Why we think Hub24 is a quality growing company
The Australian superannuation system is often seen as one of the envies of the world. With assets totalling $3.7 trillion, our system is the fourth largest in the world and grew by 10 per cent over 2023 from a combination of contributions made to superannuation and underlying investment performance.
Over the course of 2023, Australians made contributions of $172.6 billion into super. What is more interesting, however, is this pool of assets also made benefit payments (comprising of lumpsum payments and pension payments) over the year of $111.1 billion, according to the latest official statistics from the Australian Prudential Regulation Authority (APRA).
Given the growth tailwinds attached to our superannuation industry, at times, it has been considered a hotspot for investment. When we think about making investments in the Montgomery Small Companies Fund, we like to look for stocks that are market share takers and also participate in industries that offer structural growth tailwinds.
One such company is Hub24 (ASX:HUB), which has been a material investment in the Montgomery Small Companies Fund for some time. We like Hub24 for a number of reasons, firstly, it is one of the few direct ways to gain access to the ever-growing support for our superannuation system.
Secondly, they are leveraging technology in a broad manner to improve efficiency of their own internal business operations while also providing strong solutions to their end clients (mainly financial advisers and wealth management professionals), which further aids in improving the operational leverage of the business.
According to recent company reports and industry data, currently, Hub24 enjoys a 6 per cent market share in the superannuation and asset administration platform market. The average market share of the four major incumbents is 16 per cent each, given Hub24 is currently the fastest growing platform in this market there is still significant upside for them in market penetration alone.
Couple this with the ever-growing need for advice, and the structural tailwinds of flowing investment into superannuation. Hub24 enjoys an environment that is supportive of its growth, which when matched with their market share winning strategy, the company provides investors with a structural growth story that we believe still has some time to run.
The two key measurements for success in this market are firstly, inflows of new investor money, of which Hub24 has enjoyed $10 billion in net inflows over the last 12 months, the second is, platform margins which for Hub24 have increased consistently from financial year 2017 through to their most recent report where margins have increased from 17 per cent to 45 per cent.
We see our investment in Hub24 as an exposure to a quality growing company that has strong demographic tailwinds in the ever-growing pool of superannuation assets, coupled with their technological edge and market sharing winning proposition.
At a fundamental level, Hub24 also has a strong balance sheet with a current net cash position at the end of 1H24 of $61 million, from which they have allocated $40 million to commence a share buyback scheme.
The Montgomery Small Companies Fund own shares in Hub24. This article was prepared 22 April 2024 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Hub24, you should seek financial advice.
Michael Gollagher has over 18 years’ experience in financial services with distribution roles spanning investments, platform and advice. He joined Montgomery in June 2019 as an Account Manager to manage the firms relationships with financial planners and research accounts in Queensland. Prior to joining Montgomery, Michael was the Business Development Manager in Queensland at Perpetual Limited for 13 years managing financial planning and dealer group accounts across Queensland.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
