HUB24 Flows accelerate
Excluding acquisitions (PARS, XPL), HUB reported 3Q21 FUA of A$24.4bn, up 11% for the quarter and up 62% on the pcp. Including acquisitions, HUB24 now has A$35.6bn of custody FUA and A$15.8bn of non-custody (PARS) FUA.
Net flows were strong at A$1.92bn, up 41% on the pcp. The ClearView FUA transition (~A$1.3bn) is on track for 4Q21. Adviser numbers were up 21% for the quarter to 2,758 (including acquisitions) and up 8% organically. The clearest headwind is the inevitable revenue impact from a lower interest rate achieved on pooled cash.
Whilst the outcome creates downside earnings risk, we think HUB can ultimately absorb the impact and still deliver solid long-term growth. HUB continues to deliver strong forward looking metrics. Executing on the scale achieved (margin improvement) is now required, which is our base case expectation over FY22-24.
Add maintained. 3Q21: strong flows and adding in acquisitions HUB ended 3Q21 with total FUA of A$51.4bn, comprising Platform FUA of A$35.6bn and PARS FUA of A$15.8bn. The XPL acquisition was added in early March, adding A$11.2bn in custody FUA and A$6bn in non-custody. Excluding acquisitions, FUA increased 11% on the prior period and 62% on pcp. Of the increase, net inflows accounted for A$1.92bn and market movements A$518m. 3Q21 net inflows of A$1,920m (including a ~A$20-30m contribution from XPL), were up 41% on the pcp, with net inflows representing 8.7% of opening AUM (35% annualised).
Adviser number growth also remained strong, with an 8% organic increase for the quarter and 21% increase including XPL (a total of 2,758 advisers). 28 new licensees were signed in the quarter (versus an average of ~25 over recent quarters).
Earnings on pooled cash will remain the query An overview of the changes to pooled cash earnings are details in our note “Changes to cash come through”. Within our forecasts, we take a 40bp (increased from 30bp) cut to the pooled cash rate from 2H23 (effective ~60bp margin), and a 10bp improvement from this level from 1H25.
We note the 12-mth ANZ retail term deposit rate is 30bp and there remains some downside risk to our assumption (HUB’s earnings sensitivity to the deposit rate is ~5.2% EPS move for every 10bp change in the assumed deposit rate).
Our FY21/22 forecasts are largely unchanged (within 2%); and our FY23 forecasts are downgraded by ~4.3% which factors in the lower rate assumption. Add maintained Whilst there remains uncertainty around the outcome for pooled cash earnings, we believe HUB can absorb the impact and still deliver substantial growth on a long-term view.
We retain an Add recommendation as we believe the business can deliver scale efficiencies over the next three years which should result in a material earnings step-up.
Company description HUB24 (HUB) is a specialist investment platform provider, providing financial intermediaries (financial planners and wealth advisers) and their clients a technology solution to administer and manage investment portfolios.
HUB’s platform caters for superannuation and non-superannuation products and provides the ability to acquire, hold and administer a wide range of investments; and provides comprehensive reporting to advisers and their clients. HUB was established in 2007 and now administers over A$50bn of funds. Funds under administration (FUA) has grown at a compound annual growth rate of ~50% over the past three years and is now the largest ‘specialist’ platform by total FUA.
Valuation and risks
We value HUB at A$25.10ps (from A$25.19ps) using a DCF. Key downside risks include: revenue margin pressure arising from pricing and cash margins coming under pressure (in particular if the margin achieved from HUB’s deposit taking institution or any changes to HUB’s ability to generate a margin on pooled client cash holdings); aggressive/irrational competitor pricing; lower-than-expected inflows; loss of a major client relationship; higher-than expected cost growth.
Risks around the acquisitions also exist – completion, integration, client loss. Key upside risks include: large client wins resulting in FUA transition; expanded existing relationships (i.e. IFL); better-than-expected net inflows; better-thanexpected revenue margins achieved via pricing/product improvements; betterthan-expected market performance; and acquisitions.
– By CIMB Bank Research