think we've said as much in our media releases on Euroz Hartleys as we'd be able to say at any other point, we'll, of course, be able to refresh the market on the 25th of February. There is one -- it's a very good question here, too. If we were to take out the impact of the major client in our noncustodial solutions, would portfolio numbers have grown? The answer to that is yes, they would have. That's the actual impact of that. activity. There is another question here on dividend payments going forward. Again, we'll address that in more detail as we get to the 25th of February. I'll reiterate what we've said in many of these forums, which is we have an active share buyback. It's gone into recess due to blackout. Our preference, given we have an availability of franking credits is to pay dividends where franking credits are available. And we'll be able to be more forthcoming on that when we produce the result. There's also a question on -- and we had flagged this in some of our other material Price increases for non-custodial portfolios during the half. Anthony, any reflections?

Yes. So we are starting to put through the noncustodial portfolio price changes. There hadn't been any changes for 10 years. So we're obviously following that through with all of our clients, talking to those clients who have raised questions about the size of the increase. It does vary a little bit from client to client, depending on the particular rate card they're on and how many portfolios got, but it was a significant increase over 10% and that will start to flow through. But there won't be much in the half year result about that because it was an end of year event. But from the 1st of January onwards, we should start to notice the impact of those price increase on the noncustodial services scope and scope plus.

Yes. I think in fairness to some of the signaling we've done last year-end, where we thought we would be going through contracts individually. As we progress through, we realized it would be easier to construct a uniform contract that we issued to many clients at once as a holistic upgrade to the service and with a price increase embedded. And that's why it's now more of a 1st of January big bang across a significant part of the client portfolio. And excuse me a minute while I just go through some of the other questions here. This is a left field one. How this closing its managed accounts product. Are you seeing opportunities to take that from them, Anthony?

Not specifically. As we -- when you look at our numbers, both gross and net and when we publish the half year, we give a bit of a breakup of how much is from new advisers who have signed up in the last 12 months compared to adviser being with us for longer. And there's more information there about where we're winning it. But obviously, the size of the gross flows that come out every quarter shows that we are getting a lot of business, not just from existing advisers, but obviously from new advisers signing up over time. And it's not as if we're ever winning off any particular alternative platform. I've often said when we win business, it seems to be fairly well spread where we went up from -- it's not as if we suddenly win a whole lot of business from one platform or another. We -- the market share of all the other platforms is roughly equal to the market share of where we win our business from.

Okay. Another question on the extent to which we've had our SMA and spectrum increases driven by new client wins. I referred in my piece on this, the spectrum wins were from our existing clients, and we're very pleased to receive the money in. Comments on the SMA.

Again, we -- our sales pipeline, there's a strong discipline about opportunities in the pipeline moving through or being closed out. And so every month, there are wins coming through. Now some wins are significant enough that you want to announce them Euroz Hartleys is an example of that, a very sizable win and worth announcing in its own right. But most are smaller advice firms who are dropping through. But if ever there are and there are big opportunities in the pipeline when we win those, we announce them as we should.

And to be fair to the way that I propose, the majority of the new -- the clients into Spectrum are existing clients. There was one significant new client win in the spectrum flows as well. So that's -- and then questions on whether or not at $69 million for the month -- for the quarter, and I had pointed to it being largely a month of December win, whether that's a reasonable run rate. The truth on that one is that it's a very new product. It is difficult to tell. It is difficult to communicate to you that we expect anything. We're hoping to really ramp up what it is that Spectrum is able to achieve, but we're not putting that as a promise. I think it's reasonable to say with the new product launch that there will be fits and starts. There will be some id as much in our mediaquiet months, there'll be some really busy months. And some of this will be the extent to which we're getting our client base and our new clients such as Euroz Hartleys used to the onboarding process and the features that we've got available to them with the Spectrum product. So I think we need a little more time to run before we start to point to what it is we'd expect. You also think about our existing product set. We can't point you to seasonal factors nor recurring run rates in Powerwrap or SMA either. So it's always difficult modeling these businesses, and we appreciate that. But I wouldn't be looking at 69 for the month and just extrapolating that out. And then one of the catch-all questions on other acquisition opportunities, Anthony?

So there's not many businesses similar to OneVue, obviously, in the market. We do keep an active eye on businesses that are exactly the same as what we do or very similar to what we do. And obviously, OneVue was in that category, but there's not many OneVue around that would be worth looking at. I note that Mason Stephens recently transacted into private equity hands. clearly, the larger and there are some subscale business back offices and things like that where there might be opportunities. So we keep a book open on a whole lot of opportunities, but obviously, nothing that we've had cause to announce since the deal.

And then also a question here, an interesting one. Given the performance of Spectrum and the other products, are we considering adding additional distribution headcount to service or to take advantage of that?

So we're pretty happy with the size of the team. And we did -- the team did increase with the OneVue acquisition and with the sales force or the distribution people that came in with OneVue, which we were delighted to have come into the Praemium business. So we're pretty happy with that at the moment. That said, if the opportunity arise to recruit some of the better BDMs in the market, we always remain open to that. Some of the sales success we have now is because we have, in the past, recruited some highly talented BDMs and the longer they serve with Praemium, the more effective they become, they become more familiar with the product range and the selling features of it. And so at the moment, we're happy with the size of the team, but we don't rule out modest expansion if the right people available to us.

Okay. There are a number of other questions coming in on trading performance and dividends. I think we've said as much as we're going to say on those matters in the lead up to announcing the half year results, as I said, 25th of February and looking forward to doing that. We're at the end of the Q&A section. I'm not seeing any other questions coming in. Any final remarks before we close?

No, I think it's a good milestone. Obviously, we acknowledge the markets have been good, too, but it's pleasing that the total FUA in Scope and the platform business is now over $60 billion. I note that milestone, which is a commendable effort by our team, our total team, everyone who works at Praemium. I think when we went past $50 billion, we said you take the opportunity of those sort of big number milestones to say, well, that's a stepping stone to go on to $100 billion. So it hasn't taken long to go from $50 billion to $60 billion as partly the markets, but partly the strong growth in our products. And I can assure everyone on the call, we do have an eye on getting to the $100 billion. But thanks again for your interest and look forward to presenting again, as David said, on the 25th of February.

Okay. Thank you very much. We'll close the call now.