The news that ANZ Bank will divest most of its wealth management arm to IOOF is sweet music to HUB24 chief Andrew Alcock, because it reflects how the banks are distracted in the all-important ‘platform’ sector.
“HUB is competing with major institutions dealing with massive structural change and that’s where we are winning and excelling,’’ Alcock told this year’s Australian Microcap Investment Conference in Melbourne.
HUB provides an independent wrap platform for financial advisers, accountants and advisers, so that they can easily handle client investments across different asset classes and legal structures.
Overall, the platform is used by 108 financial service licensees.
Alcock brandished industry data showing that HUB is the fastest growing platform relative to its size and the fifth fastest in dollar terms.
HUB recorded $2bn of new inflows in 2016-17, taking funds under advice (FUA) to $6.2 billion (as of September 30).
Management is targeting $12bn of FUA within the next three years. Given the flows have grown at a compound annual rate of 95 per cent, this isn’t exactly a pipe dream.
While HUB accounts for 0.6 per cent of funds under advice, it’s grabbing 10.4 per cent of inflows.
“We are achieving higher net flows than ANZ or AMP,’’ Alcock says.
Netwealth, another independent provider is also doing well on funds flow ahead of a planned listing next month that will value the group at around $800m.
“The independent platforms are winning in a space where banks are questioning their presence in wealth,” Alcock says.
In January HUB acquired Agility Applications, which provides tools to stockbrokers that are also undergoing structural change as they transform from research and broking to financial advice.
One feature is the ability to buy shares listed on 15 foreign exchanges in the same way they would trade local shares.
In the 2016-17 year HUB24 delivered a maiden profit to patient investors: an underlying net profit of $3.9m compared with a $1.5m loss previously.
While 45 per cent higher, HUB’s revenue of $62m in 2016-17 was still modest, reflecting the tight margins in the sector. Alcock, however, believes it will be harder for new entrants to gain a foothold, given it’s taken HUB a decade to build its technology.
“You need to have jumped aboard a few years ago after FOFO (the Future of Financial Advice) reforms and other changes in the market place,” he says.
Now with a market cap of $520m, HUB24 has graduated from microcap territory and trades on an earnings multiple of 45 times.
Arguably that accounts for the likely upside in the short term as those almost guaranteed funds from compulsory super roll in.
Broker Ord Minnett asserts that based, on HUB’s current funds inflow trajectory it would account for $42-69bn of FUA by 2025 (in a sector worth $1.4 trillion, mind you).
If HUB’s valuation seems heady, the Netwealth IPO is being pitched on a multiple of 27 to 32 times.
HUB investors including Thorney Investments and Acorn Capital can thank the financial gods the board didn’t engage with IOOF which offered $2.75 a share two years ago.