Search by ticker code:
Generic filters

Does Hub24 Ltd’s Best Growth Lay Ahead?

Hub24 Ltd (ASX: HUB) is a leading investment and superannuation platform offering a wide range of products for advisers and investors.

What does Hub24 Do?

Hub24 is an Australian financial technology business that creates portfolio management and Superannuation software. Founded in 2007, you can think of Hub24’s software as a way to better manage investments in shares and other assets.

Hub24 has a strong management team with decades of experience within the wealth management industry and in the development of platforms.

Success Driven by Satisfaction

Hub24’s success has been driven by the satisfaction its platform has provided to its customers. Hub24’s platform ranked third in satisfaction behind Netwealth Group Ltd (ASX: NWL) and CFS FirstChoice according to the Investment Trends 2018 planner technology report.

I think Hub24’s growth potential is clear, as it captured ~18% of all platform inflows in FY18, whereas its current market share of funds under administration is only 1%, according to its 2018 AGM presentation. This growth in inflows resulted in year on year revenue growth of 36% to $84 million in its 2018 financial year (FY).

How much is it worth?

Hub24’s share price has risen 24% over the past 12 months, which is supported by its strong operational performance.

Based upon the current share price of $11.83 Hub24 appears very expensive with a trailing price-earnings (PE) ratio of 98x. The current market capitalisation of Hub24 is $752 million.

However, if a longer-term view is taken, I believe a 2023 market capitalisation of ~$1.66 billion is quite achievable, implying considerable upside. This valuation is based upon a range of assumptions detailed below.

Given the strong growth in flows to the Hub24 platform, I have assumed a compound growth rate in revenue of 36% per annum between FY2018 and FY2023. Forecast 2023 revenue will therefore equal ~$390M million.

I also assume the profit margin will continue to grow as its scale increases. Underlying NPAT margin expanded to 6.4% in FY18, from 3.9% in FY17. Hub24’s most comparable and larger competitor Netwealth achieved a profit margin of 34.9% in financial year 2018.

I will assume a conservative profit margin of 25% to be achieved in 2023, translating into a net profit in excess of $97 million.

Applying a PE ratio of 17, Hub24 could have a market capitalization of $1.6 billion in 2023. However, these are simply my forecasts and things can change quickly.

Source: www.marketindex.com.au

Having said that, the historical PE ratio for an average company on the ASX is approximately 15x, as illustrated above. I have assumed a price-earnings ratio of 17, as Hub24 is a company with above-average growth prospects.

Summary

Hub24 is a growing fintech company that is well managed and has room to expand its profit margins. However, investors need to pay up for the right to own its shares. Nonetheless, in my opinion, I see value in the shares today.

Free report: 2 Rapid Growth ASX Shares

[ls_content_block id=”14947″ para=”paragraphs”]

FREE & NEW: Our Complete Passive Income Strategy

With interest rates UP, now is one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% -- or more -- in dividend passive income from the best shares, LICs, or ETFs... it's like free money credited to your bank account.

So how do the best investors do it?

Whether you have $2,000 or $2,000,000, our Chief Investment Analyst Owen Rask has just released his brand new ASX Passive Income Report. Featuring the best dividend ETFs, LICs, funds and shares, this report cannot be missed by anyone wanting passive income in 2022 and 2023.

You can INSTANTLY access Owen's report -- or get it emailed to you -- for FREE by CLICKING HERE NOW or the button below.

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.