February 15

HUB24 (HUB) : On the platform

HUB24 operates the HUB24 investment management platform, HUBconnect, the Xplore platform, and Class. The HUB24 platform offers advisers and their clients a comprehensive range of investment options, including market-leading managed portfolio solutions, and enhanced transaction and reporting functionality. As one of the fastest growing platforms in the market, the platform is recognised for providing choice and innovative product solutions that create value for advisers and their clients. HUBconnect focuses on leveraging data and technology to provide solutions to common challenges for stockbrokers, licensees and advisers and enable the delivery of professional advice to more Australians. We retain our fair value estimate for HUB24 at $24.50 per share, with shares screening as overvalued. The company’s growth initiatives appear replicable. Meanwhile, resurgent competition and regulatory constraints will likely limit pricing power and prevent any platform provider from building maintainable switching costs. We expect fee compression and continued growth investments to be the industry norm, limiting HUB24’s ability to expand margins. We expect HUB24 will still receive net inflows over the next five years, although its market share gains are likely to slow.

HUB24 aims to build a well-featured, frictionless platform that administers various investments, improves adviser productivity, and integrates with various products and systems. This facilitates cross-selling opportunities, becoming more engrained in adviser’s work processes, and ultimately creating switching costs. The costs needed to drive this strategy are not too prohibitive, however, with HUB24’s product development spend making up less than 10% of revenue in FY23. This is unlike other industries, such as logistics or insurance software, where product development spending can be 40–70% of revenue, hence discouraging competition. Unsurprisingly, HUB24’s rivals like Netwealth, Macquarie, Colonial First State, and BT Financial are pursuing strategies that are similar, which yielded market share improvements for most of them. The dollar amount being spent by HUB24 would be a small percentage of revenue for behemoths in the space, such as CFS, BT, and Macquarie. HU24’s volume and earnings growth are expected to slow down relative to the last five years.


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