Hub24 Limited (HUB)
BUY

Platform scale

 21 Feb 2023
Sector: Financials

1H23 RESULT

Need To Know

  • Earnings +5% ahead of market, dividend 9% ahead 
  • Strong clean result, outlook guidance unchanged
  • Solid cost/headcount growth in 1H has continued
  • Guidance reaffirmed: FUA target of $80-89m by end FY24

A better-than-expected result was assisted by a 5% revenue beat vs market. EBITDA was in line with the market at $50m, whilst NPATA of $26.6m was ahead of the market at $25.5m. Dividend of 14cps vs market at 12cps.

The stronger revenue performance was driven by higher fee margins in the core Platforms business, with margins up by 37bps. HUB continues to deliver in spades.

Revenue growth of 69% yoy is a great outcome, albeit the cost base is growing just as fast, up 69%. Ex the acquisition of Class, cost growth would have been just 23%.

Result quality was high with strong cash generation in the half, leaving the Group with ~$30m in net cash.

Expect low single-digit market earnings upgrades for HUB on the back of stronger margin performance in the platform's business.

Investment View

HUB’s strategy continues to enhance the platform's value proposition and competitive advantage and deliver a suite of solutions for advisers that should drive growth in FUA-based revenue and ‘Platform-as-a-Service’ revenue streams.

The strong 1H23 result suggests operating momentum within the business remains robust. With further RBA cash rate increases expected this half, the margin improvement is likely to continue into FY24E.

HUB’s growth runway remains long dated with a significant market share opportunity up for grabs. HUB is strategically well-placed to capture more of this market share. The recent addition of Class will help with that regard.

The de-rating of technology companies over the last two years has seen HUB’s EV/EBITDA collapse in half. With market estimates of earnings growth of >20%pa over FY23-25E HUB continues to look undervalued in our view.

Like its peer Netwealth Group (NWL) we view the assumption of the market around margin improvement as too conservative and would expect to see margin-led earnings upgrades over time. We rate HUB a Buy.

Figure 1: HUB FY1 EV/EBITDA multiple has halved since 2021, whilst growth has remained robust. Earnings growth expected to average >20% in FY24-25e.

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Stock Overview

Share Price

Company Overview

HUB24 Limited is an Australia-based provider of integrated platform, technology and data solutions. The Company provides technology and data services through HUBconnect Pty Ltd (HUBconnect) and Agility Applications Pty Ltd (Agility).

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