The Platform market is a large and growing pie for independent providers such as HUB24 to supplant the legacy banks and institutions. HUB is well placed with its established platform and evolving technology, products and services.
HUB’s adviser base has grown at 25% pa since 2018. At 3,432 advisers connected to the HUB platform, there is still substantial room for growth with over 17k licenced advisers across the Australian market. About 70% of net flows are being generated by advisers who joined the platform more than 12 months ago, but less than 20% of advisers are currently utilising HUB. The company obviously sees this as a significant incentive to enhance the value proposition of the custodial platform. Further investment in customer service and educating the market on the value of managed portfolios should also see more advisers attracted to the platform. This will drive sustained growth in FUA.
HUB’s ‘platform of the future’ will help advisers to implement investment, tax and strategic advice. The launch of a pilot program that utilises the combined capabilities of HUB24, Class and NowInfinity is aimed at investors who are on a path towards a SMSF but lack the necessary account balance. At a cost that is comparable to retail super funds, this SMSF ‘incubator’ could open up a new market for advisers and HUB. Technology will be a catalyst for HUB to integrate its services and products to provide a ‘whole of wealth’ solution for financial professionals and their clients.
The near term market volatility is presenting a challenge. Net flows for 4Q22f are expected to be in line with the same period last year. Net inflows in 1H22 surged to $1.1 billion per month, but recent increased market volatility has slowed this to approximately $2.5 billion for the final quarter (excluding transactions). The ~12% fall of the ASX200 year-to-date will also compress total FUA, partly offset by increased cash management fees which are now close to the 1.75% fee cap. The outlook for the next few years of FUA growth could be slightly less exuberant than recent history but positive, nonetheless.
Investment view
The Australian investment platform market has undergone substantial change in the last decade since ASIC introduced the Future of Financial Advice (FOFA) reforms back in 2012. The Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Service Industry opened the floodgates for the independent platform market as the major institutions began their exit from the wealth industry. HUB has been building its proficiency and services over most of that time frame resulting in a sturdy and growing business that still has plenty of runway ahead.
HUB is now seeing the next stage of convergence between advisory, stockbroking and accountancy firms that could accelerate the platform industry.
HUB Management sees FY24f FUA at $83-92 billion. Given the turbulence in global equity markets that has emerged, we think the lower end of that range is more realistic.
Growth stocks have also been experiencing a de-rating and this has tempered enthusiasm for stocks like HUB. Despite this, the longer term outlook for HUB remains compelling.
Risks to investment view
FUA growth may not achieve the results anticipated due to competition or potential regulatory changes.
Recommendation
We have retained our Buy recommendation.
