Funds management and platform services increased their collective contribution to the NZX bottom-line in 2024 as Smart and Wealth Technologies outperformed traditional exchange activities year-on-year.
According to the 2024 annual report released last week, the combined funds and platform divisions delivered almost 56 per cent of NZX operating profits during the calendar year compared to 52 per cent in 2023.
“At a Group level, operating revenue increased by 11.4% to $120.7 million, driven by increases in all business units, primarily Smart and NZXWT [Wealth Technologies], and to a lesser extent the NZX capital markets’ business as market activity recovered during the second half of the year,” the NZX report says.
The funds arm, comprising Smart and QuayStreet Asset Management, once again led the NZX divisional top-line earnings with $44 million (2023: $37 million) for an annual operating profit of almost $22.5 million.
Meanwhile, NZWXT was the biggest-improver in 2024, growing both top- and bottom-line numbers to $9.7 million and almost $4.6 million, respectively, compared to $6.8 million and $1.6 million during the previous year.
The NZX platform unit also hit a revenue milestone in December, generating positive cashflow for the first time from its external client book that grew to 32 by the end of 2024 from 21 as at the same date 12 months prior.
However, NZXWT is still consuming considerable capital expenditure (about $8 million in 2024) to onboard new clients and build new administration services for its Smart sister.
“Some Wealth Technologies’ resources are now being used to enhance the Smart operating model (i.e. client portal and registry),” the annual report notes. “… NZXWT is working with Smart on its infrastructure services and this in turn will improve Group operating leverage. This keeps cashflow within the Group that would otherwise be spent with external service providers.”
Platform funds under administration jumped 40 per cent year-on-year to $16.2 billion with the figure set to double as short- and longer-term contracted clients (including Smart) transition.
Smart funds under management ended 2024 at about $13.5 billion on the back of net flows of $800 million and $1.7 billion due to market growth.
“Our market analysis indicates $15-$20 billion of FUM is the point where operating cost bases are at their most efficient for New Zealand fund managers,” the NZX report says. “Smart is well down a pathway that aims for around $18 – $20 billion of FUM by the end of 2027.”
But the NZ stock exchange operator has more than halved its contingent liability with Craigs Investment Partners as a QuayStreet earnout target appears increasingly out of reach.
The NZX cut $10.9 million off the provision that was originally set at a maximum of almost $19 million if net flows from Craigs into QuayStreet funds reach $1.2 billion by November this year.
“QuayStreet FUM inflows post-acquisition have to date been slower than expected, but the size of the opportunity remains,” the report says. “Consequently, our assessment of the probability of achieving the net FUM inflow target by November 2025.”
Craigs sold QuayStreet to the NZX in 2023 for an upfront payment of more than $31 million plus the earnout provision. In January this year the NZX paid Craigs $3.2 million for partially achieving some QuayStreet net flow targets for the two years to November 23, 2024.
Across all business units, the NZX reporting operating revenue of almost $121 million (2023: over $108 million) and net profit after tax of close to $25.5 million ($13.5 million last year).
Mark Peterson, NZX chief, also told investors the group expected operating earnings to rise in 2025 to between $49 million and $54 million.
“Our results demonstrate that NZX is now a more integrated and resilient financial markets infrastructure and services business with a platform for strong growth prospects,” Peterson said. “We expect this to create further value to our shareholders.”
The NZX share price jumped about 5 per cent post results to close last week on $1.67.