Company Reports

No-moat Hub24’s fiscal 2024 results missed our expectations, partly due to transitional factors. Underlying net profit after tax grew by 15% from the prior year but fell 12% short of our forecast, mainly due to lower-than-expected group EBITDA margin, partially offset by a lower tax rate. The lower EBITDA margin included expenses for MyProsperity, a newly acquired, loss-making ancillary offering, which we expect to increase earnings over time through cross-selling. Excluding MyProsperity, EBITDA margin for Hub24's primary platform suite slightly expanded, in line with our expectations. We marginally lift our fair value estimate to AUD 27 per share from AUD 26, reflecting a minor reduction in medium-term tax rates.

At core, Hub24 is a provider of investment administration software as a service. This includes portfolio administration, investment management tools, and managed account services. The firm has a diversified offering, with administrative capabilities spanning custodial and noncustodial assets, self-managed super funds, trusts, and corporate compliance. Endeavors to add value include providing data analytics or features to facilitate dynamic advice strategies. It is also well integrated with external financial services and software providers. These efforts help Hub24 capture more touchpoints within the advice landscape, and support its endeavors to streamline the implementation of financial advice to clients under a single—Hub24’s—platform.

No-moat Hub24’s latest funds under administration update was similar to Netwealth’s in that there were signs of improved flows relative to the subdued levels seen in 2023. And like Netwealth, we think current rebounds in Hub24’s net inflows will be short-lived. We retain our expectation for Hub24’s rate of net inflows, as a percentage of starting FUA, to moderate over time. We also anticipate ongoing fee compression and reinvestment needs amid competition from other platforms. We consequently expect Hub24’s rate of margin expansion to moderate over the next five years.

At core, Hub24 is a provider of investment administration software as a service. This includes portfolio administration, investment management tools, and managed account services. The firm has a diversified offering, with administrative capabilities spanning custodial and noncustodial assets, self-managed super funds, trusts, and corporate compliance. Endeavors to add value include providing data analytics or features to facilitate dynamic advice strategies. It is also well integrated with external financial services and software providers. These efforts help Hub24 capture more touchpoints within the advice landscape, and support its endeavors to streamline the implementation of financial advice to clients under a single—Hub24’s—platform.

At core, Hub24 is a provider of investment administration software as a service. This includes portfolio administration, investment management tools, and managed account services. The firm has a diversified offering, with administrative capabilities spanning custodial and noncustodial assets, self-managed super funds, trusts, and corporate compliance. Endeavors to add value include providing data analytics or features to facilitate dynamic advice strategies. It is also well integrated with external financial services and software providers. These efforts help Hub24 capture more touchpoints within the advice landscape, and support its endeavors to streamline the implementation of financial advice to clients under a single—Hub24’s—platform.

We marginally lift our fair value estimate for no-moat Hub24 to AUD 25.00 per share from AUD 24.50 due to a lower-than-expected medium-term tax rate and the time value of money. However, these positives are partly offset by slightly weaker performance in the core business. Shares are materially overvalued, with investors likely overlooking the trade-off between volume growth and margins in the increasingly competitive platform market in which Hub24 operates. Underlying net profit after tax grew 14% from the previous corresponding period to AUD 30 million, slightly below our expectations. The main detractor was higher operating expenses, supporting our thesis that future market share gains will likely entail ongoing investments, constraining margins.

We retain our fair value estimate for no-moat Hub24 at AUD 24.50 per share, with shares screening as overvalued. The firm’s growth initiatives, as outlined during its 2023 investor day, appear replicable. Meanwhile, resurging competition and regulatory constraints will likely limit pricing power and prevent any platform provider from building maintainable switching costs. We expect fee compression and continued growth investments to be the industry norm, limiting Hub24’s ability to expand margins. While we think Hub24 will still receive net inflows over the next five years, its market share gains are likely to slow.

At core, Hub24 is a provider of investment administration software as a service. This includes portfolio administration, investment management tools, and managed account services. The firm has a diversified offering, with administrative capabilities spanning custodial and noncustodial assets, self-managed super funds, trusts, and corporate compliance. Endeavors to add value include providing data analytics or features to facilitate dynamic advice strategies. It is also well integrated with external financial services and software providers. These efforts help Hub24 capture more touchpoints within the advice landscape, and support its endeavors to streamline the implementation of financial advice to clients under a single—Hub24’s—platform.

Our conviction in the thesis for listed wealth managers, asset managers, and their related service providers has strengthened after gathering insights from the recent 2023 Super & Wealth Summit, hosted by the Australian Financial Review. These firms are influenced by similar business drivers and industry trends. Most derive their revenue from funds under management and/or administration, or FUMA, which are driven by asset price movements and new fund flows from clients, and management fees or commissions on these FUMA.

At core, Hub24 is a provider of investment administration software as a service. This includes portfolio administration, investment management tools, and managed account services. The firm has a diversified offering, with administrative capabilities spanning custodial and noncustodial assets, self-managed super funds, trusts, and corporate compliance. Endeavors to add value include providing data analytics or features to facilitate dynamic advice strategies. It is also well integrated with external financial services and software providers. These efforts help Hub24 capture more touchpoints within the advice landscape, and support its endeavors to streamline the implementation of financial advice to clients under a single—Hub24’s—platform.

We lift our fair value estimate for shares in Hub24 to AUD 24.50, from AUD 24.00, reflecting the time value of money. Compared with fiscal 2023, we expect Hub24 will enjoy higher net inflows from fiscal 2024 through to fiscal 2028, with support from recovering industry fund flows—particularly as interest rate hikes stabilize. Net inflows of AUD 2.8 billion during the first three months of fiscal 2024 marked a consistent upward trend from AUD 1.9 billion in the third quarter of fiscal 2023.

At core, Hub24 is a provider of investment administration software as a service. This includes portfolio administration, investment management tools, and managed account services. The firm has a diversified offering, with administrative capabilities spanning custodial and noncustodial assets, self-managed super funds, trusts, and corporate compliance. Endeavours to add value include providing data analytics or features to facilitate dynamic advice strategies. It is also well integrated with external financial services and software providers. These efforts help Hub24 capture more touchpoints within the advice landscape, and support its endeavours to streamline the implementation of financial advice to clients under a single—Hub24’s—platform.

At core, Hub24 is a provider of investment administration software as a service. This includes portfolio administration, investment management tools, and managed account services. The firm has a diversified offering, with administrative capabilities spanning custodial and noncustodial assets, self-managed super funds, trusts, and corporate compliance. Endeavours to add value include providing data analytics or features to facilitate dynamic advice strategies. It is also well integrated with external financial services and software providers. These efforts help Hub24 capture more touchpoints within the advice landscape, and support its endeavours to streamline the implementation of financial advice to clients under a single—Hub24’s—platform.

At core, Hub24 is a provider of investment administration software as a service. This includes portfolio administration, investment management tools, and managed account services. The firm has a diversified offering, with administrative capabilities spanning custodial and noncustodial assets, self-managed super funds, trusts, and corporate compliance. Endeavours to add value include providing data analytics or features to facilitate dynamic advice strategies. It is also well integrated with external financial services and software providers. These efforts help Hub24 capture more touchpoints within the advice landscape, and support its endeavours to streamline the implementation of financial advice to clients under a single—Hub24’s—platform.

At core, Hub24 is a provider of investment administration software as a service. This includes portfolio administration, investment management tools, and managed account services. The firm has a diversified offering, with administrative capabilities spanning custodial and noncustodial assets, self-managed super funds, trusts, and corporate compliance. Endeavours to add value include providing data analytics or features to facilitate dynamic advice strategies. It is also well integrated with external financial services and software providers. These efforts help Hub24 capture more touchpoints within the advice landscape, and support its endeavours to streamline the implementation of financial advice to clients under a single—Hub24’s—platform.