Underappreciated margins

RESULTS

Need To Know

• Modest FY23 EBITDA beat, driven by better than expected margins from strong cost control and higher EPS driven by lower taxes
• FY25 FUA target is unchanged at $92-100bn and remains in-line with market forecasts of $94.8bn
• $50m buyback announced on strong capital position
• We expect continued upside to margins through improving operating leverage

FY23 result overview vs consensus

Revenue $276.3m +46% vs $278.8m

EBITDA $102.4m +46% vs $100.4m

EPS 71.0cps +48% vs 65.4cps

DPS 32.5cps vs 28.2cps (+$50m buyback announced)

Investment Implications

HUB delivered another quality result ahead of expectations in the face of ongoing market uncertainty. This was driven by strong cost control and improved operating leverage, as well as solid execution on strategic integration of previous acquisitions. HUB continues to improve its market share, now at 6.1%, up from 5.1% in the prior year. The strong result saw HUB confident enough to declare a $50m buyback program, although noted that it would retain the flexibility to take advantage of strategic growth opportunities.

Net flows continue to be solid, with HUB stating that since June 2020, average adviser FUA has grown by 88% to $16m. Of the $9.7bn of inflows in FY23, 75% were from existing licensees and existing adviser relationships, indicating the strong competitive position HUB maintains over competitors. We anticipate continued strong net inflows for HUB, with platform FUA as at 17 Aug 2023 at $64.5bn, up 2.8% relative to the FY23 balance of $62.7bn. Given a -1% FYTD market performance, implied net inflows for the quarter are up ~$2.4bn, ahead of market expectations. The 2-year forward guidance for FUA is unchanged at $92-100bn, and in-line with market expectations for $94.8bn.

Whilst no other numerical guidance was provided, a strong margin result will likely lead to upgrades as operating leverage in the business improves. Lower tax was a positive for the NPAT surprise, with the decrease attributable to R&D credits and movement in deferred tax balances.

Investment View

We continue to like the building blocks HUB is putting in place to maximise its chance of winning more share in the platform market. The expected addition of ~$4bn of Equity Trustees FUA over the next 12-18 months reinforces our view that HUB’s value proposition and competitive advantage, as well as its ability to offer a range of solutions for advisers, will drive growth in FUA-based revenue and 'Platform-as-a-Service' revenue streams. We retain the Buy.