Company Overview: HUB24 Limited (ASX: HUB) provides investment and superannuation platform services, including HUB24 platform, HUBconnect, Xplore Platform and Class Limited. The company’s platform provides a range of investment options, which include market-leading managed portfolio solutions, enhanced transaction and reporting functionality. The company carries out its operations through its three operating segments with revenue contribution of Platform Service (~95%), Tech Solutions (~4%) and others (~1%) in 1HFY22.

HUB Details

Favourable Addressable Market and Rising Market Share to Aid Future Business Growth: The investment platform market of Australia stood at ~$990.1 billion as of 30 September 2021, which has grown at a CAGR of ~9.6% since September 2011. This was comprised of ~$678 billion from Superannuation and ~$312 billion from Investment. As on 30 September 2021, the company had a market share of ~4.6% against 2.3% as of September 2020, backed by the acquisition of Xplore Wealth and its strong organic growth. In addition, Private Client PARS market stood at $144 billion, wherein HUB had a market share of ~12% as of July 2021. Looking forward, the company is focused on building scale in large addressable markets with a focus on the Australian Investment Platform market and the Australian Private Client PARS market. The company believes that it is in a decent position to deliver innovative product solutions, which leverages technology to provide efficiencies to licensees and advisers for decreasing the cost of advice and making financial advice accessible for more Australians.

Insights of 1HFY22: During the half-year ended 31 December 2021, the company delivered strong financial results and record levels of platform net inflows and FUA growth. HUB recorded a rise of 72% in operating revenue from continuing operations to $81.6 million, which was comprised of $77.3 million from Platform service and $3.0 million from Tech solutions.

• For the half-year, the company witnessed a growth of 80% in underlying EBITDA to $29.7 million, mainly backed by an increase of ~118% in total Funds Under Administration (FUA) to $68.3 billion and a record net inflow of $6.7 billion.
• Underlying Net Profit After Tax (NPAT) for the period amounted to $14.2 million, reflecting a rise of 103% over pcp.
• HUB declared a fully franked interim dividend of 7.5 cents per share, reflecting a rise of 67% over pcp, which is to be paid on 18 April 2022.

Revenue Share (Source: Analysis by Kalkine Group)

Acquisition of Class Limited:  As announced on 16 February 2022, the company finished the acquisition of Class Limited, which was announced in October 2021.

• HUB financed the acquisition via a combination of HUB24 shares ($268 million) and cash ($16 million), which will be reflected in the 2HFY22 results.
• The said acquisition is likely to ramp up its platform growth and its position as a leading provider of integrated platforms, technology, and data solutions for financial professionals.

Recent Updates:

• Recently, Catherine Louise Kovacs has made a change to holdings in the company by acquiring 3,750 fully paid ordinary shares at a consideration of $26.46 per share.
• On 16 February 2022, TIGA Trading Pty Ltd has made a change in substantial holdings in the company with a voting power of 6.64% against the previous voting power of 8.63%.

Top 10 Shareholders: The top 10 shareholders together form around ~40.06% of the total shareholding, while the top 4 constitute the maximum holding. Bennelong Australian Equity Partners Pty. Ltd. and TIGA Trading Pty Ltd are holding a maximum stake in the company at 7.56% and 6.64%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: During 1HFY22, the company recorded an EBITDA margin of 28.6% as compared to 26.8% in 1HFY21. It posted a current ratio of 2.67x in 1HFY22 as compared to the industry median of 1.39x. On the leverage side, the company recorded a debt-to-equity ratio of 0.04x in 1HFY22 as compared to the industry median of 0.69x.

Margin & Leverage Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Competitive Pressure: The company operates in a very competitive environment; hence rising market share of peers could impact the business growth.
• Market Volatility: HUB’s business growth could be impacted by extreme volatility in the investment market.
• COVID-19 Uncertainties: The company’s performance could be affected by the uncertainties in relation to the COVID-19 pandemic.

Outlook: The company expects ongoing strong net inflows to the Platform and is targeting an FUA in the range of $83–$92 billion by 30 June 2024. Looking forward, the company would continue investing in product innovation, customer service excellence and developing the platform of the future. HUB would leverage existing relationships with financial professionals and develop new opportunities. The company believes that it is in a decent position to leverage its product development expertise to deliver retirement solutions. In addition, it would continue to evaluate strategic growth opportunities to lead change in the wealth industry. On the back of the recent acquisition of Class Limited, the company would be focused on enhancing the scale and revenue diversification. It will also be focused on delivering expected synergy benefits and EPS growth from the Xplore & Class acquisitions.

Strategic Priorities (Source: Analysis by Kalkine Group)

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of HUB has a 52-week low-high range of $19.090 - $34.720, respectively. The stock has been corrected by ~11.45% in the past six months, respectively. The stock has been valued using a P/BV multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average, P/BV multiple, considering the market volatility and other material business risks, etc. For the purpose of valuation, a few peers like Pinnacle Investment Management Group Ltd (ASX: PNI), Pendal Group Ltd (ASX: PDL), Magellan Financial Group Ltd (ASX: MFG), and others have been considered. Considering the expected upside in valuation, growing revenue, rising FUA, enhancing market share, synergies from the recent acquisitions, optimistic long-term outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $27.240, as on 28 February 2022, 10:50 AM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

HUB Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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