HUB24-FH26 result-top 10 holding--Gaining share in strong industry

 

HUB24 FH26

Strong results from HUB, with group revenues +26%, driven by Platform +30% and Tech +10%, EBITDA +35%, with platform +40%, Tech 2% and group NPAT +80%. Clear operating leverage that we have seen for some time.

FUA was $152.3B, +26%, which was already reported. Net flows $11B, very good (already reported), and the surprise was HUB increased their guidance for FUA from the last guide only 6 months ago, by +$12B to Fy27 $160-170B. For several halves, Hub has been ahead of my numbers. FUA comprises platforms $128b and PARS $25B. The most profitable segment is driving the flows.

As at 9/25, market share 9.3% (my est 10% 6/26). Interestingly, Hub saw the largest increase in market share, +1.5%, over the last 12 months. HUB said that the average FUA by advisor on the HUB platform was $24m, whereas the average advisor FUA is $85m; most gains are coming from existing advisors switching more FUA. Likely to continue. Advisor numbers +8%, yoy, and HUB has 34% of advisors using the platform, and 79% of advisor groups have a relationship. Therefore, the door is open for more advisors and more platform utilisation. A trend that has been evident for many years. 81% of industry lows over the last 12 months went onto two platforms, with Hub being 47% of that (NWL the other). HUB states that it can take 5-6 years for an advisor to move all his clients onto a new platform. Constrains can include tax issues, embedded favourable insurance policies and assessing overall benefit.

The second surprise was the stable revenue margins. Revenue margins usually decline as tiered pricing and discounts for volume weigh on the average fee. In this result, the margin was stable, resulting in a big income uplift, as cash margin and trading margins were better. That is, the cash spread and cash holding levels were better, and trading activity (extra fees) was higher; this is a cyclical outcome. My numbers assume a constant compression in spread over time, more than offset by volume gains.

One of the biggest pushbacks I get on HUB is that all platforms are the same. HUB continues to lead in feature development and engagement with a synchronised ecosystem across what is now many products.

“Technologies such as myhub, HUBconnect, our client portals and Engage and leveraging our unique capability to safely enable industry transformation, enhancing our group footprint to deliver more products to more customers and strengthening our customer relationships….And so as such, our platform creates a single solution for advisers and advice practices to deal with multiple client segments in a seamless transition across those life stages and across those product opportunities, hence, driving advocacy and market share growth….We have teams of people focused on individual relationships and how we help advisers do more. We have teams that help advisers transition clients from incumbent solutions to ours on a best-interest basis if it makes sense. So we have handholding services to actually accelerate that transition over.” I see the gap widening, not closing, compared to most of the competition.  

HUB is introducing a retirement savings product with TAL that integrates across the tax and social welfare networks and lives on the HUB platform (I suspect). The trustee is planned to come in-house and has risk and compliance implications, and HUB is planning to build products around it. Note HUB was not caught by the recent industry issues, First Guardian and Shield. Control their own destiny.

Interestingly, Hub is gaining market share from the industry fund rollovers. They explained that as super balances grow, clients are seeking more expert advice, which plays into the role Hub and its client advisors play.

Tech result was impacted by expense timing, but it is an inherently lower growth product versus platforms.

HUB went through their AI credentials and spoke to data integration across their products, as well as onerous trust and regulatory issues for uncontrolled AI in this space. HUB stated that product improvement is the first objective, ease of use, productivity improvements, and cost out will come much later. They will advance slowly here with due regard to risk, but advance on product velocity.

SUMMARY and VALUATION

The growth here is embedded in favourable industry dynamics and market share gains. HUB, therefore, displays aspects of an annuity-style business. less chance of volatile outcomes. Having said that, the last result showed some cyclical benefits in cash and trading.

My valuation assumes 20% 5y eps growth and a 32X exit multiple, which generates 10% returns around an entry price of $60. Over the last year, I have bought stock at $52 and sold some at $103, and I think those are reasonable levels, growing at 15%pa with intrinsic value. $65-118 as a buy sell range. Longer term, I think there is a chance Hub is the industry leader, now No. 6.

Hub is currently the largest domestic position in my portfolio.









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