Will FY23 be a winning year for ASX fintech stocks?

ASX fintech stocks may be heading for a solid FY23, according to some experts.

2022 has been a tough year for some of the largest players in financial technology.

For example, since the beginning of the year Netwealth Group Ltd (ASX: NWL) the share price has fallen by around 33%, Hub24 Ltd (ASX: HUB) shares have fallen 22%, the EML Payments Ltd (ASX: EML) stock price has fallen around 70%, and Tyro Payments Ltd (ASX: TYR) shares have fallen 77%.

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Investors may attribute much of the decline to two factors – inflation and rising interest rates.

Inflation is important because it can increase the costs of a business (such as wages, rent and other costs). It can also reduce the ability to pay for some customers. Rising interest rates can lead to higher interest costs. But the biggest factor may be what it does with valuations.

Billionaire founder of Bridgewater Associates Ray Dalio once said about interest rates:

Everything comes down to interest rates. As an investor, all you do is set up a lump sum for a future cash flow.

In theory, higher interest rates reduce the current value of an asset. Valuations of companies that are expected to grow significantly in the next few years are intended to be “discounted” more to reach their current value (when interest rates rise). This is why ASX growth stocks are generally hit harder during these sales.

While some ASX fintech stocks have continued to grow business, it will be interesting to see what they report for the next quarter and for FY22.

Recent example of growth

When Netwealth announced how changes in interest rates could affect the business, it said that net income for April was about $ 90 million, which was “marginally below” expectations.

The company reduced the result to a combination of covid-related absence and the effects of volatile markets and investor sentiment, related to geopolitical events and interest rate speculation. However, it said it expects “seasonally strong inflows” for May and June. It changed its FY22 net inflow guidance to “exceed $ 13 billion for FY22”.

However, the company said it remains “very positive” about the ongoing transition of clients and the new business pipeline that continues to be “very supportive” for the growth of funds under administration (FUA) in FY23.

Hub24 is a fairly similar business, and it also sees ongoing inflows. The company noted that it had $ 51 billion of platform FUA and this could reach up to $ 92 billion over the next few years, according to the company. Management said that strong momentum is expected to see all earnings drivers continue to improve.

ASX fintech stocks such as EML, Hub24 and Netwealth can benefit from higher interest rates as they monetize the cash they have on deposit for their customers.

Broker ratings

Credit Suisse considers Hub24 a purchase, with a price target of $ 35. This means an increase of around 50%. It is the selection of the sector for this broker.

The broker also considers Netwealth as a purchase, with a price target of $ 15.70. This means a possible increase of around 30%.

UBS considers EML a purchase, despite the upheaval and recent change of management in the company. The broker’s price target is $ 2.10 – which indicates that the EML share price can more than double from here.

Morgans considers Tyro a purchase, with a price target of 1.62 dollars. It also means that the Tyro share can more than double from here.