Specialist platform providers like HUB24 are cutting a swathe into the market dominated by large fund managers. On-going investment in technology is helping the land grab and there is plenty more to come as advisers see the benefits of joining the program.
Platform FUA (Funds Under Administration) jumped 10.2% in the December 2021 quarter to just under $50 billion for HUB. Total FUA has now reached $68.3 billion as the PARS FUA (Portfolio Administration and Reporting System) increased 128% on last year to $18.3 billion.
Net inflows have surged 68% from a monthly average of $627 million in FY21 to $1.1 billion in 1H22. Assuming this run-rate persists, HUB is on track to achieve the top end of its FY23f FUA guidance of $63-70 billion. We think it will exceed this comfortably.
In addition to robust growth in custodial FUA, HUB continued to deliver growth in new distribution agreements and adviser numbers (+6% in the quarter). These metrics are leading indicators of net inflows and FUA growth.
Retail FUA slipped to 81% of the mix, nudged down by strong institutional net inflows while super FUA was flat at 3%.
HUB noted that its integration of Xplore was going to plan and the acquisition of Class was also on track to complete in February 2022.
Investment view
The specialist platform market continues to bear fruit for HUB as the legacy providers cede market share to the high-technology newcomers like HUB and Netwealth (NWL). While HUB and NWL together have a combined market share less than 10%, both are finding net inflows easy to come by as the incumbents either lack the technology leadership or cannot make their investments work effectively. In that sense, there is a big prize on offer for HUB and an extended period of earnings growth ahead which supports our Buy recommendation.
The share price has hesitated since October last year but we see this as an opportunity to accumulate a position.
HUB has flagged some accounting adjustments for its pending 1H22 result involving its recognition of share-based payments and amortisation expenses, but these are essentially one-off in nature. The main earnings risk stems from HUB’s ability to maintain net inflows and distribution agreements with advisers.
There is plenty of momentum in HUB’s business with its market share gains accelerating.
