Investment view
HUB reported a strong FY22 result. Net inflows were suggested to rebound in early FY23 from the subdued 4Q22. The market had a negative reaction to the result which we found surprising; this suggests that the market was underwhelmed by the beat. The result highlighted strength in the core platform (margins up ~130bps), growth in Class (+20% EBITDA growth) and decent operating leverage.
Deeper dive into the results. Revenue in-line with market $189m. FY22 EBITDA of A$70.4m (+94% y/y, >55% organic growth) vs 61m market. Underlying NPAT of $35.9m came in 10% above consensus. Interest costs, amortisation and share-based payments came in higher than expected dulling the overall positive earnings beat. Amortisation ~16m (50% above market). Full-year DPS of 20cps came in the above market (+18%).
Segment Margins: Platform rev margins were down marginally y/y (-4bps) caused by lower-than-normal fee-tiering. Industrial rev margins grew +5bps due to benefits from the ClearView transition. Xplore Super admin rev margins slid ~4bps as management has confirmed the discontinuation of the super admin services provided through DIY Masters. Platform EBITDA Margins expanded significantly by 128bps despite compression in FUA. Group EBITDA margins grew 307bps driven by benefits from the Class acquisition.
Outlook and Guidance: Funds under advice (FUA) guidance for FY24 was lowered following the market correction throughout 2H22. The bottom end of the revised guidance range is in-line with consensus expectations. FY23 has seen a strong start so far with FUA increasing ~8%. Given this solid performance and the stronger-than-expected result, we see low single-digit upside risk to FY23-25 consensus forecasts.
Summary: 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. With the benefit of a strong result and a robust positioning moving into FY23 we reiterate our Buy rating.
Risks to investment view
Key risks for HUB are 1). Slowing/Reversal of net-flows to the platforms. 2). Costs increasing faster than expected. 3). Loss of market share due to competitors’ stronger technology offerings (NWL, PPS, AMP and MQG). 4). Regulatory risk putting pressure on the pricing structure. 5). Compression of cash margins 6). Worse than expected market conditions that compress assets held by the platform segment.
Investment view
We have retained our Buy recommendation.
