The Hub24 Ltd (ASX: HUB) share price is heading lower today after the wealth management platform released its first-half result to the market.
The business has grown market share from 1.6% to 2.3% and is now the number nine wealth management platform in Australia, up from 11th over the last 12 months.
In early afternoon trade, the HUB share price is trading down 3% to $22.77. Does this represent a buying opportunity?
Operating leverage on show
HUB24 reported its platform Funds Under Administration (FUA) increased by 39% during the half to $22 billion. This was primarily driven by record net inflows of $3.1 billion, an increase of 24% compared to last year.
Including the recently acquired Portfolio Administration and Reporting Service (PARS) from Ord Minnett, the total FUA was $31 billion for the half.
As a result, HUB24 recorded an 18% increase in operating revenue from $52.7 million to $62.1 million.
Platform revenue led all operating segments, up 25% to $43.8 million. Licensee Revenue somewhat stagnated with the onboarding of new advisors and existing customers opting for self-licensing, increasing 3% to $15.0 million. IT services revenue increased 7% to $3.3 million, mainly due to software licensing and consulting services.
Moving down the income statement, gross profit increased 30% to $36.4 million, driven by strong cost control and net inflows.
Operating expenses were up 22%, which were spent primarily on increasing headcount resources dedicated to distribution and marketing, future platform development, and business strategy to drive future growth.
Underlying net profit after tax (NPAT) grew by 39% to $7.5 million, demonstrating strong operating leverage as the platform scales. Underlying EBITDA increased 41% to $16.4 million.
Management declared a fully franked dividend of 4.5 cents per share, an increase of 29% from the unfranked 3.5 cents per share interim dividend paid in the prior corresponding period. This represents a payout ratio of 40% of underlying NPAT.
Upgraded growth targets
Looking ahead, Managing Director Andrew Alcock commented:
“Given the acceleration of our organic growth and the completion of our M&A transactions, Hub24’s growth targets have been upgraded significantly to a target Platform FUA range of $43-$49 billion from $28- $32 billion by the end of FY22”.
Management noted the acquisition of Xplore is on track and is expected to be completed on 2 March 2021. Additionally, HUB24 now owns 38% of Easton Investments Ltd (ASX: EAS).
Is the HUB share price a buy?
HUB24 is in a battle with Netwealth Group Ltd (ASX: NWL) to take market share from incumbent wealth management providers.
Both are on similar growth trajectories, and in most cases fighting for spots number one and two in net inflows and customer satisfaction.
Ideally, I would like to own both HUB24 and Netwealth. That way, I wouldn’t have to pick a winner, just the horses that are leading the pack.
Currently, I think the share prices for both are inflated, so I’ll be waiting for a pullback for my entry point.
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