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Praemium warned that its EBITDA in the first half of the current financial year (FY2024) is expected to be approximately 20 percent lower than the corresponding half last year.
The weaker financial outlook, which was revealed at Praemium’s annual general meeting last week by CEO Anthony Wamstecker, sent the company’s share price to a three-year low on Wednesday. The company ended the week down 36% from the previous week at 37.5 cents.
Mr. Wamsteker explained that the decline in EBITDA is expected due to an increase in expected operating expenses and a decrease in the revenue margin in the first half of FY24.
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The average revenue margin for Praemium platform products in the first four months of FY24 was reported as 25 basis points, down from 27 basis points in the second half of FY23.
“This decline primarily reflects lower trading volumes and cash balances compared to the previous six months. It is not clear how long this relatively muted activity is likely to continue,” Mr. Wamstecker noted.
Operating expenses in the first half of 2024 expected to be 10 percent higher than in the second half of 2023. due to the costs associated with a change program currently underway at Praemium, together with the impact of the "continued and relatively high rate of inflation".
One-off non-recurring costs are expected to total $1 million in FY24. Mr Wamsteker said a comprehensive program of work across five strategic initiatives, driven by Praemium's renewed executive team, had imposed "a certain level of investment in the business".
"Each project within the overall program has been initiated and overseen with a solid business case," he noted.
“Each project is required to deliver improvements in one or more of the areas of revenue enhancement, cost reduction and risk management, particularly cyber risk. In addition, there must be an expected return on investment above a significant hurdle.”
Key strategic initiatives being implemented at Praemium include next-generation investor-directed portfolio services (IDPS), operational transformation, service enhancements, pension advances and acquisition opportunities.
According to internal estimates, these changes are expected to result in a "substantial increase" in Praemium's core EBITDA going forward. Some of these benefits are expected to occur in the second half of 2024, but most are expected to be realized in 25. and the following years.
Regarding the development of Praemium's next-generation IDPS, Mr. Wamsteker said the product remains on track for a market launch in the first half of 2024.
“This product will complement our range of platforms, complementing the SMA and Powerwrap schemes. We are confident that the next-generation IDPS will enable us to accelerate our already solid market share growth,” he said.
Praemium said it has identified and is working to implement a number of opportunities to increase efficiency and productivity after reviewing its operational processes and comparing the two platform products and the portfolio administration service.
Meanwhile, Mr Wamsteker pointed out that Praemium is inundated with potential acquisition opportunities after it spins off its international business to Morningstar in 2022.
“Although the majority of these have been rejected, I would be surprised if one or two important and incremental transactions do not materialize during the balance of this financial year. However, nothing has yet been finally agreed and decided on this front,” he noted.
In October, Praemium reported that its total Australian funds under management (FUA) reached a record $44.6 billion in the September quarter.
John Bragg
John Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.