Allfunds Group: Revenue Surge, EPS Miss

In the ever-evolving landscape of the B2B WealthTech industry, Allfunds Group PLC (STU:6UY) has emerged as a standout performer, with its full-year 2024 earnings report revealing a mix of triumphs and challenges. The company's revenue soared to EUR632 million, a 16% year-on-year increase, surpassing analyst expectations by 2.2%. However, the earnings per share (EPS) fell short of projections, highlighting the complexities of navigating the current financial environment.

The Revenue Surge: A Closer Look

The 16% year-on-year increase in net revenues to EUR632 million is a testament to Allfunds Group's strategic initiatives and favorable market conditions. The company's assets under administration (AUA) increased by 13% to EUR1,558 billion, reflecting its ability to attract and retain clients. This growth in AUA is a critical driver of revenue, as it translates into higher management fees and service charges.

Platform revenue growth of 18% underscores the effectiveness of Allfunds' digital solutions. The company's investment in technology and innovation is paying off, as more clients are utilizing their platform for fund distribution and management. Commission revenues increased by 10%, and subscription revenues grew by 13% to EUR67 million, indicating that Allfunds is successfully monetizing its services through both transaction-based and recurring revenue models.

The cost-to-income ratio improved from 37.4% to 35.6%, demonstrating the company's ability to manage costs more efficiently. This improvement in operational efficiency allows Allfunds to retain a larger portion of its revenues as profit, contributing to the overall growth in net revenues.

The EPS Miss: What Went Wrong?

Despite the impressive revenue growth, Allfunds Group's EPS missed analyst estimates significantly. The company reported a net loss of EUR168.5 million, a stark contrast to the EUR85.7 million profit in FY 2023. This net loss translates to a EUR0.28 loss per share, down from a EUR0.14 profit in FY 2023.

Several factors contributed to this EPS miss. The company faces challenges from the US-China commercial crisis and financial turmoil in Ukraine, which have impacted its net treasury income. Net treasury income is expected to decline by 30% year-on-year in 2025, driven by the current rates environment and forward curves, combined with average cash balances.

Additionally, the company anticipates a moderate increase in costs for 2025 due to strategic initiatives. While these initiatives are aimed at long-term growth, they have a short-term impact on the company's profitability.

Strategic Initiatives: A Look Ahead

Allfunds Group has proposed an increased dividend of EUR80 million and a EUR250 million share buyback, demonstrating its commitment to returning value to shareholders. The company's strategic initiatives, such as the launch of an ETP platform in 2025, further support its long-term growth strategy.

The company's success in onboarding 74 new distributors, a 40% increase from 2023, highlights its ability to expand its network and reach more clients. This expansion not only increases the company's reach but also drives higher transaction volumes and revenues.

Red Flags to Watch

While Allfunds Group's revenue growth is impressive, there are several red flags to watch. The company's net flows have not yet reached the average of the last 5 or 10 years, indicating that there is still room for improvement in this area. Additionally, the company's subscription-based revenue growth was softer than initially guided, suggesting that there may be challenges in this segment.

The company's cost-to-income ratio, while improved, is still relatively high compared to its peers. This indicates that there is room for further cost management and operational efficiency improvements.

Alternatives if Rates Rise

In a rising-rate environment, Allfunds Group's net treasury income may continue to decline. Investors should consider alternatives that are less sensitive to interest rate changes. For example, companies with a strong dividend history and a low payout ratio may be a better fit for income-seeking investors in a rising-rate environment.

Conclusion

Allfunds Group's full-year 2024 earnings report is a mixed bag of success and challenges. The company's revenue growth is impressive, driven by strategic initiatives and favorable market conditions. However, the EPS miss highlights the complexities of navigating the current financial environment. Investors should keep an eye on the red flags and consider alternatives if rates rise. Despite the challenges, Allfunds Group's long-term growth strategy and commitment to returning value to shareholders make it a compelling investment opportunity.