Praemium has warned that its EBITDA in the first half of the current financial year (FY2024) is expected to be approximately 20 per cent lower than the corresponding half last year.
The weaker financial outlook, which was revealed at Praemium’s annual general meeting last week by chief executive officer Anthony Wamsteker, sent the company’s share price to a three-year low on Wednesday. The company ended the week down 36 per cent compared to the week prior at 37.5 cents.
Mr Wamsteker explained that the decline in EBITDA is anticipated due to an increase in expected operating costs and a decrease in the revenue margin during the first half of FY24.
The average revenue margin for Praemium’s platform products over the first four months of FY24 was reported to be 25 basis points, down from 27 basis points in H2 FY23.
“This decline predominantly reflects lower trading volumes and cash balances than the previous six months. It is not clear how long this relatively subdued activity is likely to persist,” Mr Wamsteker noted.
Operating costs over H1 FY24 are expected to be 10 per cent higher than in H2 FY23 due to the costs associated with a change program currently underway at Praemium, along with the impacts of “the ongoing and relatively high rate of inflation”.
One-off non-recurring costs are expected to total $1 million in FY24. Mr Wamsteker said that a comprehensive program of work on five strategic initiatives, driven by Praemium’s refreshed executive team, has necessitated “a level of investment in the business”.
“Each project within the overall program has been commenced and monitored with a robust 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, especially cyber risk. In addition, there must be an expected return on investment above a significant hurdle rate.”
The key strategic initiatives in progress at Praemium include its next generation investor-directed portfolio services (IDPS), operational transformation, service enhancements, superannuation advances, and acquisition opportunities.
According to internal projections, these changes are expected to drive a “material increase” in Praemium’s underlying EBITDA in the future. Some of this benefit is set to emerge in H2 FY24, but most is expected to be realised in FY25 and subsequent years.
Regarding the development of Praemium’s next generation IDPS, Mr Wamsteker said that the product remains on track to launch in the first half of 2024.
“This product will complete our platform range, complementing the SMA and Powerwrap schemes. We are confident that the next-generation IDPS will allow us to accelerate our already solid growth in market share,” he stated.
Praemium said it has identified and is working to implement a number of opportunities for efficiency and productivity gains following a review of its operational processes and a comparison of its two platform products and its portfolio administration service.
Meanwhile, Mr Wamsteker indicated that Praemium has been inundated with potential acquisition opportunities since divesting its international business to Morningstar in 2022.
“Whilst the vast majority have been discarded, I would be surprised if one or two important and accretive transactions did not materialise over the balance of this financial year. That said, nothing has yet been conclusively negotiated and resolved on this front,” he noted.
Jon 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.