-New terms with
-Upside exists if the
-Both Netwealth and
As many in the market suspected, with the
The move was not unexpected, Morgans asserts, although no new terms have been agreed, which infers ANZ is looking for a change in the rate provided.
ANZ is the primary banker to the sector, providing similar arrangements to most specialist platforms. Morgans calculates retail term deposit rates are a fair proxy for the current rates the major banks will be looking to provide the platforms and, based on term deposit rates, ANZ is likely looking for a significant reduction.
As Goldman Sachs notes, both platforms have delivered strong growth in funds under management and administration (FUMA) in recent years and typically cash has represented around 5-10% of this over time.
Both pay interest to customers that leave cash on the platform and generate this interest via passing cash through to a bank as a deposit. The current agreement provides
Goldman Sachs points out domestic banks can raise retail term deposits at around 30 basis points above the cash rate and 3-5-year wholesale funding at around 50 basis points. Hence, the
Citi had expected ANZ would lower the rate offered to both providers, given the low cash rate environment. With
Assumptions
Citi, having already assumed a -25 basis points compression in cash margins, increases this to -40 basis points for
Upside exists if the RBA increases the cash rate. Industry consolidation should also result in more rational pricing. Competition from new entrants remains a risk, although Citi notes new operators typically take time to gain traction.
Goldman Sachs moves to an assumed cash rate plus 50 basis points for both and estimates for earnings per share (EPS) are downgraded for FY21-23 by -0-15% for
While its downgrades are not insignificant, the broker emphasises the growth profile of both platforms remains strong. Hence, the market is likely to return its focus to the medium-term outlook for growth in FUMA and margin optimisation, both of which remain encouraging.
Morgans factors in a -30 basis points reduction in the deposit rate for both
Value
Citi believes downside risk is limited for both stocks and a reduction in cash margins to more sustainable levels will actually remove one of the key bear points hovering over the sector. The broker has upgraded
The broker expects both companies will continue to gain significant market share and deliver ongoing long-term growth. Ultimately, both can also absorb the impact of a rate reduction and still deliver substantial growth.
JPMorgan, not one of the seven stockbrokers monitored daily on the FNArena database, is more bearish, retaining Underweight on
The database has three Buy ratings and two Hold for
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