Hub24: Short-Term Volatility Weighs

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Brokers lower price targets after Hub24's fourth quarter net inflows were impacted by market volatility though generally remain upbeat on the longer-term outlook.

-Hub24’s fourth quarter net inflows impacted by volatility 
-Management reiterated its FY24 FUA target
-Launch of a new SMSF service
-Ord Minnett sees structural tailwinds

By Mark Woodruff

After hitting an all time high of $34.72 last October, shares in specialist investment platform provider Hub24 ((HUB)) closed out last week at $18.00.

Confidence was further dented at the company’s inaugural investor day last Wednesday, when management revealed fourth quarter net inflows had been impacted by current market volatility. 

Net inflows are now expected to be flat compared to the previous corresponding period, which suggests to Jarden a -$0.5bn miss versus the consensus forecast.

While the company reiterated confidence in its funds under administration (FUA) target of $83-$92bn by FY24, Morgans has doubts around the timeline unless there is a meaningful uplift in investment markets.

The broker lowered its 12-month target price to $25.80 from $32.10 though retained its Buy rating. Indeed, brokers generally reduced earnings estimates over the forecast period and lowered 12-month target prices, while retaining existing ratings.

Credit Suisse (Outperform) noted macroeconomic factors are prominent drivers of Hub24’s near-term share price, and while disappointed by first signs of business deceleration, the slowdown is seen as temporary.

Outperform-rated Macquarie concurs, and views softer flows as cyclical, given the market backdrop. There’s considered to be upside risk to consensus FY23 expectations for the underlying business as the effects of higher rates and cash spreads are recognised.

Ord Minnett already sees evidence of this impact emerging and highlighted the platform margin remained stable at around 32bps, aided by interest rate impacts on the cash margin.

From a strategy perspective, the company announced it is soon launching a new service, which will allow Hub24 to act as the administrator of self-managed superannuation funds (SMSFs), without the need for an accountant, when investment needs are relatively simple. Management hopes its addressable market will be greatly expanded by combining the power of Hub24’s custody platform with its (acquired) Class technology.

Platform of the future?

Hub24’s platform and product development strategy will enhance its medium-term positioning with advisers, believes Jarden, sustaining market share gains for FUA.

The broker likes the company’s footprint and capability, and sees it better positioned relative to peers to provide more integrated solutions as a result of recent M&A activity.

Over the last 18 months the company announced the acquisition of self-managed super fund technology provider Class, as well as purchasing from Ord Minnett its PARS (portfolio, administration and reporting services).

The strategy day provided the analysts with greater insight into the "platform of the future", aimed at providing advisers and clients with a whole-of-wealth solution across both custodial and non-custodial funds. The company has traditionally focussed on custodial assets via platform accounts.

Shaw and Partners anticipates Hub24 will grow the overall SMSF market with its updated platform, leading to sticky, long duration, diversified and high margin revenue streams. In addition, the structural tailwinds of rising SMSF penetration and 12% superannuation guarantees by 2025 will add extra impetus.

Outlook 

Ord Minnett continues to see Hub24 as one of the clear winners in the platform market’s structural shift to independent platforms, while the investor day highlighted to JP Morgan the company’s strong platform credentials, top-tier customer service and alignment with advisers. 

JP Morgan, not one of the seven updated daily on the FNArena database, maintained its Neutral rating and lowered its target price to $22.00 from $22.50.

Among other stockbrokers not monitored daily, Shaw and Partners has a Buy rating and lowered its target to $34.50 from $37.80, while Neutral-rated Jarden lowered its target to $24.35 from $28.45.

The database of seven major stockbrokerages has five Buy ratings (or equivalent) and target prices ranging from $25.80 (Morgans) to the $38.00 set by Credit Suisse. The consensus target price is $31.38, which suggests 74.3% upside to the latest share price.

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