Another Record Set!
Financial services platform, HUB24 (ASX.HUB) has done it again having broke another record with the latest quarter report highlighting an impressive run with Funds Under Administration making a massive year-on-year surge. Today, we take a look at how it has tracked since the last quarterly update as well as some key business deals.
What’s new?
At the end of March (FAT-AUS-1014), we covered some concerning developments for HUB24 as one of its rivals, Netwealth (and biggest listed player in the sector), are in negotiations with ANZ regarding its deposit arrangements which are set to be terminated in 12 months. There are expectations that the terms would shift from the 95 basis points above the T overnight cash rate to potentially lower (~40bps) levels – terms not as favourable for the sector and could pressure margins.
With that development, there could be the possibility that a similar development or worse for HUB24. At this point, however, there hasn’t been much in the way of news and we will continue to monitor developments as this does have a tremendous impact on the company’s topline.
Since then, there have been two key updates for HUB, the (i) first is the company issuing its third quarter (3Q21) report which we review below. The next one (ii) the deal with ClearView Wealth. The latter update has HUB24 completed the wrap platform development and bulk transition. This transition entails the transfer of $1.4 billion in Funds Under Administration (FUA) to HUB24’s private label solutions.
Last year, Clearview’s WealthSolutions2 white label for investor directed portfolio service and Super was launched onto HUB24’s network and has since reached 14 managed portfolios available to financial advisors. This is a key win for HUB24 and shows the strengths of its strategy from building up organic and acquisition-based approaches to grow FUA.
On that note, let’s see how management has expanded the group’s scale in the latest report:
3Q21 Trading Update
Looking at the trading update, 3Q21 performance continues to reflect impressive momentum that started in 1Q21 and FUA continues to trail higher breaching a new record level. It’s also pleasing to note that the pace has also increased with the average monthly net inflows up 35% year-on-year to $556 million.
Moving on to FUA metrics, Custodial Platform FUA reached $35.61 billion at the end of the period, which surged over double (+135.8%) on a year-on-year basis. Total FUA has nowe ballooned to $51.39 billion, including the $15.77 billion of non-custodial FUA from the Ord Minnett PARS acquisition (+100x). This stellar result was driven by record platform quarterly net inflows of $1.92 billion – up 40.9% on the net inflows year-on-year – while the acquisition strategy has provided a large chunk of the growth. It seems that management’s platform FUA target (~$43bln to $49bln) are well within reach.
The image below illustrates the impressive results:
Source: 20 April 2021 HUB24 Filing
Recent trends in the area have been encouraging, as more Financial Advisers seek to be ‘independent,’ and open their own boutique Advisory/Licensee firms and then transition clients toward independent Financial Services Platforms. That said, the company has since attracted more Advisers and brought the tally to 2,758, up 41% year-on-year.
Source: 20 April 2021 HUB24 Filing
Given the company’s offerings (platform, managed portfolios, super) are attractive and market-leading, we expect to see more growth with more Boutiques, Brokers and Independent Advisers onboarding. Going forward, HUB24 maintains an impressive new business pipeline with the signing of 28 new licensee agreements during the March quarter. These include agreements with both large boutique licensees and self-licensed practices as well as cross-selling from Xplore solutions. Growth in this area should lead to more FUA inflows as well as transaction fees.
We retain our long-term positive view on HUB24, and indeed on the other financial service platform operators which we cover, given the degree of implicit operating leverage. A high degree of fixed costs will see the current lofty earnings multiples drop away over time, as HUB24 continues to grab market share in a fragmented sector, and with Australia’s underlying pot of investable funds growing strongly.
We maintain a Buy rating on HUB24 for Members without exposure.
Disclosure: Interests associated with Fat Prophets declare a holding in HUB24.