Financial platform and licensee service provider Hub24 Ltd (ASX: HUB) announced its financial report for 2016 earlier today. The results show that the company is moving in the right direction and the market responded well to the news with shares trading 4.4% higher early this afternoon. Here are some of the highlights from the year:
- 49% revenue growth to $43.7 million
- 77.8% reduction in net loss after tax from continuing operations to $1.1 million
- Positive earnings before interest, tax, depreciation and amortisation (EBITDA) for the second half of 2016
- 94.1% growth in retail funds under administration (FUA) to $3.3 billion
- 56.7% reduction in loss before tax to $2.3 million
- Forecast profit before tax (PBT) for the first half of 2017
The company's software division generated $15.4 million of revenue, up 91.3% on last year, and was responsible for most of the 49% revenue growth for the group. The division has recorded a compound annual growth rate (CAGR) of 187% since 2013 and has finally reached profitability.
Unlike Hub's licensee business, the platform segment enjoys high and improving gross profit margins. These were 55.6% in 2016, up from 39.2% a year earlier as revenues increased at a faster rate than costs demonstrating the benefits of scale in this type of business.
Hub24 is the fastest growing platform within the managed portfolio segment as at March 2016 according to Plan for Life. It is therefore growing faster than listed peer Praemium Ltd (ASX: PPS) which competes in the same space.
According to management, managed portfolios are the fastest growing sector of the investment and superannuation platform market. A 2015 report by Rice Warner projects that wrap platforms, which include managed portfolios, are expected to increase 300% over the next 15 years.
Platforms like Hub24 allow individual investors to own the underlying assets and therefore provide transparency and tax benefits. They also offer an efficient way for advisors to provide direct share ownership to their clients.
With a market capitalisation of $250 million, Hub looks expensive given it has only just reached profitability. However, the company owns the fastest growing software product in the fastest growing segment of an expanding industry and currently has a market share of less than 1%. Almost 100% of its revenues are recurring at high and rising gross margins and so much of that growth is likely to drop to the bottom line in future years.
