Company Overview: HUB24 Limited (ASX: HUB) is an ASX-listed diversified financial services provider. The HUB24 platform offers advisers and their clients a comprehensive range of investment options, including market-leading managed portfolio solutions and enhanced transaction and reporting functionality. The company was listed on ASX in July 2007.

HUB Details

Decent Market Share to Aid Future Business Growth: The company is continuing to grow and improve its proposition by delivering customer value and growth, building the platform for the future and collaborating to shape the future of the wealth industry. The company’s business seems to be in a decent position with a market share of ~4.6%, ~19%, and ~12% in the Australian Investment Platform Market, Managed Account Market and Portfolio, Administration and Reporting Services (PARS) Market, respectively. As of 31 March 2022, the company’s market share in the Australian Investment Platform Market has increased to ~4.9% from ~2.5% as of December 2021. On the back of the recent acquisition of Class Limited, the company is focused on enhancing its core Self-Managed Super Funds (SMSF) strategy for the benefit of customers of both businesses, delivering growth and accelerating the market. In addition, the company is expecting an initial joint product development pilot launch in Q1FY23.

Insights of Q3FY22: During the quarter, the company signed 21 new distribution agreements, and the total number of advisers using the platform rose by 24.4% to 3,432. The below picture provides an insight into the company’s performance in Q3FY22:

Q3FY22 Summary (Source: Analysis by Kalkine Group)

1HFY22 Highlights: The following picture gives an overview of the business performance for the half-year ended 31 December 2021:

Financial Summary (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around ~40.50% 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: HUB recorded a debt-to-equity ratio of 0.10x in 1HFY22 as compared to the industry median of 0.68x. The company posted a net margin of 10.4% in 1HFY22 against 13.7% in 1HFY21.

Margin Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Market Volatility: The company is exposed to risks arising from the extreme volatility in the investment market.
• Competitive Pressure: HUB’s operational and financial performance could be affected by the rising market share of peers in the industry in which it operates.
• Credit Risk: The company is exposed to risk arising from failure to meet contractual obligations by counterparties.

Outlook: The company believes that its continued investment in product innovation, customer service excellence and development of the platform may position the business for future growth. The company is focused on pursuing growth through improving existing relationships with financial professionals and developing new opportunities. Moreover, the company is focused on increasing scale and revenue diversification, which would be supported by the recent acquisition of Class Limited. The company seems to be optimistic about increased profitability and enhanced margins in the near future and synergy benefits and EPS growth from the Xplore & Class acquisitions. The company would continue to evaluate strategic growth opportunities to lead change in the wealth industry. For FY24, the company is targeting Platform FUA (excluding PARS FUA) in the range of $83bn-$92bn.

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 $22.250 - $34.720, respectively. The stock has been corrected by ~11.72% in the past three months. 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, considering the investment market volatility and other material business risks, etc. For valuation, a few peers like Pinnacle Investment Management Group Ltd (ASX: PNI), Netwealth Group Ltd (ASX: NWL), Magellan Financial Group Ltd (ASX: MFG), and others have been considered. Considering the expected upside in valuation, growing net inflow, rising FUA, decent market share, expected benefits from recent acquisitions, optimistic long-term outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing market price of $23.540, down by ~3.007% as on 06 June 2022.

Markets are trading in a highly volatile zone currently due to certain macroeconomic 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 for 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 stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in stock prices tend to find resistance when they are rising, and an 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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