HUB24: Flows accelerate

About the author:

Scott Murdoch
Author name:
By Scott Murdoch
Job title:
Analyst
Date posted:
20 April 2021, 5:30 PM
Sectors Covered:
Contractors/Developers, Consumer, Diversified Financials

  • Excluding acquisitions (PARS, XPL), HUB24 (ASX:HUB) reported 3Q21 FUA of A$24.4bn, up 11% for the quarter and up 62% on the pcp.
  • Including acquisitions, HUB now has A$35.6bn of custody FUA and A$15.8bn of non-custody (PARS) FUA. Net flows were strong at A$1.92bn, up 41% on the pcp. The ClearView FUA transition (~A$1.3bn) is on track for 4Q21. Adviser numbers were up 21% for the quarter to 2,758 (including acquisitions) and up 8% organically.
  • The clearest headwind is the inevitable revenue impact from a lower interest rate achieved on pooled cash. Whilst the outcome creates downside earnings risk, we think HUB can ultimately absorb the impact and still deliver solid long-term growth.
  • HUB continues to deliver strong forward looking metrics. Executing on the scale achieved (margin improvement) is now required, which is our base case expectation over FY22-24. Add maintained. 

3Q21: strong flows and adding in acquisitions

HUB ended 3Q21 with total FUA of A$51.4bn, comprising Platform FUA of A$35.6bn and PARS FUA of A$15.8bn. The XPL acquisition was added in early March, adding A$11.2bn in custody FUA and A$6bn in non-custody.

Excluding acquisitions, FUA increased 11% on the prior period and 62% on pcp. Of the increase, net inflows accounted for A$1.92bn and market movements A$518m.

3Q21 net inflows of A$1,920m (including a ~A$20-30m contribution from XPL), were up 41% on the pcp, with net inflows representing 8.7% of opening AUM (35% annualised).

Adviser number growth also remained strong, with an 8% organic increase for the quarter and 21% increase including XPL (a total of 2,758 advisers). 28 new licensees were signed in the quarter (versus an average of ~25 over recent quarters).

Earnings on pooled cash will remain the query

An overview of the changes to pooled cash earnings are details in our note “Changes to cash come through”.

Within our forecasts, we take a 40bp (increased from 30bp) cut to the pooled cash rate from 2H23 (effective ~60bp margin), and a 10bp improvement from this level from 1H25.

We note the 12-mth ANZ retail term deposit rate is 30bp and there remains some downside risk to our assumption (HUB’s earnings sensitivity to the deposit rate is ~5.2% EPS move for every 10bp change in the assumed deposit rate).

Our FY21/22 forecasts are largely unchanged (within 2%); and our FY23 forecasts are downgraded by ~4.3% which factors in the lower rate assumption.

Add maintained

Whilst there remains uncertainty around the outcome for pooled cash earnings, we believe HUB can absorb the impact and still deliver substantial growth on a long-term view.

We retain an Add recommendation as we believe the business can deliver scale efficiencies over the next three years which should result in a material earnings step-up.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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