HUB 24 --Investor day notes--The platform beyond the Platform--top 10 holding

 HUB 24 Investor Day—the platform beyond the Platform?

Hub 24 held its Investor Day, which turned into a three-hour marathon. The basic investment case for Hub24 is well known. The platform market is growing, and Hub is growing its share strongly within it. Currently, HUB has 7.7% of the market, with the leader Insignia at 19. 6%. Several times during the presentation, the CEO pointed at that number and implied that Hub should get there as a basic expectation. This story is well known. It is driven by the superior product and client engagement, getting more advisor networks on board. Secondly, by convincing advisors 1 by 1 to join the platform, and thirdly, the advisors move all their clients 1 by 1 onto the hub platform. From start to finish, this is a six-year exercise. That growth is well entrenched IMO. I assume that HUB get a share above 30% since it is only HUB and NWL that are gaining much share.

There was another part to the presentation. Which was not that well known, not to me anyway. Hub spoke about their plans for the next leg of growth. This will be built off the Class and Nowinfinity businesses. The tech platform has seen enormous investment over the last several years. This investment has the aim of using their tech expertise to build products using the acquired and original data sets. These products will be ingrained into advisors' workflows. Secondly, as they have mentioned before HUB is looking at various new markets such as the non-public markets, Industry funds, Family Offices, Alternative assets and any other non-custodial assets. These growth targets are a mix of new asset classes and new customers to bring onto the platform. They reiterated their ambitions in this space.

The interesting thing was they spoke about creating a platform and not an investment platform as in Hub’s existing platform, but an overarching tech platform with a much bigger agenda. These include building new products and covering new services, that have many touch points with their customers and will ingrain HUB24 into the advisors' workflow. HUB reiterated that they will not write advice, so there is no risk there but it is clear they want to play a much larger part in helping advisers write their SOA, etc. A “copilot” to the advisers. Someone asked why GOOGL or MSFT wouldn’t do it. HUB responded that much of their work is customising and working with local regulations, Big tech could do it but more likely they have bigger fish to catch at this stage.

I will have to listen to the presentation again for more detail, or at least selected parts of it because I'm sure the CEO said that it was possible that the tech business could grow to be bigger than the platform business. Since the platform business is growing strongly in this five times the size of the tech business now. That could be a big deal.

It appears HUB wants to build a broad-based platform, built on quality data, many touchpoints and products for the client base. They also spoke about investing in AI machine learning, which is now sourcing data and completing various tasks that are in demand from clients. The head of tech said he saw AI as a solution looking for a problem but when a problem was found and solved, it saved a lot of time and money. That appears like it will be an ongoing process. As more complex products are rolled out and more problems are solved. Hub is positioning itself to be the provider of choice in this space.

I always wondered why Hub was buying these tech platforms and why it bought Class. These businesses seemed a lot less profitable and offered a lot less growth than the basic platform business. So why diversify into something that was offering lower growth and profits? Now it is becoming clear what they are up to. These businesses with their quality data and advanced tech are the building blocks for the next leg of growth at Hub. Jason Entwistle said it would have taken them 15 years to replicate what they were able to buy. Now they're in the position to roll it out.

 

 

 

My valuations of Hub are based pretty much on the platform business and not much else. I can see about $50 a share there without too much trouble. What they're talking about here is possibly a quantum above that. They did mention Zero is a platform they look at, being in accounting, and they want to replicate that in advisor services, a significant spreading of the product base.

These growth areas are, of course, much less certain than the gains in the Platform business which I see as much more certain. But if they do have success here, it will justify the share price, maybe higher. Maybe this is why these businesses trade at the high multiples they do, well above any reasonable assessment of exit market share, because they have the optionality to spread the engagement, products and profits once they are in the customers' processes. At this stage, for me, it's wait-and-see, have a think about it, and see how this plays out. Exciting times.

Add-ons after the second listen—mainly regurgitations

When the best interest rules came in IFA’s interpreted them as needing to not be concentrated on one platform. That is changing as HUB increases its products so that IFA’s can legitimately concentrate onto one platform and benefit from the efficiencies that it generates. They quoted that over the last three years, the % of IFAs that think they can use only one platform has gone from 18 to 28%. I believe this number will go higher and there will only be two big winners.

HUB quoted that of the 10,000 advisers that can use their platform, that is, agreements in place, only 4,500 actually use them. One of the reasons for this is institutional alignment. That is now changing with the final removal of majority ownership of AMP and Insignia adviser networks and the broader shift from institutional to private ownership. The ability of advisers to move is now greater. I think that it will generate movement activity that makes a lot of sense to me, although it will be a long slow but inevitable journey IMO.

HUB stated that of the advisers they service 10% have more than $50m on the platform. These are the advisers who have taken HUB as a core service. In other words, 90% use HUB but “underused” what they could potentially do on the platform, meaning the addressable market where contact is already made is large.

The Investor Day summarises that the story has a long way to go, the numbers on this are clear and success depends on effective execution. Secondly, HUB has invested an enormous amount in building and acquiring tech expertise and quality data that they believe is next to impossible to duplicate. These efforts will lead to a broad sweep of products that will be leading and embedded further into the workflows of their clients, significantly increasing their addressable market.